Stock Story -
Athletic apparel company Under Armour (NYSE:UAA) reported results in line with analysts' expectations in Q1 CY2024, with revenue down 4.8% year on year to $1.33 billion. It made a non-GAAP profit of $0.11 per share, down from its profit of $0.18 per share in the same quarter last year.
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Under Armour (UAA) Q1 CY2024 Highlights:
- Revenue: $1.33 billion vs analyst estimates of $1.33 billion (small beat)
- EPS (non-GAAP): $0.11 vs analyst estimates of $0.08 (45.7% beat)
- Company will undertake a restructuring
- CEO: "Due to a confluence of factors, including lower wholesale channel demand and inconsistent execution across our business, we are seizing this critical moment to make proactive decisions to build a premium positioning for our brand, which will pressure our top and bottom line in the near term"
- Full year revenue guidance: sales down low double-digit percentage rate (Wall Street Consensus was expecting 1.8% year on year growth)
- Full year EPS (non-GAAP) guidance: $0.20 at the midpoint, well below Wall Street Consensus of $0.59
- Gross Margin (GAAP): 45%, up from 43.4% in the same quarter last year
- Market Capitalization: $2.93 billion
Founded in 1996 by a former University of Maryland football player, Under Armour (NYSE:UAA) is an apparel brand specializing in sportswear designed to improve athletic performance.
Apparel, Accessories and Luxury GoodsWithin apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales GrowthA company's long-term performance can indicate its business quality. Any business can enjoy short-lived success, but best-in-class ones sustain growth over many years. Under Armour's annualized revenue growth rate of 2.7% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Under Armour's recent history shines a dimmer light on the company as its revenue was flat over the last two years.
Under Armour also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 1.1% year-on-year growth. Because this number aligns with its revenue growth during the same period, we can see Under Armour's foreign exchange rates have been steady.
This quarter, Under Armour reported a rather uninspiring 4.8% year-on-year revenue decline to $1.33 billion of revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 2% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Under Armour was profitable over the last two years but held back by its large expense base. Its average operating margin of 4.5% has been paltry for a consumer discretionary business. This quarter, Under Armour generated an operating profit margin of negative 0.3%, down 2.8 percentage points year on year.
Over the next 12 months, Wall Street expects Under Armour to become more profitable. Analysts are expecting the company’s LTM operating margin of 4.1% to rise to 6.1%.Key Takeaways from Under Armour's Q1 Results The quarter's results were fine, but the big news is a restructuring that Under Armour is initiating. To explain the rationale of the restructuring, the company's CEO stated that "Due to a confluence of factors, including lower wholesale channel demand and inconsistent execution across our business, we are seizing this critical moment to make proactive decisions to build a premium positioning for our brand, which will pressure our top and bottom line in the near term". Because of this, Under Armour provided full year guidance that was well below expectations for sales and EPS, as the company will have to endure some shorter-term pain to rightsize the business for the longer term. The stock is down 15.8% on the results and currently trades at $5.72 per share.
