What To Expect From Under Armour’s Q3 Earnings

Under Armour (NYSE:UA) is all set to report earnings on October 31. In general, things at the company don’t look too good. After sustaining an average 20% growth since 2010, the company has finally hit the ceiling. The sports apparel manufacturer continues to struggle with a slowing U.S. apparel market, and changing consumer trends. This has significantly hurt the top and bottom lines over the last few quarters.

That said, in order to minimize the impact going forward, management has decided to initiate a restructuring strategy (“a pivot”) that will require the termination of about 2% of the company’s global workforce, while shedding some of its least profitable businesses.

Points To Note:

• As mentioned previously, Under Armour has struggled with the North American market over the last few quarters. It has remained volatile for sports apparel retailers and manufacturers ever since Sports Authority went bankrupt last year. And this is worrying investors, since sales from the region account for more than 70% of the total revenues at the company.
• To put this into perspective, one need only look at Dick’s Sporting Goods’ (Under Armour’s largest wholesale partner) financials. In the last quarter, the wholesale sports retailer barely posted positive same-store sales, and is expecting the metric to remain flat, or decline marginally, over the remainder of the year.
• That said, management announced earlier in the year that the company has partnered with Kohl’s in order to reach into an entirely untapped customer base. So far, the company hasn’t said much about the partnership. We can expect the call to provide further details on the matter.
• Last quarter, after years and years of campaigning for its Connected Fitness designs and apps, Under Armour decided to finally cut its losses and move on. It seems as though we’ll be seeing more businesses closing this quarter also. Over the years, under the veil of growth, the company managed to stretch itself too thin. Hence, a consolidation of its businesses comes as a very welcome move. There are rumors that the company might be exiting its Tennis and other outdoor businesses. If so, we expect to learn a lot more about these developments in the upcoming call.
• Last quarter, the company reduced its guidance for the remainder of the year. Under Armour slashed its full year operating profit outlook down from $320 million to $280 – $300 million. Further, the company slowed down its growth expectations for FY 2017. The sportswear company now expects revenues to rise 9 – 11% this year, down from previous expectations of 11 – 12%.

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