Under Armour up Top: Underneath the Slowing Revenues in 1Q17



Under Armour witnesses a slowdown in growth

Under Armour’s (UAA) top line expanded 22% YoY (year-over-year) in fiscal 2016 to $4.8 billion, as compared to its 30% average top-line growth between fiscal 2011 to fiscal 2015.

The company missed Wall Street’s top-line estimates in two of the four quarters of 2016, with its growth deaccelerating each subsequent quarter. Its revenue growth slipped from a 30% increase in 1Q16 to just a 12% rise in 4Q16.

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What caused the slowdown?

Under Armour did reasonably well in the first nine months of 2016, growing its top line by 26%. However, the fourth quarter came as a big disappointment, with its top line slipping below the 20% mark for the first time in 26 quarters. Consequently, inventory levels shot up to 17%.

Weakness in the company’s North America business due to retail bankruptcies, increasing competition from Nike (NKE) and Adidas (ADDYY), and channel dislocation are being cited as the key reasons for the top-line slowdown.

North America, which continues to account for 85% of Under Armour’s business, grew by just 6% in 4Q16, as compared to its average 23% growth over the past two years.

Looking forward

After a tough 4Q16, Under Armour’s management dialed down its fiscal 2017 growth expectations. The company now expects its fiscal 2017 revenues to rise 11%–12%, with a mid-single-digit rate first quarter growth.

Notably, Under Armour CFO (chief financial officer) David Bergman stated: “We anticipate the first quarter to grow at a mid-single digit rate as fourth quarter conditions in North America carry over and will have not yet lapsed some of the significant bankruptcies we saw in 2016.”

ETF investors seeking to add exposure to UAA can consider the iShares Russell Mid-Cap Growth ETF (IWP), which invests 0.12% of its portfolio in the company.

Continue to the next part for a discussion of UAA’s growth drivers going forward.


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