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What Drove Under Armour’s Improved Profitability in Q1?

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Earnings beat expectations

Under Armour (UAA) impressed investors with improved earnings in the first quarter. The company’s EPS grew to $0.05 in the first quarter compared to a loss per share of $0.07 in the first quarter of 2018. On an adjusted basis, the company delivered break-even earnings in the first quarter of 2018.

Under Armour’s bottom-line improvement was driven by higher revenues, lower SG&A expenses, and reduced net interest expenses.

Under Armour generated revenues of $1.20 billion in the first quarter, which reflected a year-over-year growth of 1.6% driven by higher international revenues. Under Armour’s first-quarter revenues and EPS beat analysts’ forecast of break-even earnings on revenues of $1.18 billion.

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Margins in the first quarter

Under Armour’s gross margin expanded by 100 basis points to 45.2% in the first quarter due to product cost improvements and a favorable regional mix. The increase was partially offset by an unfavorable channel mix. The company’s operating margin was 2.9% in the first quarter compared to -2.4% in the first quarter of 2018. The operating margin in the first quarter of 2018 was impacted negatively by impairment and restructuring charges of $37.5 million.

Excluding the impact of restructuring charges, Under Armour expects its 2019 gross margin to expand by 70 basis points–90 basis points on an adjusted basis due to the company’s supply chain initiatives and channel mix benefits. Previously, Under Armour expected an adjusted gross margin expansion of 60 basis points–80 basis points.

Under Armour raised its 2019 EPS guidance to $0.33–$0.34 following its first-quarter results. The company expected its EPS to be $0.31–$0.33 in 2019.

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