Under Armour’s stock has stabilized after the company’s third-quarter earnings report exceeded expectations. While revenue fell short of consensus, the company beat profit expectations and provided better-than-expected per-share earnings guidance for the full year. This positive news comes after profit warnings from competitors Nike, Adidas, and Puma. Wedbush analyst Tom Nikic described Under Armour’s results as “surprisingly better-than-expected” but noted that they were mixed on an absolute basis.
Despite the positive earnings report, there is still work to be done for Under Armour. However, analysts remain hopeful for better days ahead. Under Armour is currently the cheapest athletic-wear stock in Wedbush’s coverage, trading at less than 13 times fiscal 2025 per-share earnings. The risk/reward ratio is seen as highly positive if the company can successfully “put it all together.”
During the third quarter, Under Armour posted net income of $114.1 million, or 26 cents a share, compared to $121.6 million, or 27 cents a share, in the same period last year. Adjusted per-share earnings came to 19 cents, surpassing the FactSet consensus of 11 cents. However, revenue declined to $1.486 billion from $1.582 billion a year ago, falling below the FactSet consensus of $1.503 billion.
Under Armour’s CEO, Stephanie Linnartz, acknowledged that consumer buying behavior was inconsistent and that U.S. sales are not yet where they should be. She emphasized that driving U.S. sales will be a multiyear journey and that there is still much work to be done for the company to become a healthier business capable of returning to growth in its largest market.
Wholesale revenue fell by 13% to $712 million, while direct-to-consumer revenue rose by 4% to $741 million. The North America region saw a 12% decline in revenue to $915 million, while international revenue increased by 7% to $566 million. Apparel revenue fell by 6% to $1 billion, footwear revenue was down 7% to $331 million, and accessories revenue remained flat at $105 million.
Despite the challenges, Under Armour managed to expand its gross margin by 100 basis points to 45.2% due to supply chain benefits from lower freight costs. However, this was partially offset by inventory management actions and increased promotion in the direct-to-consumer business.
Looking ahead, Under Armour adjusted its 2024 guidance and now expects revenue to decline by 3% to 4%, slightly narrower than its previous guidance of down 2% to 4%. The company expects EPS of 57 cents to 59 cents and adjusted EPS of 50 cents to 52 cents. Gross margin is expected to gain 120 basis points to 130 basis points.
Under Armour’s executive team is relatively new, with two-thirds of the team being at the company for less than a year. The company recently hired designer John Varvatos as chief design officer and Yassine Saidi as chief product officer. They are still searching for a head of footwear, which remains their most important category.
Overall, Under Armour’s stock has fallen 24% in the last 12 months, while the S&P 500 has gained 21%. The company still has challenges to overcome, but with a new executive team in place and a focus on improving sales in the U.S., there is hope for better performance in the future.
