A Shifting Market Disrupts Under Armour's Growth Agenda; Analyst Reiterates Buy

Under Armour Inc UAA reported lower-than-expected results for Q4, with the revenue and EPS missing the consensus, estimates and guidance.

D.A. Davidson’s Andrew Burns reiterated a Buy rating on the company, while lowering the price target from $42 to $28.

Under Armour reported revenue of $1.308 billion and EPS of $0.23, below the consensus forecasts, estimates and guidance,

“Slower traffic and rapidly changing consumer preference towards lifestyle silhouettes caused significant promotional activity in the quarter,” the analyst mentioned.

While the Footwear category grew 36 percent year-on-year, Accessories grew 7 percent and Apparel was up 7 percent.

Direct-to-customer sales increased 23 percent, representing 40 percent of total sales, while International revenues grew 55 percent.

However, gross margin was down 314 bps to 44.8 percent, driven by unfavorable FX, promotional activity and higher international and footwear growth, marginally mitigated by favorable product costs.

“UAA also announced that CFO Chip Molloy is leaving the company and current SVP of Corporate Finance David Bergman will be assuming the role,” Burns stated.

Guidance

For 2017, Under Armour lowered its revenue growth guidance from the low twenties to 11-12 percent, while the gross margin and operating profit guidance were also lowered.

For Q1, the company guided to mid-single digit revenue growth, with gross margin decline of 100 bps and operating loss if $12-$14 million.

“A confluence of events derailed UAA's growth agenda: a rapidly changing retail landscape, a consumer shift towards sports lifestyle product, and a lack of innovation in important replenishment categories,” the analyst explained.

The revenue and EPS estimates for Q1, 2017 and 2018 have been lowered.