Under Armour Q1 Results Mixed, Footwear Performance Solid

Under Armour Inc.’s  stock is down 4 percent today following a mixed finish to Q1, with net income as well as EPS slightly down year-on-year, while revenue, footwear and international saw double-digit growth. Increased air-freight charges from the West Coast ports dispute and currency headwinds also posed a challenge for the Baltimore-based company in Q1, with FX adding a 2 percent drag on revenues.

Net Income: Profits decreased 13 percent, to $12 million, compared with the year-ago quarter’s $14 million, inclusive of costs related to Q1’s Endomondo and MyFitessPal acquisitions.

EPS: Earnings per diluted share were 5 cents, down slightly from last year’s Q1 EPS of 6 cents.

Net Revenue: Sales rose 25 percent — 27 percent on a currency neutral basis — to $805 million, compared with the year-ago quarter’s $642 million. Footwear sales were up 41 percent, to $161 million, highlighted by expanded SpeedForm running offerings and the introduction of the Curry One basketball shoe. International net revenue was up 74 percent year-over-year and represented 12 percent of total revenue.

Hit, Miss or Beat: Under Armour’s performance was a beat on Wall Street’s forecast revenue forecasts and hit estimates for EPS of 5 cents. Analysts polled by Yahoo Finance had predicted revenue of $803 million for the quarter, and Under Armour landed $2 million above that.

Executive Insights: On an April 21 conference call, CEO Kevin Plank said of footwear: “Building up the success of our SpeedForm platform, we’re introducing cleated models in both American and global football, including a boot worn by one of our newest athletes, Memphis Depay, the top scorer in the Dutch League…. Our growing strength in footwear is also helping to drive apparel sales with kids as we understand how critically important the footwear piece is to how our young male and female consumers dress.”

“While we prioritize footwear, I’ve moved [Kip Fulks] and have him exclusively focused on footwear and innovation. And I think it’s really going to be a driver for the company with what you’ll see coming out as we see this massive opportunity in footwear.”

Regarding international expansion, Plank said: “The momentum continues in Europ…. It’s not as much today about a distribution-expansion game, but it is about getting better in the places where we are doing business. Because when we say we were distributing in most of the stores, it was a few racks at best, of a couple of compression T-shirts, and typically, men’s only. So we’re looking to, I think, modify that conversation as well and take our positioning to be, first of all, a full-resource brand – meaning men’s, women’s and kids.”

Looking Ahead: Under Armour said it now expects 2015 net revenues of approximately 3.78 billion, representing growth of 23 percent, and operating income in the range of $400 million to $408 million, representing growth of 13 percent to 15 percent. The 2015 guidance, the company said, continues to reflect the net dilutive impact from the Connected Fitness acquisitions, including one-time deal-related costs, as well as the impact of the strong dollar negatively impacting operating margins within its international businesses.

Analysts Insights: “No sign of weakness at [Under Armour]. We would use any decline in the stock price as a buying opportunity. We expect, as in recent years, for guidance to continue to increase throughout the year.” – Sam Poser, Sterne Agee analyst.

“Port issues could be a [one-time] headwind that could allow for rev re-acceleration — and better gross margins — ahead, lumpy international revenues could reaccelerate significantly (after slowing to 74 percent in 1Q from 120 percent in 4Q), and footwear seems poised to be a bigger contributor going forward.” –Michael Binetti, UBS Investment Bank analyst.

“While the stock could see some pressure today on slower apparel growth [versus] total [revenues], we still think [Under Armour’s] brand momentum remains robust and guidance looks conservative, with potential upside from footwear, marketing initiatives, digital, international acceleration.” –Kate McShane, Citi Research analyst.

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