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Why Is Under Armour’s 4Q15 EPS Soaring over Low Profitability?

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Nov. 22 2019, Updated 7:19 a.m. ET

Earnings for Under Armour and peers

In 4Q15, Under Armour’s (UA) adjusted EPS (earnings per share) came in at $0.48, beating the consensus Wall Street analyst estimate of $0.46 by 4.4%. The company’s 4Q15 EPS grew by ~19% YoY (year-over-year), and its fiscal 2015 EPS came in at $1.05, which was up by 10.5% YoY. We should note, however, that Under Armour’s fiscal 2015 EPS included a $0.10 impact resulting from its Connected Fitness acquisitions in 2015 (see Part 5 of this series).

Under Armour’s peers Columbia Sportswear (COLM), Skechers (SKX), and VF Corporation (VFC) are expected to declare their respective 2015 results in February. Notably, VFC and SKX missed their analyst estimates on sales and earnings last quarter while COLM beat estimates for sales and earnings.

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Rival Nike (NKE) also came ahead of market expectations on earnings in fiscal 2Q16, which ended for the company on November 30, 2015. Lululemon Athletica (LULU) also beat Wall Street expectations on both earnings and revenue in fiscal 3Q16, which ended for the company on November 1, 2015, and has since revised its fiscal year outlook upwards. Both Nike and Lululemon are expected to declare their latest quarterly results in March.

Under Armour’s margin performance

Under Armour’s operating profit margin declined to 15.2% in 4Q15, compared to 16.3% in 4Q14. The company’s earnings growth trailed sales growth for a number of reasons, and its 4Q15 gross margin contracted to 48%, down from 49.9% in 4Q14.

Related headwinds included an impact of 90 basis points from the sales mix shift to low-margin products, an impact of 70 basis points from the strengthening US dollar, and an impact of 30 basis points from higher discounting during the quarter to liquidate older stocks.

SG&A expenses

The company’s SG&A (selling, general, and administrative) expenses and margin deleverage helped mitigate some of the negative gross margin impact. SG&A as a percentage of sales declined to 32.8% of sales in 4Q15 from 33.6% of sales in 4Q14. The company attributed the decline to marketing expense timing and lower incentive compensation costs.

Going forward, Under Armour’s gross margins are likely to continue being pressured on sales mix and the strong US dollar. SG&A costs may also continue to rise on growth investments. UA, NKE, and VFC are S&P 500 components, together constituting 0.65% of the total portfolio holdings in the iShares Core S&P 500 ETF (IVV).

In the next and final part of this series, we’ll get more specific with Under Armour’s growth outlook.

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