Under Armour, Inc.’s (UAA - Free Report) consistent focus on brand development as well as expansion of DTC and technology-based fitness businesses bodes well. Further, the company is progressing well with its multi-year transformation plan and has undertaken other long-term growth strategies. Such well-chalked efforts led to better-than-expected first-quarter results. Encouraged by these factors, management has raised 2019 view.
The company now expects 2019 earnings per share of 33-34 cents compared with the prior projection of 31-33 cents. This shows year-over-year increase from 27 cents reported in 2018. Management envisions net revenues to increase 3-4%. Under Armour anticipates gross margin to improve 70-90 bps. The expansion is expected to be backed by favorable channel mix, stemming from reduced planned sales to off-price networks and increased proportion of direct-to-consumer sales. Also, reduced product expenses, owing to supply-chain efforts, are expected to drive gross margin.
Backed by these tailwinds, shares of this Zacks Rank #2 (Buy) company have rallied 18.5% in the past three months compared with the industry’s rise of 0.9%.
Let’s take a closer look at the aspects driving the company’s performance.
Factors Driving the Stock
Under Armour is leaving no stone unturned to attract customers. It is entering the business of fitness gadgets and other tracking platforms. In doing so, the company is actively pursuing acquisitions to expand its reach in the fitness space. Some of its notable buyouts include MapMyFitness, Endomondo and MyFitnessPal. By acquiring these fitness technology companies, Under Armour has enriched its digital capabilities, which enable it to launch digital products and fitness tracking platforms, while promoting its own products.
Further, the company focuses on its transformation plan that aims at strengthening its brand through enhanced customer connections, effective innovations and strict go-to-market process. This apart, management has undertaken long-term plans to ensure business growth in the next five years. The company plans to introduce improved athletic products along with increased investment in direct-to-consumer, international, women's and footwear businesses. We note that Under Armour has been making efforts to boost its direct-to-consumer business through store expansion and enhancement of its e-commerce platform. In the first quarter of 2019, direct-to-consumer business’ contribution was 27% of global revenues. Management expects this business to increase at a mid-single-digit rate in 2019.
Based on such strategic plans, the company expects the top line to increase in low-double-digit rate in 2023. Further, earnings per share are expected to advance 40% on a five-year compounded annual growth rate basis.
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