Under Armour Inc. (UA)

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Under Armour Inc (UA): Is The Stock A Buy Ahead Of Earnings?
By: George Zack Published: Oct 21, 2015 at 10:44 am Est
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On the back of its continued focus on digital initiatives and brand value generation, we believe Under Armour is all set to post upbeat earnings for the latest quarter





Under Armour Inc. (NYSE:UA) is expected to release its financials for the third quarter of fiscal year 2015 before the opening bell on October 22. With the stock having skyrocketed to an all time high this year, landing gains to the north of 45%, Under Armour is pushing its brand name further into the limelight.

Earnings Preview: What To Look For?
As per data collected from Bloomberg, the athletic apparel maker is expected to post net income of $97.29 million, or $0.44 per share. This would reflect an increase of more than 8.1% in adjusted earnings per share and 9.2% in adjusted net income from the comparable quarter prior year, when the company was able to report net income of $86.7 million and EPS of $0.41 apiece.

Revenues on the other hand is projected to come in at $1.17 billion, signifying potential of a good 27% in sales growth from a year earlier, when Under Armour posted revenues of $925 million.

What Is Driving Momentum?
In its attempts to become one of the largest athletic apparel and shoes makers, Under Armour has rapidly boosted its market share by leaps and bounds, surpassing several major household names in the athletic industry. It now resides at the second spot, just a notch behind Nike Inc, the largest global sportswear maker.

The company’s founder and chief executive, Kevin Plank, has led an aggressively competent and competitive executive team, which has assisted the company in reporting impeccable revenue growth, as he pushes the brand into the spotlight for innovative and high quality products.

Even though its market share limited to the United States, its growing brand equity opens up a way with strong potential for improvement in the future. As such, Mr. Plank has taken several strategic steps, albeit risky ones, such as endorsing athletes early in their careers. Some of these athletes have turned out to enjoy major success, making the company’s strategy of landing deals with athletes before they achieve stardom pure genius.

Among these endorsements is a 10-year partnership agreement with star golfer Jordan Spieth, earlier this year. Ever since Under Armour inked its contract with the golfer, he has topped expectations to become only the sixth athlete to ever win the US Open and the Masters in the same year. In signing the partnership early on, Mr. Plank is estimated to have saved around $10 million to $15 million annually.

The company’s endorsements of a number of other notable athletes has also boosted its brand value in the eyes of consumers. Among these athletes is the NBA’s Most Valuable Player Stephen Curry, New England Patriots Quarterback Tom Brady, and ballerina dancer Misty Copeland.

The company also recently landed a deal with University of Wisconsin-Madison, worth $96 million that will span for over a decade. It marks as one of the most attractive deals the company has ever inked with college athletes.

More notably, in its efforts to build and reinforce its athletic image in unique and interesting ways, the corporation is focusing a lot on fitness apps. Last year, the company acquired MyFitnessPal and Endomondo, and this year it disclosed a deal with HTC Corporation. The partnership with HTC will help Under Armour work on the development of a wearable device to function with its “Record App”.

Will It Top Expectations Again?
Bidness Etc believes Under Armour's strong sales momentum sets a clear stage for the company to further penetrate in the market. Revenues have outperformed expectations for the past eight quarters, and it is highly probable it will continue to do so. Its history of sales growth also appears affirmative; for the prior second quarter, the company reported revenues growth of 28.5% to $783.58 million. This marks the 21st consecutive quarter in which the company has reported sales growth beyond 20%.

Revenues have jumped higher by a whopping 29.30% annual for the past five years on average, while they grew 32.30% to $3.08 billion for past fiscal year 2014.




We are hopeful that the company’s heavy direct to consumer sales mix, which amounts to nearly 30% of revenues, smart athlete endorsement deals, disciplined international footwear expansion, and digital investments in fitness, all assimilate to take its market share upstream in the weeks ahead.

The company has a track record of beating its earnings and revenue expectations every time. The last time the company lagged behind analysts estimates was way back for the fourth quarter of fiscal year 2008. Hence, it is unlikely the company would fall out on expectations, considering how a plethora of positive factors are boding well for Under Armour in the near term.

With the company’s sustained focus on product innovation and brand development, Under Armour appears well positioned to rake in significant price appreciation and land all time highs, post earnings release. As such, we believe that its the right time for investors to go long on the stock.



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