Back to top

Image: Bigstock

Under Armour (UAA) Gains From Operational Strength, DTC Unit

Read MoreHide Full Article

With the resumption of an active social lifestyle and a growing preference for athletic wear, sportswear makers have been witnessing strong demand. Evidently, Under Armour, Inc. (UAA - Free Report) looks well-poised to benefit from such trends. The company’s robust operating model, strength in direct-to-consumer (DTC) business and investments across product and marketing are helping it in booking outsized sales.

The company’s strategy to focus on improving sales through product innovation, investments in own stores, acceleration of e-commerce capabilities, and selling more inventory at full price bode well. These have favored the company’s third-quarter 2021 results, wherein both the top and the bottom lines not only beat the Zacks Consensus Estimate but also improved year over year. Results reflected strength in both North America and international regions.

Let’s Delve Deeper

Under Armour is focused on strengthening its brand through enhanced customer connections, effective innovations and a strict go-to-market process. The company has been making investments in its own stores and digitization to reach customers directly. It has been ensuring an efficient and effective supply chain to proactively meet demand.

In the past few years, Under Armour has been trying to boost its DTC business through store expansion initiatives and enhancement of its e-commerce platform. During the third quarter, DTC revenues rose 12% to $604 million buoyed by robust growth in owned and operated stores. Although e-commerce sales fell 4% in the third quarter, as pandemic-led online activity slowed down, the metric rose more than 50% versus third-quarter 2019. It represented 33% of the total direct-to-consumer business. DTC business was up 31% compared with third-quarter 2019.

Under Armour continues to seek opportunities for increasing its global footprint and market share. Revenues from international business grew 17.6% (or up 12.8% on a currency neutral basis) to $510 million in the third quarter. Within international business, net revenues from Asia-Pacific and EMEA increased 18.5% and 14.8% to $212 million and $241.2 million, respectively. We note that revenues from Latin America region surged 27.2% to $56.4 million.

Speaking of innovations, Under Armour successfully introduced the Project Rock collection, Meridian Pant, Infinity Bra, UA SPORTSMASK, the HOVR Sonic, Machina, Phantom 2 and the Breakthru. The company is optimistic about its new platform, UA Flow. It has been making use of data and analytics capabilities to understand consumer behavior as well as drive brand interest across categories like training and running.


Zacks Investment ResearchImage Source: Zacks Investment Research

Encouraging 2021 View

Under Armour’s strong brand image and offerings, solid market presence and efficient e-commerce business should continue aiding its performance. The company has provided an optimistic view for 2021. Management anticipates full-year 2021 revenues to increase approximately 25%. This reflects a high-twenties percentage growth rate in North America and a mid-thirties percentage growth rate in the international business. The company now envisions adjusted earnings to reach 74 cents a share, suggesting a sharp improvement from a loss of 26 cents in the prior year.

Wrapping Up

Sturdy growth in direct-to-consumer channel, efforts to boost international footing and focus on inventory to lower promotional activity are likely to play a vital role in revenue generation for this Zacks Rank #2 (Buy) company. Shares of Under Armour have outperformed the Zacks Textile - Apparel industry in the past one year. In the said period, shares of this Baltimore, MD-based company have surged about 27.9% compared with the industry’s rally of 15.5%.

3 More Stocks Looking Red Hot

Here are three more favorably ranked stocks — Boot Barn Holdings (BOOT - Free Report) , The Children's Place (PLCE - Free Report) , and Tapestry (TPR - Free Report) .

Boot Barn Holdings, the lifestyle retailer of western and work-related footwear, apparel and accessories, sports a Zacks Rank #1 (Strong Buy). BOOT delivered a trailing four-quarter earnings surprise of 35.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and earnings per share (EPS) suggests growth of 54.6% and 188%, respectively, from the year-ago period.

The Children's Place, a pure-play children’s specialty apparel retailer, carries a Zacks Rank #1. The company’s bottom line has outperformed the Zacks Consensus Estimate in the last reported quarter by a margin of 19.6%.

The Zacks Consensus Estimate for The Children's Place’s current financial year sales and EPS suggests growth of 27.4% and 464.9%, respectively, from the year-ago period. PLCE has an expected EPS growth rate of 8% for three-five years.

Tapestry, which provides luxury accessories and branded lifestyle products, carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 29%, on average.

The Zacks Consensus Estimate for Tapestry’s current financial year sales and EPS suggests growth of 14.8% and 17.9%, respectively, from the year-ago period. TPR has an expected EPS growth rate of 12.3% for three-five years.