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Under Armour (UA) Q3 Earnings, Revenues Top; View Intact

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Under Armour, Inc. (UA - Free Report) reported robust results in third quarter 2016. The company reported earnings per share of 29 cents, beating the Zacks Consensus Estimate of 25 cents. Earnings also increased 26.1% year over year.

Aided by continued strong performance of the Apparel, Footwear and Accessories categories, total revenue came in at $1,471.6 million, surging 22.2% year over year and also surpassing the Zacks Consensus Estimate of $1,453 million. Notably, the company has registered more than 20% revenue growth for the 26th consecutive quarter.

The company, which competes with giants such as Adidas and Nike, Inc. NKE in the sports apparel business, is keen on expanding its footprint and enhancing brand recognition to get an edge and the deal with rising athletes provides it a suitable platform to showcase its brands.

UNDER ARMOUR-A Price, Consensus and EPS Surprise

UNDER ARMOUR-A Price, Consensus and EPS Surprise | UNDER ARMOUR-A Quote

Under Armour’s largest product category, Apparel, once again reported strong sales. Apparel sales jumped 18% to $1,021.2 million buoyed by growth in men's training, women's training, golf as well as team sports, while Footwear net revenue soared 42.1% to $278.9 million during the quarter on the back of growth in running and basketball. Net revenue in the Accessories category advanced 17.6% to $121.8 million backed by the bags and headwear category. Licensing revenue rose 21.3% year over year to $29.5 million.

The company’s Connected Fitness segment reported massive year-over-year growth of 39.8% to $20.2 million. This was driven by the acquisitions of Endomondo and MyFitnessPal. These buyouts, along with its existing MapMyFitness and UA RECORD suite of applications, aided the company to form one of the largest digital health and fitness communities.

Under Armour recorded a 19% surge in wholesale net revenue to $1.01 billion and a 29% increase in Direct-to-Consumer net revenue to $408 million. North America net revenue went up 16%, whereas international net revenue, which represented 15% of total net revenue, increased 74% or 80% on a currency neutral basis.

Gross profit escalated 19% to $698.6 million. However, gross margin contracted 130 basis points to 47.5% due to adverse impacts from the timing of liquidation, surge in promotions and foreign currency headwinds, somewhat neutralizing improved product cost margins.

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $180 million, slumping 38.6% from the prior-year period, while total debt (including current maturities) was $1,073.8 million compared with $902 million in the prior-year period. Shareholders' equity at the end of the quarter was $1,923.2 million.

Guidance

Under Armour maintained its 2016 revenues and operating income guidance. Management expects net revenue for 2016 to be nearly $4.925 billion. This represents an increase of 24% over the 2015 level. Operating income is expected to be in the range of $440 million to $445 million, signifying growth of 8% to 9% over 2015. The company projects interest expense of about $30 million for the year, down from the previous estimate of $32 million.

Zacks Rank & Stocks to Consider

Under Armour currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include American Eagle Outfitters, Inc. AEO, and DSW Inc. DSW. Both the stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

American Eagle Outfitters has a long-term earnings growth rate of 9.9%. It has surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average earnings beat of 3.1%.

DSW has surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average earnings beat of 24% and has a long-term earnings growth rate of 8.3%.

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