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Why Is Under Armour (UAA) Up 26.5% Since Last Earnings Report?
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It has been about a month since the last earnings report for Under Armour (UAA - Free Report) . Shares have added about 26.5% 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 catalysts.
Under Armour Q1 Loss Wider Than Expected, Sales Fall Y/Y
The deadly coronavirus that led to the closure of vast majority of stores, impacted Under Armour, Inc.’s first-quarter 2020 results. This developer, marketer and distributor of apparel, footwear, and accessories posted wider-than-expected loss for the quarter under review. Also, the company’s top line fell sharply from the year-ago period and came below the Zacks Consensus Estimate for the second quarter in row.
The company reported adjusted loss of 34 cents a share wider than the Zacks Consensus Estimate of loss of 19 cents. This also compares unfavorably with earnings of 5 cents reported in the year-ago period. Lower net revenues, higher SG&A costs and increased interest expense hurt the company’s bottom-line results.
Net revenues plunged 22.8% (or 22.4% on a currency neutral basis) to nearly $930.2 million and also fell short of the Zacks Consensus Estimate of $954.6 million. COVID-19 pandemic hurt top line by approximately 15 percentage points. Sales declined across all categories, except Connected Fitness. Wholesale revenue decreased 28% to $592 million, while direct-to-consumer revenue was down 14% to $284 million, representing 31% of total revenue owing to North American business.
Management said "During the first quarter, our results in January and February were tracking well to our plan. Since mid-March, as the pandemic accelerated dramatically in North America and EMEA and retail store closures ensued, we've experienced a significant decline in revenue across all markets."
While by the end of March, majority of locations had re-opened in China, the company’s owned doors and those of retail partners remain closed across North America / EMEA / Latin America. Notably, the company pointed that is witnessing more favorable trends across its e-commerce business in North America and EMEA since the starting of the second quarter.
Under Armour has been taking every step to address challenges tied to the pandemic. The company intends to lower its full year operating expenses by roughly $325 million through various strategic initiatives, which comprises cutting incentive compensation, temporarily laying- off associates working in owned retail stores and U.S.-based distribution centers, curbing of non-essential operating expenses, and postponing planned capital expenditures.
The company is also actively managing inventory receipts and negotiating payment terms with both customers and vendors. Moreover, the company estimates accomplishing roughly $40-$60 million of pre-tax benefits in 2020 as a part of its restructuring plan approved by the board on Mar 31. It has been designed to rebalance cost base in order to reinforce cash flow generation.
Let’s Delve Deep
Apparel revenues declined 22.8% year over year to $598.3 million, while Footwear revenues decreased 28.3% to $209.7 million. Revenues from Accessories category fell 17.4% to $67.7 million. Meanwhile, Licensing revenues dropped 8% to $19.9 million, however, the company’s Connected Fitness segment reported an increase of 8.9% to $32.8 million.
Net revenues from North America plunged 27.8% to $609 million with nearly half of that decline was due to door closures on account of the pandemic in the last few weeks of March coupled with nearly a quarter of the drop being attributable to lower year-over-year sales to the off-price channel.
Revenues from international business fell 12.5% to $287 million (or down 10.8% on a currency neutral basis) and represented 31% of net revenues. Within international business, net revenues from EMEA and Latin America regions grew 2.8% and 7.9% to $137.9 million and $53.1 million, respectively. We note that Asia-Pacific revenues tumbled 33.7% to $95.7 million.
The company’s gross margin expanded 110 bps to 46.3%, driven mainly by channel mix which gained from lower off-price sales. This was partly offset by the adverse impacts from coronavirus related discounting and changes in foreign currency.
SG&A expenses grew 8.5% to $552.7 million, while as a percentage of net revenues, the same increased to 59.4% from 42.3% in the year-ago period. Net interest expense jumped to $6 million from $4.2 million in the prior-year quarter.
Other Financial Details
Under Armour ended the quarter with cash and cash equivalents of $959.3 million (of which roughly $600 million was related to borrowings under revolving credit facility), long-term debt (net of current maturities) of $593.3 million and total shareholders' equity of $1,550.2 million. While cash and cash equivalents increased 21.7% on a sequential basis, long-term debt was up about 0.1%. The company currently has approximately $700 million outstanding under the credit facility. Additionally, management expects to incur capital expenditures of approximately $100 million in 2020, down from its prior projection of approximately $160 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -62.81% due to these changes.
VGM Scores
At this time, Under Armour has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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 #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Under Armour (UAA) Up 26.5% Since Last Earnings Report?
