It has been about a month since the last earnings report for Under Armour (UAA - Free Report) . Shares have added about 4.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Under Armour due for a pullback? 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 Q3 Earnings Beat, Raised View
Under Armour, Inc. reported third-quarter 2018 results, wherein both top and bottom lines improved year over year and came ahead of the Zacks Consensus Estimate. In fact, this marked the company’s fourth consecutive quarter of top-line beat. The solid quarter also encouraged management to raise its earnings per share view for 2018.
The company’s adjusted earnings came in at 25 cents a share, which crushed the Zacks Consensus Estimate of 12 cents and increased 13.6% from the year-ago period adjusted earnings of 22 cents. The year-over-year upside can be attributed to enhanced revenues, along with improved gross margin and lower interest expenses.
Let’s Delve Deep
Net revenues rose 2.4% (up 3% on a currency neutral basis) to nearly $1,443 million, which surpassed the Zacks Consensus Estimate of $1,408 million. Revenues largely gained from solid international sales.
Apparel sales rose 4.2% to $978.4 million, while net revenues in the Footwear and Accessories categories declined 0.1% to $284.9 million and 5.9% to $116.2 million, respectively. Meanwhile, Licensing revenues fell 8.6% year over year to $31.4 million, whereas the company’s Connected Fitness segment reported an increase of 20.2% to $32.2 million.
Net revenues from North America slipped 1.6% (down 1.4% on a currency neutral basis) to $1,059.5 million. Remarkably, international business continued to witness sturdy growth, rising 15.1% (up 16.7% on a currency neutral basis) to $351.2 million. International business now represents 24.3% of total revenues. Within international business, net revenues from EMEA, Asia-pacific and Latin America grew 15.4%, 14.6% and 15.8% to $147.6 million, $149.4 million and $54.3 million, respectively.
While sales from Direct-to-consumer business remained flat at $465 million, wholesale business jumped 4% to $914 million on the back of international business strength.
The company’s adjusted gross margin expanded 20 basis points (bps) to 46.5%, courtesy of improved product costs and reduced promotions, partly negated by unfavorable channel mix.
SG&A expenses rose 5% to $528 million, while as a percentage of net revenues the same expanded 100 bps to 36.6% on account of sustained investments in direct-to-consumer, footwear and international businesses.
Interest expenses dropped 4.4% to $9.2 million, and restructuring and impairment charges fell sharply to $18.6 million.
Other Financial Details
Under Armour ended the quarter with cash and cash equivalents of $168.7 million, long-term debt (net of current maturities) of $703.5 million and total shareholders' equity of $2,005.9 million.
During the first nine months of 2018, the company generated $118.8 million as net cash from operating activities.
Update on Restructuring Plan
Under Armour is on track with its 2018 restructuring plan and anticipates incurring pre-tax restructuring and related charges of nearly $200-$220 million in this regard. Up until the third quarter, the company incurred pre-tax charges of $154 million, with $24 million reported in the third quarter.
Management is pleased with its quarterly outcome, which reflects good progress of Under Armour’s multi-year transformation plan. The company is focused on strengthening its brand through enhanced customer-connections and effective innovations. All said, the company is confident about its long-term prospects, and ability to enrich consumers and shareholders’ experiences.
Management envisions 2018 net revenues to increase 3-4%. Revenues from North America are likely to decline in low-single digits now compared with the previous projection of a low to mid-single-digit decrease. The company now projects international revenues to increase roughly 25% compared with more than 25% growth anticipated earlier.
From the view point of channels, wholesale revenue is expected to improve in low single digit, while direct-to-consumer business is likely to be up at a mid to high single digit rate.
From the product point of view, apparel is projected to improve at a mid-single-digit rate, while footwear sales are likely to rise low-single digits. Accessories is now anticipated to witness a mid-single-digit fall, while it was expected to fall at a low-single-digit rate earlier.
Under Armour expects adjusted gross margin to improve marginally on account of lower product costs and reduced promotional activity, partially offset by inventory management impacts. SG&A is anticipated to increase at a mid-single-digit rate.
Adjusted operating income is now expected around $150-$165 million, up from the recently upgraded range of $140-$160 million. The company projects interest and other expense net to be about $50 million now, reflecting an increase from the previous guidance of $45 million, due to adverse currency translations.
Now, management envisions 2018 adjusted earnings per share of 19-22 cents, up from the recently raised guidance of 16-19 cents.
The company expects to incur capital expenditures of nearly $175 million in 2018, down from $200 million expected earlier.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -64.09% due to these changes.
Currently, Under Armour has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Under Armour has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.