How Has The Strengthening Dollar Affected Under Armour In the Last 3 Years?

Under Armour (NYSE:UA) generates majority of its revenues from the United States and the reporting currency for the consolidated financial statements is the U.S. dollar. As its net revenues and expenses generated outside the U.S. increase, the company’s results could be adversely impacted by changes in foreign currency exchange rates as it recognizes foreign revenues in the local foreign currency. Furthermore, the apparel giant is exposed to gains and losses resulting from fluctuations in foreign currency rates on transactions generated by its foreign subsidiaries in currencies other than the local currencies. Such gains and losses are primarily driven by inter-company transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity. The graph below depicts the gradual strengthening of the dollar versus the euro.

Additionally, the company purchases derivative foreign currency forward contracts, a strategy to minimize losses from exchange rates fluctuations. As one can see in the table below, this strategy has worked very well for the company, curtailing losses to $8.9 million in 2015. This, along with the aforementioned expenses, is classified in the Income Statement as Other Expenses and is broken down in the table below.

So, as we can see from the table above, the strengthening dollar has quite a significant unfavorable impact on the company which was partially offset by the company’s forward hedging strategies. Despite this, total expenses from currency related costs spiked by almost 661% in the last two years.

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