It has been about a month since the last earnings report for Under Armour (UAA - Free Report) . Shares have added about 26.5% 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 catalysts.
Under Armour Q1 Loss Wider Than Expected, Sales Fall Y/Y
The deadly coronavirus that led to the closure of vast majority of stores, impacted Under Armour, Inc.’s first-quarter 2020 results. This developer, marketer and distributor of apparel, footwear, and accessories posted wider-than-expected loss for the quarter under review. Also, the company’s top line fell sharply from the year-ago period and came below the Zacks Consensus Estimate for the second quarter in row.
The company reported adjusted loss of 34 cents a share wider than the Zacks Consensus Estimate of loss of 19 cents. This also compares unfavorably with earnings of 5 cents reported in the year-ago period. Lower net revenues, higher SG&A costs and increased interest expense hurt the company’s bottom-line results.
Net revenues plunged 22.8% (or 22.4% on a currency neutral basis) to nearly $930.2 million and also fell short of the Zacks Consensus Estimate of $954.6 million. COVID-19 pandemic hurt top line by approximately 15 percentage points. Sales declined across all categories, except Connected Fitness. Wholesale revenue decreased 28% to $592 million, while direct-to-consumer revenue was down 14% to $284 million, representing 31% of total revenue owing to North American business.
Management said "During the first quarter, our results in January and February were tracking well to our plan. Since mid-March, as the pandemic accelerated dramatically in North America and EMEA and retail store closures ensued, we've experienced a significant decline in revenue across all markets."
While by the end of March, majority of locations had re-opened in China, the company’s owned doors and those of retail partners remain closed across North America / EMEA / Latin America. Notably, the company pointed that is witnessing more favorable trends across its e-commerce business in North America and EMEA since the starting of the second quarter.
Under Armour has been taking every step to address challenges tied to the pandemic. The company intends to lower its full year operating expenses by roughly $325 million through various strategic initiatives, which comprises cutting incentive compensation, temporarily laying- off associates working in owned retail stores and U.S.-based distribution centers, curbing of non-essential operating expenses, and postponing planned capital expenditures.
The company is also actively managing inventory receipts and negotiating payment terms with both customers and vendors. Moreover, the company estimates accomplishing roughly $40-$60 million of pre-tax benefits in 2020 as a part of its restructuring plan approved by the board on Mar 31. It has been designed to rebalance cost base in order to reinforce cash flow generation.
Let’s Delve Deep
Apparel revenues declined 22.8% year over year to $598.3 million, while Footwear revenues decreased 28.3% to $209.7 million. Revenues from Accessories category fell 17.4% to $67.7 million. Meanwhile, Licensing revenues dropped 8% to $19.9 million, however, the company’s Connected Fitness segment reported an increase of 8.9% to $32.8 million.
Net revenues from North America plunged 27.8% to $609 million with nearly half of that decline was due to door closures on account of the pandemic in the last few weeks of March coupled with nearly a quarter of the drop being attributable to lower year-over-year sales to the off-price channel.
Revenues from international business fell 12.5% to $287 million (or down 10.8% on a currency neutral basis) and represented 31% of net revenues. Within international business, net revenues from EMEA and Latin America regions grew 2.8% and 7.9% to $137.9 million and $53.1 million, respectively. We note that Asia-Pacific revenues tumbled 33.7% to $95.7 million.
The company’s gross margin expanded 110 bps to 46.3%, driven mainly by channel mix which gained from lower off-price sales. This was partly offset by the adverse impacts from coronavirus related discounting and changes in foreign currency.
SG&A expenses grew 8.5% to $552.7 million, while as a percentage of net revenues, the same increased to 59.4% from 42.3% in the year-ago period. Net interest expense jumped to $6 million from $4.2 million in the prior-year quarter.
Other Financial Details
Under Armour ended the quarter with cash and cash equivalents of $959.3 million (of which roughly $600 million was related to borrowings under revolving credit facility), long-term debt (net of current maturities) of $593.3 million and total shareholders' equity of $1,550.2 million. While cash and cash equivalents increased 21.7% on a sequential basis, long-term debt was up about 0.1%. The company currently has approximately $700 million outstanding under the credit facility. Additionally, management expects to incur capital expenditures of approximately $100 million in 2020, down from its prior projection of approximately $160 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -62.81% due to these changes.
VGM Scores
At this time, Under Armour has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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 #3 (Hold). We expect an in-line return from the stock in the next few months.