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Under Armour Q2 Earnings Surpass Estimates but Fall Y/Y - Analyst Blog

Zacks Equity Research
Updated

Under Armour, Inc. UA reported second-quarter 2015 earnings of 7 cents a share that surpassed the Zacks Consensus Estimate by a couple of cents but fell 12.5% from the prior-year period. Dilutive impact from recent acquisitions along with foreign exchange fluctuations proved a drag on the performance.

Under Armour Inc. - Earnings Surprise | FindTheCompany

 

However, aided by continued strong performance of the Apparel, Footwear and Accessories categories, total revenue came in at $783.6 million, up 28.5% year over year and ahead of the Zacks Consensus Estimate of $761.8 million. On constant currency basis, revenues grew 31%.

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The company, which competes with giants such as Adidas and Nike, Inc. NKE in the sports apparel business, is keen on expanding its footprint and enhancing brand recognition to get an edge, and the deal with rising athletes including basketball star Stephen Curry and golfer Jordan Spieth provides platform to showcase its brands.

Under Armour’s largest product category, Apparel, once again reported strong sales. Apparel sales jumped 22.7% to $515.3 million driven by improved product offerings in baselayer and training.

Footwear net revenue soared 40.2% to $153.6 million during the quarter on the back of newly introduced Stephen Curry signature product and other product expansion. Net revenue in the Accessories category advanced 38.6% to $83 million buoyed by new product introductions in the bags category, while Licensing revenue grew 23.3% year over year to $18.1 million.

The company’s Connected Fitness segment reported massive year-over-year growth of 147.8% to $13.6 million. This was driven by the recent acquisitions of Endomondo and MyFitnessPal for $85 million and $475 million, respectively. These buyouts, along with its existing MapMyFitness and UA RECORD suite of applications, helped the company to form the largest digital health and fitness community, with over 140 million unique registered users.

Under Armour recorded a 33% surge in direct-to-consumer net revenue during the quarter, representing 32% of the total revenue. Meanwhile, international net revenue increased 93%, making for about 11% of net revenue.

Gross profit escalated 26.4% to $379.1 million. However, gross margin contracted 80 basis points to 48.4% due to the adverse impact of strong U.S. dollar and air freight costs. Under Armor’s operating income fell 8.1% to $31.9 million, whereas operating margin shriveled 160 bps to 4.1%.

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $171.2 million, down 43% from the prior-year period, while total debt was $715.7 million compared with $196.6 million in the prior-year period. Borrowings for the Connected Fitness acquisitions led to a massive increase in debt. Shareholders' equity at the end of the quarter was $1,415.6 million.

Guidance

Dilutive impact from the strong U.S. dollar and the acquisitions of Endomondo and MyFitnessPal will continue to mar performance in 2015.

Nevertheless, strong demand for the company’s product coupled with better execution of strategy led management to raise its 2015 revenue forecasts. The company now projects net revenue of $3.84 billion, as against $3.78 billion projected earlier, reflecting 25% growth from 2014. Operating income is expected to be in the range of $405 million to $408 million, representing 14% to 15% growth year over year. Earlier operating income was expected in the band of $400 million to $408 million.

Zacks Rank

Under Armour currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include Guess' Inc. GES and G-III Apparel Group, Ltd. GIII, both sporting a Zacks Rank #1 (Strong Buy).

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UNDER ARMOUR-A (UA): Free Stock Analysis Report
 
NIKE INC-B (NKE): Free Stock Analysis Report
 
GUESS INC (GES): Free Stock Analysis Report
 
G-III APPAREL (GIII): Free Stock Analysis Report
 
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