Under Armour's Sweating 1Q17, But Why?

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Part 5
Under Armour's Sweating 1Q17, But Why? PART 5 OF 7

How Under Armour’s Profitability Could Take a Hit in Fiscal 2017

Margin expectations going forward

Under Armour’s (UAA) margins have been under pressure for the past several quarters, with its gross margin declining for the past seven. And the way forward doesn’t look to be very smooth either.

UAA’s management is expecting a further decline in its gross margin in fiscal 2017. The increasing shift in its sales mix toward low-margin footwear and its international businesses and currency headwinds throughout 2017 are likely to dampen the positive effects of improving product costs and reduced promotional activity for UAA.

How Under Armour&#8217;s Profitability Could Take a Hit in Fiscal 2017

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First quarter profitability forecasts

UAA’s 1Q17 gross margin is expected to fall 100 basis points. Under Armour CFO (chief financial officer) David Bergman put it this way: “We’re expecting first quarter gross margin to be down almost 100 basis points year-over-year as many of the same factors from the fourth quarter pressure our margins, including foreign currency impacts and higher promotions and discounts.”

The management has predicted an operating loss of $12 million to $14 million for the first quarter. The company’s EPS (earnings per share) are likely to land at -$0.04 during the quarter.

How have competitors performed lately?

Under Armour’s major competitors delivered mixed results in their last reported quarters. Sportswear giant Nike (NKE) reported a ~24% YoY jump in its quarterly earnings to $0.68 per share, beating the Wall Street estimate by a huge margin and driven by a lower tax rate, a decline in average share count, and lower demand creation expenses.

Lululemon Athletica (LULU), on the other hand, missed the Wall Street earnings estimate when it reported results at the end of March, though its earnings had improved 17.6% on a year-over-year basis to $1.00 per share.

ETF investors seeking to add exposure to UAA can consider the iShares US Consumer Goods ETF (IYK), which invests 0.16% of its portfolio in the company.

Continue to the next part for a look at Under Armour’s recent stock market performance.


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