It has been about a month since the last earnings report for Under Armour (
UAA Quick Quote UAA - Free Report) . Shares have added about 21% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Under Armour due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Under Armour Beats on Q3 Earnings, to Sell MyFitness Pal
In spite of a challenging backdrop, Under Armour, Inc. reported better-than-expected third-quarter 2020 results. While the top line remained almost flat year over year, the bottom line showcased an improvement from the year-ago quarter. This developer, marketer and distributor of apparel, footwear, and accessories highlighted that stellar demand and better execution, especially in North America, contributed to this upbeat performance.
Under Armour, which has entered into a definitive agreement to sell the MyFitnessPal platform to Francisco Partners for $345 million, reported adjusted earnings of 26 cents a share that comfortably surpassed the Zacks Consensus Estimate of 4 cents. The bottom line also increased from 23 cents reported in the year-ago period. Net revenues of $1,433 million surpassed the Zacks Consensus Estimate of $1,174.3 million, thus marking the second straight beat. While wholesale revenues declined 7% year over year to $830 million, direct-to-consumer revenues surged 17% to $540 million due to strength in e-commerce. Management notified that the vast majority of locations where Under Armour is sold are now operational. Although traffic trends remain soft in the company's owned and operated retail outlets, the overall rate of conversion is strong. Impressively, the company registered sturdy e-commerce growth globally during the quarter under review with sales up more than 50%. However, management cautioned that the ongoing pandemic is likely to significantly impact the company’s results for the remainder of 2020 and into 2021. Let’s Take an Insight
By product category, Apparel revenues declined 5.9% year over year to $927 million, while Footwear revenues increased 19.2% to $298.7 million. Revenues from Accessories category rose 22.8% to $145.1 million. Meanwhile, Licensing revenues dropped 15.1% to $25.1 million. Again, the company’s Connected Fitness segment witnessed a decline of 6.2% to $36.9 million.
Net revenues from North America fell 5.3% to $962.6 million. Revenues from international business grew 17.7% (or up 17.1% on a currency neutral basis) to $433 million. Within international business, net revenues from EMEA and Asia-Pacific regions increased 30.5% and 15.5% to $210.1 million and $178.9 million, respectively. We note that Latin America revenues tumbled 15% to $44.3 million. The company’s gross margin shrunk 40 basis points to 47.9% due to adverse impacts from COVID-19 related discounting and product mix, partly mitigated by supply chain efficiencies and channel mix. Other Financial Details
Under Armour ended the quarter with cash and cash equivalents of $865.6 million, long-term debt (net of current maturities) of $997.3 million and total stockholders' equity of $1,470.3 million. The company expects capital expenditures to be roughly $80 million for the full year compared with $144 million in 2019. The company has no borrowings outstanding under its $1.1 billion revolver.
Under Armour predicts adjusted loss in the band of 47-49 cents a share for the full year. Management anticipates full-year 2020 revenues to decline at a high-teen percentage rate from 2019 results. This reflects low twenties percentage rate decline in North America and a high-single-digit percentage rate decline within the international business.
For the fourth quarter, Under Armour now envisions low-teen percentage rate fall in revenues versus the prior projection of 20-25% decline. The company expects meaningful decline in licensing revenues due to lower contractual royalty minimums and contract settlements realized in the prior year. The company expects fourth-quarter licensing revenues to be down about 50%. The company expects lower planned excess inventory sales to the off-price channel. The company anticipates gross margin expansion of 20-40 basis points for the full year owing to channel mix benefits and supply chain efficiencies. This is expected to be offset by discounting related to COVID-19. For the final quarter, management forecast significant gross margin pressure due to highly promotional environment compared with the last year. Further, the company guided full-year adjusted operating loss between $140 million and $150 million. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 13.49% due to these changes.
Currently, Under Armour has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Under Armour has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.