Why Have We Revised Our Price For Under Armour Upward?

by Trefis Team
Under Armour
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Under Armour (NYSE:UA) has had quite a rough time since financial troubles started brewing near the beginning of 2017. North American sales have declined consistently since then on changing consumer trends. In fact, toward the end of the year, the apparel giant recorded negative revenue growth in the region, which accounts for almost 75% of the company’s overall revenues and over 100% of its operating income. Further, the company was also hurt by stiff competition from sports apparel heavyweights like Adidas and Nike.

That said, things have improved quite a bit since Q1 this year. Many of its growth initiatives have finally started taking shape. In particular, the company increased its investments outside the country in order to best capitalize on rather nascent, emerging markets and this strategy seems to be working quite well for it at the moment. While North American sales barely come in positively, both quarters thus far, have recorded high double digit international growth, with Q2 posting a near 28% jump in comparison to the figure last year.

Like many of its competitors, Under Armour has set its sights on Asia as a massive top line booster. In the most recent quarter, the company managed to post a substantial 28% increase with strong balanced wholesale and direct to consumer growth, and continued strength in China, Korea, and Australia. In addition, revenue at EMEA was up 25% on a currency neutral basis with particular strength in the UK, Germany, and Spain. We expect international revenues to buoy the overall top line going forward.

Further, after taking a massive hit on the wholesale front last year, Under Armour decided to up its investment in its direct to consumer channel. In Q2, direct to consumer revenue grew by about 7% to hit $414 million. The financials were driven by continued strong results in its international and e-commerce businesses. Further, DTC represented nearly 35% of total global revenue in the quarter. With continued efforts, we expect this figure to expand in the coming quarters.

All this has led to a massive jump in the company’s valuation over the past two months. In fact, its shares have soared by more than 43% in 2018 thus far, significantly outpacing the S&P 500’s rise of only 8%. In this respect, we revised our price estimate higher to $18.45, and have created an interactive dashboard analysis Is The Market Pricing Under Armour Fairly to best relay our method.

However, while these strategies have immensely helped the company improve revenues, the constant investments have taken a massive toll on profitability. In the most recent quarter, the athleisure giant’s net loss widened to 8 cents per share, up from about 3 cents per share, in the same period last year. In particular, the company is seeing massive jumps in its SG&A and marketing costs, which are expected to grow at a mid-single digit rate over the remainder of the year.

Despite this, it seems like Under Armour has finally turned things around for itself. With continued investments in the right directions, we hope to see the company return to its past glory sooner than later.


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