Under Armour (UAA) Tops Q2 Earnings Estimates, Trims FY23 View

Under Armour, Inc. UAA came up with second-quarter fiscal 2023 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. While revenues grew year over year, adjusted quarterly earnings declined from the year-ago period.

The impact of supply-chain disruptions and higher promotions was visible in the sportswear maker’s quarterly results, as the gross margin contracted sharply.

This Baltimore, MD-based player remains concerned about the tough retail backdrop and headwinds related to foreign currency. Soaring inflation is squeezing disposable income and dampening the demand for discretionary categories. Hence, Under Armour trimmed its fiscal revenue and earnings forecast.

This Zacks Rank #3 (Hold) stock has fallen 14.7% in the past three months compared with the industry’s decline of 13.7%.

Revenue & Earnings Picture

Under Armour reported second-quarter fiscal 2023 adjusted earnings of 20 cents a share, which beat the Zacks Consensus Estimate of 16 cents. However, the figure declined sharply from the adjusted earnings of 31 cents a share reported in the year-ago period due to margin contraction.

Meanwhile, net revenues of $1,573.9 million came ahead of the Zacks Consensus Estimate of $1,556 million and increased 1.8% on a year-over-year basis. The metric grew 5% on a currency-neutral basis.

While wholesale revenues increased 4.1% year over year to $948.2 million, direct-to-consumer revenues fell 4.4% to $577.1 million due to a 9% decline in owned and operated store revenues. E-commerce revenues increased 4% and represented 36% of the total direct-to-consumer business.

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 Delve Deeper

By product category, Apparel revenues edged down 1.9% year over year to $1,038.3 million, while Footwear revenues increased 14% to $375.9 million. Revenues from the Accessories category declined 12.1% to $111.1 million. Meanwhile, Licensing revenues grew 6.5% to $33.1 million.

Net revenues from North America declined 2.3% to $1,011.8 million. Meanwhile, revenues from the international business increased 7.3% (up 15.8% on a currency-neutral basis) to $547 million.

Within the international business, net revenues from the EMEA jumped 8.9% to $262.7 million. Revenues from the Asia-Pacific rose 6.5% to $225.7 million, while revenues from the Latin American region grew 3.2% to $58.2 million.

The company’s gross margin shrunk 560 basis points to 45.4% from the prior-year period due to elevated freight costs related to COVID-19 supply-chain impacts, higher promotions, an unfavorable channel mix and the adverse impact of changes on foreign currency. SG&A expenses declined 1% to $594.4 million. Adjusted operating income of $129.4 million was significantly down from $188.8 million reported in the year-ago period.

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $853.7 million, long-term debt (net of current maturities) of $673.4 million and total stockholders' equity of $1,816.3 million. The inventory jumped 29% to $1,080.4 million. For fiscal 2023, management expects capital expenditures of approximately $225 million.

During the quarter, the company repurchased shares worth $25 million. As of Sep 30, 26 million shares for $350 million had been bought back under a two-year $500-million program, approved in February 2022.

FY23 Outlook

Under Armour now foresees low-single-digit growth in fiscal 2023 revenues compared with its prior projection of 5-7% growth due to a more challenging retail landscape and the negative impacts of changes on foreign currency. On a currency-neutral basis, management expects revenues to be up at a mid-single-digit-percentage rate compared with its previous expectation of 7-9% growth.

Management continues to expect a gross margin contraction of 375 to 425 basis points compared to the baseline period's gross margin of 49.6%. SG&A expenses are anticipated to be down marginally compared with the prior year as the company manages costs amid uncertain market conditions.

Under Armour guided the operating income between $270 million and $290 million versus the comparable baseline period’s operating income of $333.4 million. The company earlier projected operating income in the range of $300-$325 million.

Excluding an expense related to ongoing litigation matters, the company forecast the adjusted operating income in the band of $290 million-$310 million for fiscal 2023 versus the comparable baseline period’s adjusted operating income of $424 million. The company earlier guided the adjusted operating income in the range of $310-$335 million.

Under Armour now expects adjusted earnings in the band of 44-48 cents a share, down from its previous range of 47-53 cents a share. The company reported adjusted earnings of 68 cents a share for the comparable baseline period.

Stocks to Consider

Here we have highlighted three top-ranked stocks, namely Tapestry TPR, Home Depot HD and Kroger KR.

Tapestry, a provider of luxury accessories and branded lifestyle products, carries a Zacks Rank #1 (Strong Buy). TPR has an expected EPS growth rate of 12.5% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tapestry’s current financial-year sales and EPS suggests growth of 3.5% and 11%, respectively, from the year-ago period. TPR has a trailing four-quarter earnings surprise of 14.5%, on average.

Home Depot, which operates as a home improvement retailer, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 11.2%.

The Zacks Consensus Estimate for Home Depot’s current financial-year revenues and EPS suggests growth of 3.6% and 7.2%, respectively, from the year-ago reported figure. HD has a trailing four-quarter earnings surprise of 7.2%, on average.

Kroger, one of the leading grocery retailers, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 11.7%.

The Zacks Consensus Estimate for Kroger’s current financial-year revenues and EPS suggests growth of 7.8% and 10.3%, respectively, from the year-ago reported figure. Kroger has a trailing four-quarter earnings surprise of 15.7%, on average.

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