Overheard on Wall Street: Analysts React to Under Armour, Skechers Q1

Skechers' Michael and Robert Greenberg
Skechers' Michael and Robert Greenberg.
Courtesy.

Market watchers have been quite busy this week analyzing the first-quarter performance of some of the industry’s biggest names. FN caught up with a few analysts and sifted through the notes of a couple of others to bring you the inside scoop on Under Armour Inc. and Skechers USA Inc., which posted Q1 performance earlier in the week.

Under Armour Inc.
While Under Armour wrapped Q1 with results that were slightly down year over year, analysts are generally upbeat and chalking up the losses to the company’s long-term investment strategy.

“[Under Armour] said their [net income and EPS] would be slightly down because they would be investing in SG&A [selling, general and administrative expenses], so we weren’t surprised,” said Sterne Agee analyst Sam Poser, noting that the company is his top pick for long-term-growth investors.

Citi Research analyst Kate McShane and Susquehanna Financial analyst Christopher Svezia said the Baltimore-based company’s Q1 performance was “strong” and that their optimism about the brand is bolstered by its 74 percent growth in international revenue.

In a note this week, McShane said the brand could also see potential upside from faster growth in footwear, which saw a 41 percent jump in sales in Q1.

“As we grow our presence in key footwear categories, like running and basketball, it’s helping to drive our business in those key growth categories across all men’s and women’s apparel,” said Under Armour’s CEO Kevin Plank in the conference call last week. “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.”

Skechers USA Inc.
“Skechers is in the sweet spot in terms of what’s working in footwear right now,” said B. Riley & Co. LLC analyst Jeff Van Sinderen. “They couldn’t be in a much better position in terms of product offerings.”

Analysts say the company remains a top stock pick, but a few mentioned concerns about management’s strategy for the European Distribution Center.

“[We had] less efficient operations than originally anticipated at our European Distribution Center due to the transition to a new automated system, combined with higher-than-expected sales,” explained David Weinberg, Skechers’ COO and CFO, during the Q1 conference call.

Weinberg said the company is already close to outgrowing its newly automated European Distribution Center and is in the process of two expansion phases that will double its size, to more than 1 million square feet, by early 2016.

In a note this week, Wunderlich Securities Inc. analyst Danielle McCoy said she views international expansion as Skechers’ largest growth opportunity.

While the global push is still in early stages, analysts say China might represent a major growth prospect for Skechers.