Under Armour Q3 Earnings Company Posts Stellar Earnings, However, Stocks Plummet On Bleak Future Outlook

Under Armour (NYSE:UA) reported a solid quarter posting better-than-expected earnings and revenue. The company’s sales surged to $1.47 billion this quarter on the back of strong footwear sales and exposure to mega events like the Rio Summer Olympics and the New York Fashion Week. This marks Under Armour’s 26th consecutive quarter in which the company posted sales growth greater than 20%. Additionally, the company reported a profit increase of more than 26%, with EPS coming in at $0.29. Despite this performance, the apparel giant’s stock crashed almost 13% after management warned of a weaker than expected growth outlook for the next two years.

The management expects the revenue grow rate in 2017 and 2018 to be in the low 20% range, marking the slowest growth pace since 2009. This is primarily due to a slowing apparel market in North America. Since almost 85% of Under Armour’s total revenues come from the North American market, this is a point of immediate concern. Despite being on track to achieve overall sales of $7.5 billion by 2018, the company expects operating income to fall short of its $800 million target. Going forward, the management expects annual operating income growth rate to be in the mid-teens percentage, for the next two years, as they focus on “investing to get big fast.”

Under Armour’s CEO, Kevin Plank, continues to vie for long-term opportunity, opposing short-term gains at the expense of continued growth. From the prepared statements in the earnings call, it is evident that the management is not willing to make any short-term moves, like cutting marketing or R&D spend, in an attempt to reach short-term profit goals. In actuality, such a strategy could greatly impact the company’s long-term prospects, particularly when it comes to growing its international business and footwear categories. These are areas where the company has invested heavily in order to gain market share and scale. Jeopardising growth in these businesses could have severely detrimental effects on the overall business.

Therefore, it seems plausible that profits will take a toll in the near future due to increased investments, but that these investments could position Under Armour for great things in the long-run.

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