A month has gone by since the last earnings report for Under Armour, Inc. (UAA - Free Report) . Shares have lost about 11.7% 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 Q2 Loss Lower than Expected, Sales View Cut
Under Armour reported narrower-than-expected loss for second-quarter 2017. The company reported loss per share of $0.03 that fared better than the Zacks Consensus estimate of a loss of $0.06.
Aided by continued strong performance of the Apparel and Accessories categories, total revenue came in at $1,088.2 million, advancing 8.7% year over year. Moreover, the company’s top-line also surpassed the Zacks Consensus Estimate of $1,075 million. Notably, this is the third time in the last 29 quarters that it has reported revenue growth of less than 20%.
Management has announced a restructuring plan in order to organize financial resources more efficiently. This will better cater to the evolving needs demands of the changing consumer environment. In sync with this, Under Armour anticipates to incur total estimated pre-tax restructuring and related charges of roughly $110–130 million in the fiscal 2017.
Quarterly Results in Detail
Under Armour’s largest product category, Apparel and Accessories, once again reported strong sales. Apparel sales jumped 11.1% to $680.7 million, while Footwear net revenue decreased 2.4% to $236.9 million during the quarter. Net revenue in the Accessories category climbed 21.7% to $122.6 million, while Licensing revenue rose 19.5% year over year to $25.1 million. Meanwhile, the company’s Connected Fitness segment reported year-over-year decline of 2.2% to $23 million.
North America net revenue inched up 0.3% to $829.8 million, while net revenue from EMEA, Asia-pacific and Latin America jumped 57%, 88.8% and 10.4% to $103.9 million, $93.6 million and $38 million, respectively.
Gross profit was up 4.3% to $498.2 million. However, gross margin contracted 190 basis points to 45.8% owing to aggressive inventory management, foreign currency headwinds, rise in air freight related to the company’s enterprise resource planning (ERP) system implementation, which overshadowed the benefits from channel and product mix.
Other Financial Details
Under Armour ended the quarter with cash and cash equivalents of $165.7 million, up 37% from the prior-year period, while total long term debt was $804.7 million compared with $865.1 million in the prior-year period. Shareholders' equity at the end of the quarter was $2,023.8 million.
Management trimmed 2017 revenues guidance. The company now expects net revenue for 2017 to rise in the range of 9–11%, down from the prior estimate of an increase of 11–12% over the 2016 level primarily due to moderation in North American business.
The company anticipates adjusted gross margin to decline by a minimum of 120 basis points, in comparison with 46.4% reported in 2016 due to foreign currency headwinds, restructuring plan and its efforts toward managing inventory. Adjusted operating income is expected to be nearly $280–$300 million. The company projects interest expense of about $40 million and effective tax rate of 31–32%. The company anticipates adjusted earnings per share in the range of $0.37–$0.40.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to seven lower.
At this time, Under Armour's stock has a nice Growth Score of B, 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 D on the value side, putting it in the bottom 40% 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.
The company's stock is suitable solely for growth based on our styles scores.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.