Athletic apparel and footwear maker Under Armour (NYSE: UAA) is scheduled to announce its results for the quarter ended March 31, 2022, on May 6. The company is calling the March quarter a “transition quarter” due to its decision to change its fiscal year-end from December 31 to March 31. The company’s Fiscal Year 2023 will now be from April 1, 2022, to March 31, 2023.
Despite Under Armour’s better-than-anticipated Q4-2021 results, shares are down nearly 28% year-to-date on concerns about persistent supply chain woes and the potential impact of high inflation and geopolitical tensions on consumer spending.
Under Armour’s Q4-2021 revenue grew 9% to $1.53 billion, ahead of the consensus estimate of $1.48 billion. Revenue growth was driven by robust sales in the Wholesale and direct-to-consumer channels. Adjusted EPS grew about 17% to $0.14, surpassing the consensus estimate of $0.07. Pricing benefits and lower-than-anticipated markdowns and promotions drove Q4-2021 profitability.
Expectations for the March Quarter
Back in February, Under Armour stated that it expects revenue in the transition quarter to grow at a mid-single-digit rate. This guidance includes a 10 percentage points adverse impact because of reductions in the company’s spring-summer 2022 order book due to supply chain disruptions.
Also, Under Armour expects its gross margin to decline by 200 basis points, reflecting the impact of higher freight expenses and an unfavorable sales mix, partially offset by better pricing. It expects GAAP EPS of $0.02-$0.03 in the transition quarter.
Meanwhile, analysts’ consensus EPS estimate is $0.04, compared to $0.17 in the prior-year quarter.
Under Armour believes that the ongoing supply chain issues are a “temporary speed bump” and continues to be optimistic about its ability to generate profitable growth over the long term.
Wall Street’s Take
Williams Trading analyst Sam Poser believes that Under Armour remains a “compelling turnaround story.” Poser feels that the company’s brand positioning has improved due to its initiatives to develop more focused products, enhance its DTC (direct-to-consumer) business, reduce its exposure to the off-price channel, and its decision to exit nearly 2,500 “brand-dilutive” wholesale accounts.
For the transition quarter, Poser expects EMEA (Europe, the Middle East, and Africa) revenue growth to decelerate due to shipping issues and Asia Pacific revenue growth to be adversely impacted by lockdowns in China. The analyst also anticipates a slowdown in the North America segment’s revenue growth rate.
Poser reaffirmed a Buy rating on Under Armour, with a price target of $22.
Overall, the Street is cautiously optimistic about Under Armour, with a Moderate Buy consensus rating based on 14 Buys and six Holds. The average Under Armour price target of $25.22 implies 64% upside potential from current levels.
Conclusion
Under Armour has been making several efforts to revive its business and regain its premium-brand image amid intense competition from Nike (NKE), Adidas (ADDYY), and several other rivals. While Under Armour’s restructuring initiatives have helped improve its positioning, near-term headwinds, including supply chain bottlenecks and higher costs, are expected to be a drag on its quarterly results.
Meanwhile, TipRanks data shows that financial blogger opinions are 85% bullish on Under Armour, compared to a sector average of 68%.
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