Under Armour’s (UAA) second-quarter results are expected to be released on July 30. The company beat analysts’ revenue expectations for six consecutive quarters. Notably, analysts expect Under Armour’s second-quarter revenues to rise 2.0% on a YoY (year-over-year) basis to $1.20 billion. International business will likely be a significant growth driver.
Under Armour’s earnings beat analysts’ forecast in the last three quarters. Therefore, analysts expect an adjusted loss per share of $0.05 in the second quarter. The company’s adjusted loss per share was $0.08 in the second quarter of 2018.
Skechers (SKX) reported a 36.1% rise in its second-quarter adjusted EPS to $0.49. Overall, the company’s sales rose 10.9% to $1.26 billion. Notably, Skechers’ international business and direct-to-consumer channel boosted its second-quarter sales.
Nike (NKE) reported a 4.0% rise in its fiscal fourth-quarter revenues to $10.18 billion. The revenue growth increased due to the company’s China business and higher North America revenues. However, Nike’s EPS fell 10.1% to $0.62 in the fourth quarter.
Under Armour’s first-quarter earnings
Under Armour’s adjusted EPS was $0.05 in the first quarter. In contrast, the company delivered break-even earnings in the first quarter of 2018. Higher revenues and effective cost management improved the bottom line. As a result, the first-quarter revenues rose 1.6% to $1.20 billion. Analysts expected revenues of $1.18 billion and break-even earnings.
A 12% rise in international revenues drove Under Armour’s top-line growth in the first quarter. The increase was partially offset by a 2.8% fall in the North America revenues. The North America operations accounted for about 70% of the overall revenues in the first quarter. Softer demand in the direct-to-consumer channel and lower sales in the off-price channel led to lower North America revenues. Overall, the decline reflects the company’s strategy to reset its business at a more premium price level.
Under Armour’s first-quarter gross margin increased by 100 basis points to 45.2%. Notably, the gross margin increased due to product cost improvements and a favorable regional mix. Also, the operating margin improved to 2.9% in the first quarter compared to -2.4% in the first quarter of 2018. The company had restructuring and impairment charges of $37.5 million in the first quarter of 2018.
Under Armour’s guidance
Under Armour expects its revenue growth to be 1%–2% in the second quarter. The company’s international and direct-to-consumer businesses will likely boost the company’s revenues. However, Under Armour expects a slight decline in its second-quarter North America revenues.
The company expects its adjusted gross margin to expand by about 80–100 basis points in the second quarter. The gross margin will likely increase by 130–150 basis points on a reported basis. The gross margin will likely increase due to lower product costs and a favorable regional and channel mix.
Under Armour expects its selling, general, and administrative expenses to rise 4%–5%. In addition, the company expects to incur higher marketing expenditure and increased facility, distribution, and storage expenses associated with international expansion.
On May 20, J.P. Morgan upgraded Under Armour stock to “overweight” from a “neutral” rating. Also, J.P. Morgan raised its target price to $29 from $23. Many analysts increased their target price for Under Armour stock in July.
- Wedbush: $23 from $20
- Susquehanna: $16 from $13
- Cowen and Company: $25 from $23
- Telsey Advisory Group: $25 from $22
Under Armour had a “hold” recommendation from 14 of 30 analysts following the stock as of July 26. Nine analysts rated the stock as a “buy,” while seven analysts rated the stock as a “sell.”
As of July 26, Under Armour stock has risen 54.2% on a YTD (year-to-date) basis. In comparison, Skechers and Nike have risen 70.9% and 18.1%, respectively. So far, the S&P 500 has risen 20.7% this year.
Notably, the average target price of $23.27 for Under Armour stock implies a potential downside of about 15%.
As of July 26, Under Armour was trading at a 12-month forward PE ratio of 61.8x. In contrast, Skechers and Nike were trading at PE ratios of 16.2x and 29.5x, respectively.
Analysts expect Under Armour’s adjusted EPS to rise about 30% to $0.35 in 2019. Likewise, the company’s revenues could rise 3.5% in 2019. Moving forward, analysts expect an adjusted EPS and revenue growth of 45.7% and 6.0%, respectively, in 2020.
In May, Under Armour’s guidance indicated revenue growth of about 3%–4% for 2019. Notably, the company’s outlook assumes flat revenue growth in North America. In comparison, the international revenues will likely grow by the low double-digits.
Overall, Under Armour expects its 2019 EPS to be $0.33–$0.34. Continued innovation, the digital business, and international expansion will likely drive Under Armour’s future growth.
On Tuesday, we expect Under Armour to update its financial outlook. The update could impact the company’s forward valuation multiple.