Under Armour (NYSE: UA), a sports equipment company that manufactures footwear, sports, and casual apparel, is scheduled to report its fiscal first-quarter results on Tuesday, May 4. We expect Under Armour to trade slightly higher post-fiscal Q1 2021 results with revenues coming inline and earnings beating consensus marginally. While the cost-cutting initiatives are looking good for the retailer’s recovery from the disruptions in supply chains and retail store closures, lower wholesale revenues remain a key issue in the near term.
Our forecast indicates that Under Armour’s valuation is $21 a share, which is 3% higher than the current market price of around $20. Look at our interactive dashboard analysis on Under Armour‘s Pre-Earnings: What To Expect in Q1? for more details.
(1) Revenues expected to be in line with consensus estimates
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Trefis estimates UA’s Q1 2021 revenues to be around $1.12 Bil, in line with the consensus estimate. In 2020, the athletic apparel company’s revenues declined 15% year-over-year (y-o-y) to $4.5 billion, largely due to a 25% drop in wholesale revenues. By geography, North America led the decline at 20% y-o-y, followed by Latin America at -16% y-o-y, and EMEA at -4% y-o-y. It should be noted that the pandemic certainly magnified the company’s digital adoption rates, which led to e-commerce growing 40% in 2020. Looking ahead, we expect short-term traffic declines across malls, along with challenges in the North American wholesale channel to continue to pressure Under Armour’s revenues in the upcoming Q1. For full-year 2021, Under Armour’s revenues are expected to come in at a high-single-digit percentage rate as compared to a +12.3% consensus. While this revenue gain should be easy given the weak comparables in 2020, the company will need to grow at an excess of 18% in order to reach the record sales of $5.3 billion – as seen in fiscal 2019.
2) EPS likely to be marginally higher than the consensus estimates
UA’s Q1 2021 earnings per share (EPS) is expected to reach 4 cents per Trefis analysis, slightly higher than the consensus estimate. Under Armour’s direct-to-consumer business constituted around 45% of the company’s revenues and grew 2% y-o-y in 2020. That said, a higher percentage of sales in digital hurts the company’s bottom line – as it still has to pay for its under-utilized retail locations along with the added cost of shipping online. Despite a 140-basis-point improvement in gross profit margins (48.3%), a 3% reduction in selling, general, and administrative expenses, and the $179 million sales of its MyFitnessPal platform, UA’s bottom line slipped into a loss in 2020. Going forward, the company expects to return to profitability in 2021- hoping to book a pro forma profit of between $0.12 and $0.14 per share.
(3) Stock price estimate higher than the current market price
Going by our Under Armour’s Valuation, with a revenue per share (RPS) estimate of around $10.72 and a P/S multiple of 1.9x in fiscal 2021, this translates into a price of $21, which is 3% higher than the current market price of around $20.
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