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Why Under Armour Lowered Its 2017 Guidance

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New top-line growth goals

Under Armour (UAA) dialed down its sales and operating margin targets for fiscal 2017 as it reported a significant drop in its 4Q16 top line, ending the year with a 17% rise in inventories. The company expects its full-year revenues to be in the 11%–12% range in fiscal 2017, as compares to the 20% guidance it issued previously.

Rival Nike (NKE) guided high single-digit growth in revenues for fiscal 2017. But Under Armour’s top-line growth ha been repeatedly dwarfing that of Nike for the past several years.

UAA’s sales grew at a CAGR (compound annual growth rate) of 25% in the past ten years. By comparison, Nike’s top line grew by 7% during the period.

Under Armour continues to bank on the performances of its footwear, DTC (direct-to-consumer), and international businesses for growth in fiscal 2017. However, as its footwear and international segments are low-margin businesses, expansion therein is likely to depress the gross margin.

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Margins to take a hit

UAA expects its gross margin to be slightly lower in fiscal 2017 than it was in the previous year. The company plans to negate the adverse effects of foreign currency and sales mix changes by improving product costs and reducing promotional activities.

Operating income to drop 24%

Lower sales and rising SG&A (selling, general, and administrative) costs resulting from continued strategic investments in the company’s key growth areas are likely to depress UAA’s operating profit by ~24% in fiscal 2017. The management has forecast an operating income of $320 million for fiscal 2017, as compared to $420 million in fiscal 2016.

ETF investors seeking exposure to UA can consider the iShares US Consumer Goods ETF (IYK), which invests 0.32% of its portfolio in the company.

For more on Under Armour’s stock market performance, continue to the next part of the series.

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