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Under Armour (UAA) Stock Falls Despite Q3 Earnings Beat

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Shares of Under Armour, Inc. UAA are down roughly 13% during pre-market trading session, in spite of the company reporting better-than-expected third-quarter 2019 results. We note that a federal accounting probe and trimming of 2019 revenue growth forecast hurt investor sentiment.

This athletic apparel maker reported quarterly earnings of 23 cents a share that surpassed the Zacks Consensus Estimate of 18 cents but declined 8% from the year-ago figure of 25 cents. Lower revenues and higher SG&A expenses might have impacted the bottom-line performance of this Zacks Rank #3 (Hold) stock.

Nonetheless, this was the fifth straight quarter of bottom-line beat. Meanwhile, shares of this Baltimore-based company have increased 19.7% so far in the year compared with the industry’s growth of 11.4%.

Net revenues fell 0.9% (or flat on a currency neutral basis) to nearly $1,429.5 million but came ahead of the Zacks Consensus Estimate of $1,408 million, after missing the same in the preceding quarter.

Under Armour’s third-quarter results came in better than management’s expectations of 2-3% revenues decline and earnings of 17-18 cents a share.

Under Armour, Inc. Price, Consensus and EPS Surprise


Under Armour, Inc. Price, Consensus and EPS Surprise

Under Armour, Inc. price-consensus-eps-surprise-chart | Under Armour, Inc. Quote

We note that while direct-to-consumer revenue (represents 32% of total revenues) fell 1% to $463 million, wholesale revenue declined 2% to $892 million.

Apparel revenues inched up 0.7% year over year to $985.6 million, while Footwear revenues decreased 12% to $250.6 million. Revenues from accessories category increased 1.7% to $118.2 million. Meanwhile, Licensing revenues declined 5.6% to $29.6 million, whereas the company’s Connected Fitness segment reported an increase of 22.3% to $39.3 million.

Net revenues from North America fell 4.1% to $1,015.9 million. Remarkably, international business continued to witness decent growth, rising 4.8% (or up 8% on a currency-neutral basis). Within international business, net revenues from EMEA and Asia-Pacific regions grew 9% and 3.7% to $161 million and $154.9 million, respectively. However, Latin America revenues decreased 3.9% to $52.2 million.

The company’s gross margin expanded 220 bps to 48.3%, courtesy of supply chain endeavors, channel mix and restructuring charges in the year-ago quarter. SG&A expenses grew 4.4% to $551 million, while as a percentage of net revenues, the same increased 190 bps to 38.5%. Net interest expense fell sharply about 38.2% to $5.7 million.

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $416.6 million, long-term debt (net of current maturities) of $592 million and total shareholders' equity of $2,153.7 million. While cash and cash equivalents more than doubled year over year, total debt was down about 26%. Additionally, management expects to incur capital expenditures of approximately $180 million in 2019.


Management now envisions 2019 net revenues to be up approximately 2% versus the prior projection of 3-4% increase. Under Armour cut its revenue growth forecast on account of lower than planned excess inventory to service the off-price channel; lingering traffic and conversion challenges in direct-to-consumer; and adverse currency fluctuations.

The company now expects full-year earnings to reach the high end of the previously guided range of approximately of 33-34 cents a share. The Zacks Consensus Estimate for the full year is currently pegged at 34 cents.

Under Armour now anticipates gross margin to improve 90-110 bps (versus the prior estimate of 70-90 bps) from the 2018 adjusted figure. The expansion is likely to be backed by favorable channel mix and supply-chain efforts. Operating income is now projected to reach the high end of the previously expected range of about $230-$235 million. The company estimates net interest and other expense of $30 million.

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