What Can We Expect From Under Armour’s Q3 Earnings?

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Under Armour (NYSE:UA) is set to report Q3 earnings Tuesday,  October 25th. Investors may have an idea about what to expect from the earnings, given Nike’s earnings release last month. The apparel giant beat the expected earnings and revenues by a large margin; a similar feat is expected by Under Armour in Q3. Furthermore, UA’s profit growth is set to accelerate sharply next year given the stellar footwear sales, a new clothing line hitting the market and a tie-up deal with Kohl’s.

Things have been quite bad for Under Armour in the recent past. The company’s shares have fallen by almost 25% over the past year after rewarding investors consistently over much of the past half-decade. The Sports Authority bankruptcy had adverse effects on Under Armour’s profits. The golf star, Jordan Spieth, whose name was plastered all over the company’s latest line of golf shoes, had a meltdown at the Master’s this year. Critics completely ripped apart the new Curry line of shoes for being too bland.

That said, one cannot undermine the potential that UA possesses and has displayed over the years. To put this into perspective, Under Armour has posted an average 34.4% earnings surprise in the last four quarters. Furthermore, the company’s overall sales jumped 28% year on year last quarter. Despite falling marginally short of the consensus estimate, such performance is a rare feat, given the current market conditions.

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Partnership With Kohl’s:

Over the years, the company has relied heavily on key strategic partnerships in order to grow the brand and rake in additional sales. Retail revenues across all segments have grown at a considerable CAGR of 34.66% from 2010 to 2015. Last quarter, the company took things one step further by announcing a partnership with Kohl’s, one of America’s top activewear retailers. This partnership will enable the company to tap into a large and loyal customer base, a majority of which are women. Such a partnership could prove to be the opportunity UA was looking for, to improve the sluggish sales in the women’s category.

Major Geographical Expansion in China:

Last quarter, Under Armour announced plans for a major geographical expansion, most notably in Greater China. The country is poised to be a key market for the company as health, training and fitness have become increasingly popular in China. To tap into this growing opportunity, management has decided to open more premium brand houses and follow a full-price business model focused on basketball, running and training. Furthermore, the company hopes to increase its e-commerce reach globally. E-commerce business in the quarter increased by 157% this year so far. Additionally, the Curry brand continues to sell itself and the Curry 2 has become the company’s top-selling product in the region.

However, due to a tough economic climate, the company has driven down its full year guidance for 2016. In terms of revenues, the company now expects to report $4.925 billion, representing a growth of 24%, for 2016. Additionally, Under Armour expects operating income to lie within the $440 million to $445 million range, representing a growth of 8% to 9%.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment / ask questions on the comments section

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our full analysis for Under Armour

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