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Athletic apparel company Under Armour (NYSE:UAA) beat analysts' expectations in Q2 CY2024, with revenue down 10.1% year on year to $1.18 billion. It made a non-GAAP profit of $0.18 per share, improving from its profit of $0.02 per share in the same quarter last year.
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Under Armour (UAA) Q2 CY2024 Highlights:
- Revenue: $1.18 billion vs analyst estimates of $1.14 billion (3.8% beat)
- EPS (non-GAAP): $0.18 vs analyst estimates of -$0.08 ($0.26 beat)
- EPS (non-GAAP) guidance for the full year is $0.21 at the midpoint, beating analyst estimates by 1.8%
- Gross Margin (GAAP): 47.5%, up from 46.1% in the same quarter last year
- EBITDA Margin: -22.5%, down from 4.5% in the same quarter last year
- Free Cash Flow of $107.3 million is up from -$156.7 million in the previous quarter
- Constant Currency Revenue rose 10% year on year (-1.3% in the same quarter last year)
- Market Capitalization: $2.78 billion
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 GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Under Armour's sales grew at a weak 2.3% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Under Armour's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 1.4% annually.
We can better understand the company's sales dynamics by analyzing its constant currency revenue, which exclude currency movements that are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 2.2% year-on-year growth. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for Under Armour.
This quarter, Under Armour's revenue fell 10.1% year on year to $1.18 billion but beat Wall Street's estimates by 3.8%. Looking ahead, Wall Street expects revenue to decline 8.6% over the next 12 months.
Cash Is KingIf you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Under Armour broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.
Under Armour's free cash flow clocked in at $107.3 million in Q2, equivalent to a 9.1% margin. This quarter's result was nice as its cash flow turned positive after being negative in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.
Over the next year, analysts predict Under Armour will flip from cash-producing to cash-burning. Their consensus estimates imply its free cash flow margin of 6.3% for the last 12 months will decrease to negative 1.5%.
Key Takeaways from Under Armour's Q2 Results We were impressed by how significantly Under Armour blew past analysts' constant currency revenue expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. Full year EPS guidance was above expectations, which was icing on the cake. Zooming out, we think this was certainly a solid quarter. The stock traded up 11.4% to $7.21 immediately after reporting.
