A month has gone by since the last earnings report for Under Armour (UAA Quick QuoteUAA - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Under Armour due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Under Armour Q2 Earnings Beat Estimates, FY21 View Up

In spite of a challenging backdrop, Under Armour, Inc. continued with its stellar performance in second-quarter 2021. Results reflected strength in both North America and international regions. Markedly, both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. This Baltimore-based company's upbeat performance highlighted its improved operating model and investments across product and marketing. The stronger-than-anticipated results prompted management to raise full year view.

Under Armour reported adjusted earnings of 24 cents a share that fared far better than the Zacks Consensus Estimate of 6 cents. The bottom line also showcased a sharp improvement from a loss of 31 cents reported in the year-ago period.

Meanwhile, net revenues of $1,351.5 million comfortably surpassed the Zacks Consensus Estimate of $1,218 million, thus marking the fifth straight beat. The top line surged 91% on a year-over-year basis owing to higher demand across wholesale and factory house businesses. Results were up against last year's significantly restricted retail environment due to the onset of the pandemic.

While wholesale revenues rose 157% year over year to $768 million, direct-to-consumer revenues increased 52% to $561 million buoyed by robust growth in owned and operated stores. However, this was offset by an 18% drop in e-commerce sales owing to tough year-over-year comparisons.

Let’s Take an Insight

By product category, Apparel revenues jumped 105.3% year over year to $874.2 million, reflecting strength in train, golf, and run categories. Footwear revenues increased 85.1% to $342.6 million driven by run and team sports categories. Revenues from Accessories category surged 98.7% to $111.5 million driven by hats, bags, and sports masks. Meanwhile, Licensing revenues soared 275.9% to $23.3 million.

Net revenues from North America increased 101.4% to $905.5 million. Revenues from international business grew 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 Latin America region surged 317.3% to $46.5 million.

The company’s gross margin expanded 20 basis points to 49.5% owing to benefits from pricing and changes in foreign currency. This was offset by channel mix and the sale of the MyFitnessPal platform, which carried a higher gross margin rate.

Gross margin was favorably impacted by approximately 570 basis points of pricing improvements driven by lower promotional activity within direct-to-consumer channel, along with lower promotions and markdowns within wholesale business; and about 100 basis points resulting from a benefit of foreign exchange impacts. These were partly offset by roughly 460 basis points resulting from channel mix, primarily driven by a lower mix of e-commerce and a larger mix of wholesale, approximately 170 basis points related to the absence of MyFitnessPal, which was sold in December 2020; and about 10 basis points relating to supply chain, as continued benefits in product costs were more than offset by higher inbound freight and logistics costs due to developing COVID-19-related supply chain constraints. Management anticipates gross margin improvements will continue to be partly offset by higher freight and logistics expense through the remainder of 2021.

SG&A expenses increased 13.6% to $545 million due to higher marketing costs and expenses tied to store operations. Marketing costs increased $32.8 million to $138.6 million primarily due to reduced marketing activity that occurred in the prior year because of the COVID-19 pandemic. Other costs increased $32.3 million to $406.4 million, driven by higher compensation and retail facility expenses related to more of retail stores being open and general increase in business activities in 2021, compared with 2020, which was more severely hit by the pandemic. Management envisions a high single-digit rate increase in SG&A expenses versus 2020.

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $1,349.8 million, long-term debt (net of current maturities) of $804.6 million and total stockholders' equity of $1,846.7 million.

2021 View

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 the international business.

The company now envisions adjusted earnings in the band of 50-52 cents a share, up from previous expectation of 28-30 cents a share.

Under Armour anticipates full year gross margin to be up about 50 to 70 basis points when compared with the prior year adjusted gross margin of 48.6%. This reflects benefits from pricing and changes in foreign currency, offset by the impact of the divestment of the high gross margin business, MyFitnessPal as well as likely increase in freight costs. The company guided adjusted operating income between $340 million and $350 million (adjusted operating margin between 6.3% and 6.4%) compared to the previous expectation of $230-$240 million.

The company estimates a low single digit rate increase in third-quarter revenue with fourth-quarter revenue expected to be relatively flat. It expects third-quarter gross margin to be up 130-150 basis points due to pricing benefits and channel mix, partially offset by the absence of MyFitnessPal, higher expected freight costs, and changes in product mix driven by lower sales of sports masks. For the fourth quarter, it anticipates gross margin to be down due to negative impacts from the absence of MyFitnessPal, channel mix driven by lower licensing revenue, and product mix driven by a higher percentage of footwear and lower sales of sports masks.

For the third quarter, management envisions adjusted operating income in the band of $95-$105 million (adjusted operating margin between 6.6% and 7.1%) down from $133 million reported in the year-ago period. It guided third-quarter adjusted earnings per share in the bracket of 13-15 cents, down from 26 cents delivered in the prior-year quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 81.62% due to these changes.

VGM Scores

Currently, Under Armour has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Under Armour has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.