Under Armour's Q3 Report Underwhelms Investors

Analyzing Under Armour Inc's UA third quarter results, Citi said investor reaction would be mixed, as positive sentiment from the earnings beat and the unchanged guidance for 2016 is likely to be offset by the disappointing gross profit margins and the management's fiscal year 2017 comments on the call.

Analyst Kate McShane noted that the company reported third quarter earnings per share of $0.29, ahead of the $0.25 consensus estimate, as better than expected revenues and lower SG&A helped. Revenues were up 22.2 percent to $1.47 billion, supported by 18 percent growth in apparel, flat with the second quarter, 42 percent growth in footwear, 18 percent growth in accessories, 21 percent growth in licensing and 40 percent growth in Connected Fitness.

However, gross margins were weaker, contracting 130 basis points to 47.5 percent, with the company blaming the weakness on timing of liquidation, higher promotions and forex headwinds. The negative impact, according to the firm, was partly offset by lower SG&A. Operating margin contracted but operating income exceeded estimates.

Citi also noted that the company maintained its 2016 guidance for 24 percent revenue growth and 8-9 percent operating income growth to $440 million to $445 million. This, according to Citi, was consistent with the company's longer-term guidance of 25 percent Compound Annual Grwoth Rate through the fiscal year 2018.

In prepared remarks made on its earnings call, Under Armour released a dose of negative tidings, warning of a less than expected growth rate going forward, from its Investor Day in 2015.

Citi has a Buy rating and a $50 price target on shares. Shares were sinking 13 percent to $32.93 on roughly 3.5 times its average volumes.

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Posted In: Analyst ColorEarningsNewsAnalyst RatingsMoversCitiKate McShane
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