Why Is Under Armour (UAA) Down 13.8% Since Last Earnings Report?

A month has gone by since the last earnings report for Under Armour (UAA). Shares have lost about 13.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Under Armour due for a breakout? 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 Beats on Q3 Earnings, Raises 2021 Outlook

Under Armour, Inc. continued with its stellar performance in third-quarter 2021, thanks to sturdy demand for the brand. Results reflected strength in both North America and international regions. Markedly, both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. This Baltimore-based company's upbeat performance highlighted improved operating model and investments across product and marketing. The stronger-than-anticipated results prompted management to raise full year view.

Under Armour reported adjusted earnings of 31 cents a share that fared far better than the Zacks Consensus Estimate of 15 cents. The bottom line also showcased an improvement from earnings of 26 cents reported in the year-ago period.

Meanwhile, net revenues of $1,545.5 million comfortably surpassed the Zacks Consensus Estimate of $1,478.7 million, thus marking the sixth straight beat. The top line grew 7.9% on a year-over-year basis due to higher demand across full-priced wholesale and factory house businesses in North America. While wholesale revenues rose 10% year over year to $911 million, direct-to-consumer revenues increased 12% to $604 million buoyed by robust growth in owned and operated stores. However, this was offset by a 4% drop in e-commerce sales, as pandemic-led online activity slowed down.

Let’s Take an Insight

By product category, Apparel revenues jumped 14.2% year over year to $1,058.2 million owing to strength across all categories, primarily train and golf, while Footwear revenues increased 10.4% to $329.7 million driven by strength in running. Revenues from Accessories category declined 12.9% to $126.3 million due to lower sales of sports masks. Meanwhile, Licensing revenues soared 23.8% to $31.1 million.

Net revenues from North America increased 7.6% to $1,035.9 million. Revenues from international business grew 17.6% (or up 12.8% on a currency neutral basis) to $510 million. Within international business, net revenues from Asia-Pacific and EMEA increased 18.5% and 14.8% to $212 million and $241.2 million, respectively. We note that revenues from Latin America region surged 27.2% to $56.4 million.

The company’s gross margin expanded 310 basis points to 51% owing to benefits from pricing and channel mix. This was offset by the absence of MyFitnessPal platform, which carried a higher gross margin rate, and supply chain bottlenecks resulting in higher freight and logistics costs.

SG&A expenses jumped 8.3% to $599.4 million due to higher marketing investments, incentive compensation and non-salaried workforce wages. The company reported an adjusted operating income of $188.8 million, up from $132.8 million reported in the year-ago period.

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $1,253.7 million, long-term debt (net of current maturities) of $662.9 million and total stockholders' equity of $1,977.7 million. The company had no borrowings under $1.1 billion revolving credit facility.

2021 View

Management now anticipates full-year 2021 revenues to increase approximately 25%, up from the prior projection of low twenties percentage increase. This reflects high-twenties percentage growth rate in North America and a mid-thirties percentage growth rate in the international business. The company now envisions adjusted earnings to reach 74 cents a share, up from previous expectation of 50-52 cents a share.

From a channel perspective, management anticipates wholesale business to be up at a mid-30s rate and direct-to-consumer business to be up at a mid-20s rate for fiscal 2021. E-commerce is envisioned to be up at a low-single-digit rate for the full year versus 2020.

Under Armour anticipates full year gross margin to be up about 130 basis points when compared with the prior year adjusted gross margin of 48.6%. This reflects benefits from pricing and changes in foreign currency, partly offset by the impact of the divestment of the high gross margin business, MyFitnessPal as well as likely increase in freight costs. Management expects full-year SG&A expenses to be up 6-7% year over year. The company expects adjusted operating income to be approximately $475 million (or operating margin of 8.5%) compared to the previous expectation of $340-$350 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 2330.55% due to these changes.

VGM Scores

At this time, Under Armour has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Under Armour has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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