Down 20% This Year, Will Under Armour’s Stock Recover Following Q4 Results?

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Under Armour

 Note: Under Armour’s FY’24 ended on March 31, 2024.

Under Armour (NYSE: UA), a sports equipment company that manufactures footwear, sports, and casual apparel, is scheduled to report its fiscal fourth-quarter results on Thursday, May 16. We expect Under Armour stock to trade higher post-fiscal Q4 2024 results with revenues and earnings likely beating consensus. The company’s stock traded lower this year as the company’s growth slowed down due to a heavily promotional market in the North American retail segment. The announcement that founder Kevin Plank would return as CEO (barely one year after the appointment of Stephanie Linnartz) also led to skepticism among investors. Outside of the retail issue in North America, Under Amour is seeing a booming business. The Europe, Middle East, Africa, and Asia Pacific regions saw high single-digit sales growth rates in Q3. The company is guiding to improving margins for FY’24, but the number will still be below the 50% levels of FY’21. The company goal is for gross margins to rally 120 to 130 basis points from the 44.9% level of FY’23. The recent decrease in the total number of shares and potential further reductions could positively impact the stock price in the longer term. The company’s geographic diversification, successful direct-to-consumer channels, and e-commerce strategies could lead to future net sales growth. For full year 2024, UA’s revenue is expected to be down 3-4% year-over-year (y-o-y). Diluted earnings per share are expected to be in the range of $0.57 to $0.59 and adjusted EPS of $0.50 to $0.52 in FY 2024.

UA stock has suffered a sharp decline of 55% from levels of $15 in early January 2021 to around $7 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. Notably, UA stock has underperformed the broader market in each of the last 3 years. Returns for the stock were 21% in 2021, -51% in 2022, and -6% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that UA underperformed the S&P in 2021, 2022, and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could UA face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

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Our forecast indicates that Under Armour’s valuation is $8 per share, which is around 20% higher than the current market price. Look at our interactive dashboard analysis on Under Armour‘s Earnings Preview: What To Expect in Q4? for more details.

(1) Revenues & Earnings Expected to Beat Consensus Estimates

Trefis estimates UA’s Q4 2024 revenues and EPS to be around $1.4 Bil and 8 cents, both higher than the consensus estimate. In Q3, the company’s revenues fell 6% year-over-year (y-o-y) to $1.5 billion. All segments, from the large apparel business to footwear, accessories, and licenses, saw revenues decline y-o-y in Q3. Wholesale revenues fell 13% y-o-y and direct-to-consumer revenues inched slightly higher at 3.5% y-o-y in Q3. Under Armour’s gross margins were around 50% after the Covid hit, but inventory pressures in the industry have driven margins down to 45.2% for the most recent quarter. Under Armour ended Q3 with inventory at $1.1 billion, down 9% from prior year levels in Q3. Cash and Cash Equivalents were $1 billion at the end of Q3, and no borrowings were outstanding under the company’s $1.1 billion revolving credit facility.

(2) Stock Price Estimate Higher than the Current Market Price

Going by our Under Armour’s Valuation, with an earnings per share (EPS) estimate of around 52 cents and a P/E multiple of 14.8x in fiscal 2024, this translates into a price of $8, which is almost 20% higher than the current market price. We forecast Under Armour’s Revenues to be $5.8 billion for fiscal 2024, down 2% y-o-y.

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

 Returns May 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 UA Return 2% -20% -74%
 S&P 500 Return 4% 9% 133%
 Trefis Reinforced Value Portfolio 4% 4% 636%

[1] Returns as of 5/14/2024
[2] Cumulative total returns since the end of 2016

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