Analysts Bullish On Under Armour After Q4 Beat

Under Armour Inc. surprised market watchers and investors who were expecting a subpar Q4 when it posted a solid earnings beat and its second consecutive billion-dollar quarter on Thursday.

On the heels of the earnings release, analysts — who had been concerned that a warmer November and December may have dragged down the brand’s apparel sales — now say they are blown away by Under Armour’s agility.

Under Armour’s solid Q4 sales growth reaffirms our view that the brand continues to have outsized growth prospects, and more importantly, that it can deliver solid growth in spite of unfavorable macro conditions,” wrote Canaccord Genuity Inc. analyst Camilo Lyon. “Moreover, Under Armour’s growth came from multiple categories (footwear up 95 percent; apparel up 22 percent; accessories up 23 percent; Connected Fitness up 221 percent) and regions (international up 70 percent).”

Also noting the brand’s broad-based category strength, Sterne Agee CRT analyst Sam Poser pointed out that Under Armour — with only 11,000 points of distribution, versus Nike Inc.’s 24,000 — has multiple opportunities to expand its reach. Looking ahead, footwear — helped significantly by sales of Stephen Curry’s signature shoes — will be a game-changer, Poser said.

Under Armour is evolving into a true footwear brand. In 2016, Under Armour plans to double the number of shoes priced over $100 to eight. With increased production scale, the footwear gross margin will improve,” Poser wrote. “… Despite a $130 retail price point, well under an average of $175 for Brand Jordan basketball shoes, the Curry shoes are being managed as marquee product through very controlled distribution. … we expect Under Armour to develop updated Curry styles at higher price points over time.”

Although its Connected Fitness platform, as CEO Kevin Plank noted during the firm’s conference call, hit a new high of 160 million active users, analysts say they still expect it to be a while before the platform reaches its full monetary potential.

While [the Connected Fitness] endeavor provides Under Armour with a plethora of customer data and further enhances [its] relationship with customers, we contend that a meaningful revenue and earnings opportunity of true wearable technology, such as a connected shirt, is likely at least five years away,” Poser said.

Citi Research analyst Kate McShane said she believes the brand’s management is focused “more than ever before” on “transforming Under Armour into a scaleable global business, with plans to sharpen merchandising, introduce new product segmentation and invest in a more efficient supply chain.”

Susquehanna Financial LLLP analyst Christopher Svezia said the next big question for Under Armour centers on its stock. The share price declined by double-digits over the last three months — dropping from a high of more than $100 and hovering right around $60 to $70.

Following the earnings release, the stock soared, ending the day up 23 percent, at $84.07.

We increase our price target to $87 as we roll out to next-year estimates, but for us to get more constructive and argue for multiple expansion, we need to gain confidence on cleaner inventory, a gross margin inflection and sales growth acceleration in 2H16,” Svezia wrote.

Under Armour ended the quarter with inventory up 46 percent on sales growth of 31 percent.

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