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Under Armour (UA) Q3 Earnings Top, Stock Tanks on View Cut

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Under Armour, Inc. (UAA - Free Report) reported mixed quarterly numbers in third-quarter 2017, wherein earnings came ahead of the Zacks Consensus Estimate but revenues lagged the same. The company reported adjusted earnings per share of 22 cents, beating the consensus mark of 19 cents.

Despite the earnings beat, the company’s shares are down nearly 18% during the pre-market trading session due to lower-than-expected top-line. Moreover, the company’s shares have declined 22.5% in the past six months, against the industry’s gain of 11.6%.

Due to sluggish demand in North America and operational difficulties owing to execution of enterprise resource planning system the company’s top-line declined 4.5% to $ 1,405.6 million and also missed the consensus estimate of $1,493 million.

The company, which competes with giants such as Adidas AG (ADDYY - Free Report) and NIKE, Inc. (NKE - Free Report) in the sports apparel business, is keen on expanding footprint and enhancing brand recognition to get an edge. Further, the deal with rising athletes provides it the suitable platform to showcase its brands.

Quarterly Results in Detail

Apparel sales declined 8% to $939.4 million, while Footwear net revenues increased 2.2% to $285.1 million during the quarter. Net revenues in the Accessories category inched up 1.4% to $123.5 million, while Licensing revenues rose 16.4% year over year to $34.3 million. Moreover, the company’s Connected Fitness segment reported year-over-year increase of 15.9% to $23.4 million.

North America net revenues dropped 12.1% to $1,077.1 million, while net revenue from EMEA, Asia-pacific and Latin America jumped 21.7%, 51.9% and 32.8% to $127.9 million, $130.3 million and $46.9 million, respectively.
Moreover, adjusted gross margin contracted 130 basis points to 46.2% owing to aggressive inventory management and regional mix.

Under Armour, Inc. Price, Consensus and EPS Surprise

Under Armour, Inc. Price, Consensus and EPS Surprise | Under Armour, Inc. Quote

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $258 million, up 43.4% from the prior-year period, while total long-term debt was $771.4 million compared with $796.8 million in the prior-year period. Shareholders' equity at the end of the quarter was $2,100.7 million.

2017 Guidance

Management trimmed 2017 revenues guidance. The company now expects net revenues for 2017 to rise by low-single digit, down from the earlier estimate of increase in the range of 9-11% over the 2016 level primarily due to weak demand in North America and operational difficulties owing to execution of enterprise resource planning system.

The company anticipates adjusted gross margin to decline by minimum of 190 basis points, in comparison with 46.4% reported in 2016. This can be attributed to restructuring plan, its efforts toward managing inventory, higher promotional cost and regional mix.

Adjusted operating income is expected to be nearly $140-$150 million, sharp down from the prior estimate of $280-$300 million. The company projects interest expense of about $35 million and effective tax rate of 23% (excluding the impact of restructuring plan). The company anticipates adjusted earnings per share in the range of 18-20 cents, compared with earlier estimate of 37-40 cents. The Zacks Consensus estimate for 2017 is currently pegged at 37 cents, which could witness downward revisions in the coming days.

Zacks Rank & Stock to Consider

Under Armour currently carries a Zacks Rank #4 (Sell). A better-ranked stock worth considering includes G-III Apparel Group, Ltd. (GIII - Free Report) , which sports a Zacks Rank #1 (Strong Buy). G-III Apparel Group has an impressive long-term earnings growth rate of 15%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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