Under Armour Sees Weak Sales but Beats Estimates

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Part 5
Under Armour Sees Weak Sales but Beats Estimates PART 5 OF 7

Under Armour Reports a Loss Once Again in 2Q17

A look at Under Armour’s 2Q17 bottom line

Under Armour (UAA), which released its 2Q17 results on August 1, reported net earnings of -$12 million, or EPS (earnings per share) of -$0.03. The company reported a weaker gross margin and a rise in SG&A (selling, general, and administrative) expenses. In comparison, it reported earnings of $19 million, or EPS of $0.01, in 2Q16. However, the company beat the Wall Street EPS expectation of -$0.06.

Under Armour Reports a Loss Once Again in 2Q17

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Rival Nike (NKE) reported a ~22% YoY (year-over-year) jump in quarterly EPS to $0.60 when it reported its quarterly results on June 29. The company beat earnings estimates for the 20th consecutive quarter.

Lululemon Athletica’s (LULU) EPS improved by 6.7% YoY to $0.32 when it reported its results early June. The company beat expectations, reporting higher revenue, a better gross margin, and lower SG&A expenses.

Under Armour’s margin narrows yet again

Under Armour’s gross margin contracted for the ninth straight quarter. This time, it was down 190 basis points to 45.8% of sales, driven by the company’s ongoing inventory management initiatives, currency headwinds, and higher air freight expenses in connection with ERP (enterprise resource planning) system implementation.

The company reported an operating loss of $5 million as SG&A expenses jumped 40 basis points to 46.2% of sales. The expense increase reflected the company’s continued investments in the footwear, direct-to-consumer, and international businesses.

Looking forward

Under Armour now expects its fiscal gross margin to narrow 160 basis points from the 46.4% achieved in 2016. Earlier, it had predicted a small contraction. Management has attributed this narrowing to ongoing changes in its sales mix, aggressive inventory management actions, and its restructuring plan. Pre-tax restructuring charges are expected to total $110 million–$130 million in fiscal 2017. Investors seeking exposure to Under Armour could consider the PowerShares S&P 500 High Beta Portfolio ETF (SPHB), which invests 0.8% of its portfolio in the company.


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