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Under Armour's (UAA) Operating Model, DTC Business Bode Well

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Under Armour, Inc.’s (UAA - Free Report) improved operating model and investments across product and marketing have been aiding it to navigate through a challenging environment. We note that sturdy growth in direct-to-consumer channel, efforts to boost international footing and focus on inventory to lower promotional activity are likely to play vital role in revenue generation for this Zacks Rank #2 (Buy) company.

Let’s Inspect

Under Armour is focused on strengthening its brand through enhanced customer connections, effective innovations and strict go-to-market process. The company has been making investments in its own stores and digitization to directly reach customers, and selling more inventory at full price. This Baltimore, MD-based company has been ensuring an efficient and effective supply chain to proactively meet demand.

The company continues to seek opportunities for increasing its global footprint and market share. Though Under Armour generates a major portion of its revenues from the North America region, it intends to expand business operations to other parts of the world to mitigate the risks stemming from concentration in one geographic region. Revenues in the international unit increased 99.6% (or up 84.1% on a currency neutral basis) to $446 million. Within international business, net revenues from Asia-Pacific and EMEA increased 56.1% and 132.5% to $192.4 million and $207.2 million, respectively. We note that revenues from the Latin America region soared 317.3% to $46.5 million.

In the past few years, Under Armour has been trying to boost its direct-to-consumer business through store expansion initiatives and enhancement of its e-commerce platform. During the second quarter, direct-to-consumer revenues surged 52% to $561 million buoyed by robust growth in owned and operated stores. This followed an increase of 54% in the preceding quarter.

 

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Encouraging 2021 View

Under Armour’s strong brand image and offerings, solid market presence and efficient e-commerce business should continue aiding the performance. The company has provided an optimistic view for fiscal 2021. Management now anticipates full-year 2021 revenues to increase at a low twenties percentage rate, up from the prior projection of high-teens percentage rate increase. This reflects a low twenties percentage growth rate in North America and a mid-thirties percentage growth rate in international business. The company now envisions adjusted earnings in the band of 50-52 cents a share compared with previous expectation of 28-30 cents a share.

Price Performance

Under Armour has exhibited a decent run on the bourses so far this year. Thanks to its operational initiatives — strengthening of omni-channel solutions, expanding customer reach and focus on brand innovation — the stock has outperformed the Zacks Textile - Apparel industry. In the said period, shares of Under Armour have surged about 40.4% compared with the industry’s rally of 17.7%.

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