What Can We Expect From Under Armour’s Q1 Earnings?

by Trefis Team
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Under Armour (NYSE:UA) is all set to report earnings for the first quarter of FY 2017 on April 27. The company has suffered in the last two quarters on the back of a slowing apparel market. In the latest quarter, the sportswear manufacturer reported lower-than-expected financial numbers. Reported figures fell short of the consensus estimates for revenues and earnings by a sizeable margin. In fact, it was the first time in almost 27 quarters that the company has reported revenue growth of less than 20%. It appears as though this trend is likely to continue well into 2017 and 2018, as well.

For the full year, management expects the net revenue to be close to $5.4 billion. This represents a relatively slow 11-12% growth in comparison to the growth achieved in 2016. Th gross margin is expected to be hurt by foreign currency headwinds and better performance of footwear. Furthermore, international businesses are expected to contribute more to the overall mix in the next few quarters. These businesses have lower margins in comparison to apparel and the North American businesses. The company also expects operating income to decline by about $320 million, due to an increase in strategic investments over the year.

Probable Highlights:

  • The apparel market in the U.S. is still slowing at a modest pace. Revenues in the past two quarters have been hurt significantly because of this. We expect this trend to continue well into this year as well. And since almost 85% of the total revenues come from North America, the slumped industry is a point of immediate concern.
  • Overseas sales have increased by about 50% from 2014. A potential bright side for the company is focusing sales efforts on the international community, resembling its closest competitors in strategy. This is a key market for Under Armour to focus their efforts on, and can bring very strong sales numbers in the future. We can expect the upcoming earnings call to shed more light in this direction.
  • Under Armour continues to vie for long-term opportunity, opposing short-term gains at the expense of continued growth. From the prepared statements made in the previous earnings call, it is evident that the management is not willing to make any short-term moves, like cutting marketing or R&D spend, in an attempt to reach short-term profit goals. Hence, we can expect costs to be high in Q1, consequently, adversely impacting profit.

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