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Under Armour (UAA) Q4 Earnings: North America Woes to Linger

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Under Armour, Inc. (UAA - Free Report) is scheduled to report fourth-quarter 2017 results on Feb 13, before the opening bell.

The question lingering in investors’ minds is whether this marketer and distributor of apparel, footwear and accessories will be able to deliver a positive earnings surprise in the to-be-reported quarter. In the trailing four quarters, the company’s earnings have outpaced the Zacks Consensus Estimate with an average of 33.2%. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The Zacks Consensus Estimate for the quarter is pegged at 1 cent down from 23 cents reported in the year-ago period. Analysts polled by Zacks expect revenues of $1,308 million, almost flat from the year-ago quarter.

Factors at Play

We believe fourth-quarter results are likely to be impacted by weakness in North American business. Decline in sales in North America has been a major concern in the past few quarters. The company has been reporting sluggish sales from the region since fourth-quarter 2016. In third-quarter 2017, sales from North America declined 12.1% and operating income slumped 64%. This dismal showing can be attributed to bankruptcies, store closures, decrease in productivity and demand along with change in fashion preference.

Further, Under Armour has been grappling with higher interest expense as a result of increased debt level. In third-quarter 2017, the company’s interest expenses increased to nearly $9.6 million in comparison with $8.2 million in the prior-year quarter. Moreover, it anticipates interest expenses to rise to roughly $35 million in 2017 from $26.4 million in 2016. Gross margin, a key financial metric determining a company’s basic financial health, has consistently declined in the past few quarters. In third-quarter 2017, gross margin contracted 130 basis points (bps) to 46.2% following a decline of 190 bps and 70 bps in the second and first quarter, respectively. The company expects gross margin to decline in fourth-quarter 2017.

These factors have been well reflected in the company’s stock price performance. Evidently, Under Armour’s shares have plunged over 26.9% in the past six months against the industry’s growth of 10.7%.

However, Under Armour’s sustained focus on brand development, expansion of direct-to-consumer and technology-based fitness businesses look encouraging.

What Does the Zacks Model Unveil?

Our proven model does not conclusively show earnings beat for Under Armour this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Under Armour has an Earnings ESP of -63.46%. The company’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Foot Locker, Inc. (FL - Free Report) has an Earnings ESP of +3.43% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Children's Place, Inc. (PLCE - Free Report) has an Earnings ESP of + 0.88% and a Zacks Rank #2.

L Brands, Inc. (LB - Free Report) has an Earnings ESP of +1.13% and a Zacks Rank #3.

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