Is The End Near For Under Armour?
Estimize | Oct 25, 2016 12:30AM ET
Consumer Discretionary - Textiles, Apparel & Luxury Goods | Reports October 25, Before Market Opens
Key Takeaways
- The Estimize consensus is calling for earnings per share of 26 cents on $1.47 billion in revenue, 1 cent higher than Wall Street on the bottom line and $10 million on the top
- Under Armour ’s portfolio of star studded athletes, along with international growth and a foray into fitness technology are expected to drive top line growth
- A recent deal with the MLB will outfit its players with Under Armour produced uniforms
Under Armour is scheduled to announce its third quarter earnings today, before the market opens. The shoemaker is still believed to be the biggest threat to Nike's (NYSE:NKE) dominance in the U.S., despite a few down quarters. Its portfolio of star studded athletes, along with international growth and a foray into fitness technology are expected to drive top line growth. Margins, on the other hand, should be compressed from increased discounting and higher operating expenses. Analysts have grown more optimistic lately with current estimates now pointing to a bounceback quarter.
The Estimize community is calling for earnings per share of 26 cents on $1.47 billion in revenue, 1 cent higher than Wall Street on the bottom line and $10 million on the top. Compared to a year earlier that represents a 13% increase on the bottom line and 21% on the top. Shares are currently down 6% this year, but historically have jumped immediately through the print. However, if the slowdown on the top line continues it would be hard to imagine the stock making any kind of gains.
This year hasn’t been as easy for Under Armour as it was in the past. Earnings and revenue have taken a step back for a number of reasons with the Sports Authority bankruptcy being the most recent blow. Prior to the second quarter, Under Armour reported there would be a significant hit from dissolved partnership. It turns out that the company’s other revenue streams more than offset these estimated losses
Under Armour has remained focused on building its brand through strategic partnerships, key endorsements, expanding its DTC business, and its most recent investments into wearable technology. Just last week, Under Armour announced a deal with the MLB to outfit its teams with uniforms starting in 2020. Any major sporting license is a huge win for Under Armour, let alone one with America’s pastime game. Meanwhile, the company continues to expand its catalogue of endorsements which includes, Stephen Curry, Tom Brady and Dwayne “the Rock” Johnson.
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But no one category has grown faster than international sales. Last quarter the segment jumped 68%, helping to push total revenue over the $1 billion mark for a fourth consecutive quarter. Under Armour spent some time in China this summer to help promote the game of basketball and its star athlete Stephen Curry. As they become more of a household name overseas, expect to see top line growth accelerate.
There still remains several near term headwinds that could impact tomorrow’s report. It’s becoming increasingly accepted that the athletic apparel sector should start to edge down over the next several quarters. The space is becoming increasingly saturated which has forced more frequent discounting, thereby compressing margins. The top names like Nike (NYSE:NKE), Under Armour and even Lululemon no longer have pricing power over the consumers, explaining the poor bottom line growth.
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