Under Armour Stock To Trade Higher Post Q2 Release?

UA: Under Armour logo
Under Armour

Under Armour (NYSE: UA), a sports equipment company that manufactures footwear, sports, and casual apparel, is scheduled to report its fiscal second-quarter results on Tuesday, August 3. We expect Under Armour stock to trade higher post-fiscal Q2 2021 results with revenues likely coming in line and earnings beating consensus. After struggling in 2020, the company reported strong first-quarter earnings signaling that a turnaround was in motion. The upswing in performance caught the market off-guard as earnings per share (EPS) of $0.16 and revenue of $1.26 billion easily exceeded the $0.04 and $1.12 billion forecasts. The company is working on a multi-pronged approach that includes broadening its appeal in popular categories like running, relaunching an improved North American digital channel, implementing supply constraints to better align distribution with demand, and a restructuring program.

Our forecast indicates that Under Armour’s valuation is $21 a share, which is 18% higher than the current market price of around $18. Look at our interactive dashboard analysis on Under Armour‘s Pre-Earnings: What To Expect in Q2? 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 $1.21 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.  It should be noted that the pandemic certainly magnified the company’s digital adoption rates, which led to e-commerce growing 40% in 2020. This digital momentum continued into Q1 with the e-commerce channel generating 69% growth – thanks to improved personalization capabilities. To add to this, the North American business rebounded with a 32% increase in sales in Q1. Consequently, Under Armour’s revenue forecast was lifted to a high-teen percentage y-o-y increase, replacing the previous high single-digit increase guidance in fiscal 2021.

2) EPS likely to be higher than the consensus estimates

UA’s Q2 2021 earnings per share (EPS) is expected to reach 6 cents per Trefis analysis, 24% higher than the consensus estimate. 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. However, the company became profitable again in Q1, with $78 million in net income, or $0.17 in earnings per share. Going forward, the company expects earnings to come between $0.02-to-$0.04 loss in fiscal 2021, replacing the previous guidance of a loss of $0.18 to $0.20. As part of the company’s restructuring plan set in place last year, Under Armour has already taken a pre-tax charge of $450 million out of the projected $550 million to $600 million. It expects to recognize another $35 million to $40 million in Q2, which will still pressure the bottom line. While Under Armour still has plenty of work ahead, it’s in a better competitive place right now.

(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 18% higher than the current market price of around $18.

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