Under Armour Tops Q4 Expectations; Shares Drop 12%

Under Armour, Inc. (UAA) ended the year with solid quarterly results beating both earnings and revenue expectations, and also reported record full-year revenue and earnings.

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However, the company’s weak Q1 guidance pushed the shares down 12.5% to close at $17.51 on February 11. Shares even hit an all-time low of $17.25 during intraday trading.

Under Armour is a manufacturer and marketer of branded athletic performance apparel, footwear, and accessories. UAA stock has lost 17.6% year-to-date vis-à-vis registering a loss of 3.2% over the past year.

Solid Quarterly Results

The company reported Q4 adjusted earnings of $0.14 per share, 7 cents higher than analyst estimates of $0.07 per share.

Similarly, quarterly revenue climbed 9% year-to-year to $1.53 billion, which also surpassed Street estimates of $1.48 billion. Apparel revenue, a major contributor to total revenue, grew 18% year-over-year to $1.1 billion, while footwear revenue increased 17%. However, Accessories revenue fell 27% year-over-year.

For the full year fiscal 2021, Under Armour reported adjusted earnings of $0.85 per share, and revenue advanced 27% to $5.68 billion, driven by an increase of 33% in Apparel revenue.

The company also announced a fiscal year change from December 31, to March 31, which will take effect beginning April 1, 2022 (Fiscal Year 2023). Hence, there will be no fiscal 2022.

CEO Comments

Happy with the results, Under Armour President and CEO, Patrik Frisk, said, “By staying hyper-focused on operational excellence and serving the needs of athletes, we were able to deliver record revenue and earnings results for the full year.”

“As we navigate ongoing uncertainty in the marketplace, we remain focused on delivering industry-leading innovations, premium experiences, and empowering those who strive for more. Going forward, I am confident that we are running a stronger company – one that is able to deliver sustainable, profitable growth and value creation for our shareholders over the long term,” Frisk added.

Weak Guidance for Quarter Ending March 31.

Based on the ongoing supply chain issues and logistic challenges, Under Armour gave conservative guidance for its transition quarter ending March 31, 2022.

UAA expects revenue to grow in the mid-single-digit range due to the weak spring summer 2022 order book. Further, diluted earnings are expected to be between $0.02 per share and $0.03 per share.

Moreover, gross margins are expected to fall 200 basis points compared to the same period last year due to increased transportation expenses and an unfavorable sales mix, partially offset by pricing benefits.

Analysts’ Take

Responding to Under Armour’s financial performance, Guggenheim analyst Robert Drbul reiterated a Hold rating on the stock and said, “UAA continues to make progress on its largest long-term growth drivers including international, DTC, women’s and its footwear businesses. However, the company continues to face challenges from the macro environment in this highly competitive sector.”

Drbul noted the management’s commentary on potential headwinds, including longer than usual transit times, ongoing freight and logistics costs, and inbound shipping delays, which are impacting UAA’s performance. Based on these, the analyst provides a more cautious outlook and awaits a sound top-line recovery and added, “Visibility should likely be more clear in May when the company has a complete order book of its Fall/Winter wholesale business.”

Overall, the stock has a Moderate Buy consensus rating based on 11 Buys, 6 Holds, and 1 Sell. The Under Armour stock prediction of $26.73 implies 52.7% upside potential to current levels.

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