Under Armour Earnings Preview: Footwear and International Expansion Strategy to Aid Company’s Earnings This Quarter

July 25th, 2016 by Trefis Team
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UA: Under Armour logo
UA
Under Armour

Under Armour (NYSE:UA) is all set to report earnings on July 26th. The company has displayed very strong growht in recent quarters, with last quarter recording a 30% increase in revenues and 26% increase in profits year on year. The company is as popular as ever amongst shareholders and consumers alike. For example, the stock is currently trading at a price to earnings ratio above 70. This is considerably higher than competitors like Nike, Adidas and Lululemon (and significantly higher than that of an average S&P 500 company). Given the way things are at the moment, it doesn’t seem likely that UA’s momentum is going to break any time soon.

Key Trends:

  • Athleisure has taken the world by storm, comfortably establishing itself as a big trend in the fashion business nowadays; athletic clothing is no longer restricted to the gym or sports. Furthermore, the sports apparel industry has gained noteworthy popularity in the recent past as consumers world-wide learn the importance of a healthy lifestyle. A need to stay fit has driven demand in the sector. Under Armour is bearing the fruit of this trend and could continue to do so for the foreseeable future.
  • The company’s footwear segment has really taken off with the introduction of newer technology and products like the signature Curry basketball models. Despite Stephen Curry losing the title to LeBron James (a promoter of Nike), the recently launched Curry 2 and 2.5 are only slightly less popular than the Curry One. The shoes are still a major bestseller at stores like Footlocker, Eastbay and Dicks Sporting Goods. It is estimated that this quarter can show attractive revenue figures in Footwear on the back of the Curry 2 and 2.5 sales.
  • Under Armour continues expanding its business to foreign regions. Last quarter international revenues increased a mammoth 64.6% on a currency neutral basis. Though the gains this quarter may be somewhat less dramatic, it could still be a hefty increase.  The company is in an ongoing process to increase the international component of total revenues from 14% currently to 18% by 2018. China is the largest international customer for UA and the company has made considerable gains there. As the importance of fitness increases in the country, we are bound to see larger revenues from the area.
  • Connected Fitness is all set to make a bold step into the ever evolving wearable technology market. The user base on the app has been increasing at a rate of a million subscriptions a week. Growth in the segment is expected to be spurred on by increased acquisitions and further innovations. Like last quarter, we expect the top line to be aided by the expanding Connected Fitness business.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment / ask questions on the comments section

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our full analysis for Under Armour

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