What To Expect From Under Armour’s Stock Post Transition Quarter?

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 transition quarter results on Friday, May 6. We expect Under Armour stock to trade higher post transition quarter 2022 results, with revenues and earnings likely beating consensus. Under Armour announced that it was changing its fiscal year-end date from December 31 to March 31. The retailer is virtually skipping FY’22 with this March quarter in a separate period. Following a three-month transition period from Jan. 1, 2022, to March 31, the next fiscal year will run from April 1 to March 31, 2023. For the transition quarter, the company expects sales to rise in the mid-single-digit range. Under Armour said it will wait until the transition quarter results to provide a more detailed outlook for its upcoming fiscal year 2023.

The athletic apparel company is benefiting from the ongoing turnaround as seen from its record financials in 2021. Its full-year 2021 revenues grew 27% year-over-year (y-o-y) to $5.7 billion and adjusted earnings grew to 85 cents from a loss of 26 cents in 2020. The company also saw an impressive gross margin at 50.3% for the full year. In addition, it has a sizeable  cash balance of $1.7 billion, placing the net cash position at a strong $1 billion. That said, Under Armour will have the ability to invest future cash flows possibly into stock buybacks with the cash balance. While the next few quarters could see headwinds of shipping congestion, supply chain issues, and the transition of the fiscal year to end in March – the longer-term gains look solid for the company.

Our forecast indicates that Under Armour’s valuation is $20 per share, which is 39% higher than the current market price. Look at our interactive dashboard analysis on Under Armour‘s Earnings Preview: What To Expect in Transition Quarter? for more details.

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(1) Revenues expected to be ahead of consensus estimates

Trefis estimates UA’s Transition Quarter 2022 revenues to be around $1.39 Bil, 5% higher than the consensus estimate. The company reported Q4 revenues of $1.5 billion, up nearly 9% year-over-year (y-o-y). To break it down further, the retailer’s net revenue in North America climbed 15%, while international sales were up 3%. To add to this, e-commerce sales grew 4% from year-ago levels, representing 42% of Under Armour’s direct-to-consumer sales, with the remainder coming from the retailer’s brick-and-mortar stores. We forecast Under Armour’s Revenues to be $5.6 billion for the next fiscal year, down 2% y-o-y.

2) EPS likely to be above the consensus estimates

UA’s Transition Quarter 2022 earnings per share (EPS) is expected to reach 6 cents per Trefis analysis, comfortably beating the consensus estimate of $0.05. The company also logged a higher gross profit margin of 50.7% compared to the prior year, up 130 basis points, driven by benefits from pricing and restructuring charges in the prior year, offset by elevated freight expenses, the absence of MyFitnessPal, and an unfavorable product mix. The company’s adjusted earnings per share also grew 17% y-o-y to 14 cents in Q4 2021. The company pointed to rising freight costs and supply chain issues to pressure profitability in the upcoming Transition Quarter – resulting in earnings per share falling y-o-y compared to $0.17 a year ago.

It should be noted that while the company is not facing any issues in consumer demand, the pandemic has brought in issues with product availability and shipping costs. These could lead to short-term margin pressures for the company going forward.

(3) Stock price estimate higher than the current market price

Going by our Under Armour’s Valuation, with an EPS estimate of around $0.78 and a P/S multiple of 26.0x in fiscal 2022, this translates into a price of $20, which is 39% higher than the current market price.

It is helpful to see how its peers stack up. UA Peers shows how Under Armour compares against its peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

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Returns May 2022
MTD [1]
YTD [1]
Total [2]
 UA Return 2% -20% -43%
 S&P 500 Return 4% -10% 92%
 Trefis Multi-Strategy Portfolio 5% -13% 243%

[1] Month-to-date and year-to-date as of 5/5/2022
[2] Cumulative total returns since the end of 2016

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