A month has gone by since the last earnings report for Under Armour, Inc. (UAA - Free Report) . Shares have lost about 3.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it 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 Lags Q4 Earnings & Sales
Under Armour reported lower-than-expected financial numbers for fourth-quarter 2016. The company reported earnings per share of $0.23, missing the Zacks Consensus Estimate of $0.25 and also declined 4.2% year over year.
Aided by continued strong performance of the Apparel, Footwear and Accessories categories, total revenue came in at $1,308.1 million, rising 11.7% year over year. However, the company’s top-line missed the Zacks Consensus Estimate of $1,412 million. Notably, this is for the first time in the last 27 quarters that the company’s has reported revenue growth of less than 20%.
The company, which competes with giants such as Adidas and Nike, Inc. 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 the suitable platform to showcase its brands.
Under Armour’s largest product category, Apparel, once again reported strong sales. Apparel sales jumped 7.4% to $928.5 million driven by growth in golf and basketball, while Footwear net revenue surged 36.4% to $227.7 million during the quarter, on the back of growth in running and basketball. Net revenue in the Accessories category advanced 7.4% to $104.3 million, backed by the bags and headwear category, while Licensing revenue rose 20.4% year over year to $29.9 million.
The company’s Connected Fitness segment reported year-over-year growth of 7.6% to $18.3 million. This was driven by the acquisitions of Endomondo and MyFitnessPal. These buyouts, along with its existing MapMyFitness and UA RECORD suite of applications, helped the company to form one of the largest digital health and fitness communities.
Under Armour recorded 5% increase in wholesale net revenue to $742 million and 23% increase in Direct-to-Consumer net revenue to $518 million. North America net revenue went up 6%, while international net revenue, which represented 16% of total net revenue, increased 55% or 60% on a currency neutral basis.
Gross profit was up 4.4% to $586.6 million. However, gross margin contracted 320 basis points to 44.8% owing to aggressive inventory management and foreign currency headwinds. Further, it can be attributed to better performance of footwear as well as international businesses in the overall mix, which has lesser margins in comparison to apparel and North American businesses.
Other Financial Details
Under Armour ended the quarter with cash and cash equivalents of $250.5 million, up 93% from the prior-year period, while total debt (including current maturities) was $817 million compared with $669 million in the prior-year period. Shareholders' equity at the end of the quarter was $2,032.6 million.
Management expects net revenue for 2017 to be nearly $5.4 billion. This represents an increase of 11–12% over the 2016 level. The company expects gross margin be down slightly year over year owing to foreign currency headwinds and better performance of footwear as well as international businesses in the overall mix, which has lesser margins in comparison to apparel and North American businesses. Due to increase in strategic investments Under Armour expects operating income to decline to nearly $320 million.
The company projects interest expense of about $40 million and effective tax rate of 32% to 34%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been two downward revisions for the current quarter.
At this time, Under Armour's stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our styles scores, the stock is more suitable for growth investors than value investors.
The stock has a Zacks Rank #3 (Hold). We are looking for a below average return from the stock in the next few months.