Under Armour (UAA) Stock Down on Loss in Transition Quarter

Shares of Under Armour, Inc. UAA plunged 23.8% during the trading session on May 6, following the company’s lackluster performance in the transition quarter ended Mar 31, 2022 and a muted outlook for fiscal 2023. The impact of supply chain disruptions and higher shipping costs was visible in the sportswear maker’s quarterly results. Also, the resurgence of COVID-19 in China and its related impacts hurt the company’s Asia Pacific business. However, revenues were up in North America.

This Zacks Rank #3 (Hold) stock has fallen 45.6% in the past three months compared with the industry’s decline of 21%.

Last year in February, Under Armour's board of directors authorized a change in the fiscal year end from Dec 31 to Mar 31, effective fiscal year beginning Apr 1, 2022. Management also informed that following a three-month transition period (Jan 1-Mar 31, 2022), Under Armour's fiscal 2023 will run from Apr 1, 2022, through Mar 31, 2023. As a result, there will be no fiscal 2022.

Revenues & Earnings Picture

Under Armour reported an adjusted loss of 1 cent a share in the transition quarter against earnings of 16 cents in the year-ago period, thanks to lower-than-expected sales and margin contraction. The Zacks Consensus Estimate for earnings in the said quarter was 4 cents a share.

Meanwhile, net revenues of $1,300.9 million fell short of the Zacks Consensus Estimate of $1,334 million but grew 3.5% on a year-over-year basis. While wholesale revenues increased 4% year over year to $829 million, direct-to-consumer revenues rose 1% to $441 million, driven by 2% growth in e-commerce. Owned and operated store revenue growth was flat during the quarter.

Under Armour, Inc. Price, Consensus and EPS Surprise

Under Armour, Inc. Price, Consensus and EPS Surprise

Under Armour, Inc. price-consensus-eps-surprise-chart | Under Armour, Inc. Quote

Let’s Take an Insight

By product category, Apparel revenues jumped 8.2% year over year to $876.6 million, while Footwear revenues decreased 4% to $296.7 million. Revenues from the Accessories category declined 17.5% to $96.8 million. Meanwhile, Licensing revenues surged 22.8% to $26.6 million.

Net revenues from North America increased 4.4% to $841.1 million. Revenues from international business grew 0.7% (or up 3.2% on a currency-neutral basis) to $456 million. Within international business, net revenues from EMEA increased 17.6% to $228.1 million. We note that revenues from Asia-Pacific and Latin America regions declined 13.5% and 5.5% to $181.9 million and $45.6 million, respectively.

The company’s gross margin shrunk 350 basis points to 46.5% from the prior-year period owing to elevated freight expenses. SG&A expenses jumped 16% to $594 million. Meanwhile, adjusted operating income of $10.7 million was significantly down from $114 million reported in the year-ago period.

Other Financial Details

Under Armour ended the transition quarter with cash and cash equivalents of $1,009.1 million, long-term debt (net of current maturities) of $672.3 million and total stockholders' equity of $1,729 million. Inventory was down 3% to $824 million.

In February 2022, Under Armour’s board of directors authorized the repurchase of up to $500 million of its outstanding Class C common stock. An initial $300 million of repurchases was completed in early May through an accelerated share repurchase plan. The company has about $200 million remaining under its share buyback program.

FY23 Outlook

Taking into account the ongoing supply chain bottleneck, pandemic-related uncertainties, and inflationary trends, Under Armour expects fiscal 2023 revenues to increase 5-7% versus the comparable baseline period (Apr 1, 2021, through Mar 31, 2022) revenues of $5.7 billion. This reflects a mid-single-digit growth rate in North America and a low-teens growth rate in the international business.

The guidance includes roughly three percentage points of headwinds related to management’s strategic decision to cancel orders affected by capacity issues, supply-chain delays, and emergent COVID-19 impacts in China.

Management foresees gross margin contraction of 150 to 200 basis points compared to the baseline period's adjusted gross margin of 49.6%. This indicates expected inflationary pressures on freight and product costs, an unfavorable channel mix, and changes in foreign currency.

The company guided operating income between $375 million and $400 million versus the comparable baseline period adjusted operating income of $424 million.

Under Armour projected adjusted earnings in the band of 63-68 cents a share, below the current Zack Consensus Estimate of 79 cents. The company had reported adjusted earnings of 68 cents a share for the comparable baseline period.

Pick These 3 Stocks

Here we highlight three top-ranked stocks, namely, Steven Madden SHOO, G-III Apparel GIII and Target TGT.

Steven Madden is a leading designer and marketer of fashion-forward footwear, accessories and apparel for women, men and children. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Steven Madden’s current financial year revenues and EPS suggests growth of 15.2% and 19.6%, respectively, from the year-ago reported figure. SHOO has a trailing four-quarter earnings surprise of 44%, on average.

G-III Apparel designs, sources and markets apparel and accessories under owned, licensed and private label brands. The stock currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for G-III Apparel’s current financial year revenues and EPS suggests growth of 10% and 5.4%, respectively, from the year-ago reported figure. G-III Apparel has a trailing four-quarter earnings surprise of 160.6%, on average.

General merchandise retailer Target currently carries a Zacks Rank #2. TGT has an expected EPS growth rate of 16.5% for three-five years.

The Zacks Consensus Estimate for Target’s current financial-year sales and EPS suggests growth of 3.7% and 7.3%, respectively, from the corresponding year-ago period’s levels. TGT has a trailing four-quarter earnings surprise of 21.3%, on average.

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