Categories Analysis, Consumer

Earnings Preview: Will Under Armour survive the market headwinds in Q2?

After recording profit for the recent quarters, sportswear company Under Armour (NYSE: UAA) is likely to slip into the negative territory in the second quarter of 2019. The results will be published Tuesday 6:55 AM ET. Analysts predict a loss of $0.05 per share for the quarter, narrower than last year’s $0.08 per share loss. Revenues are seen rising 2% annually to $1.2 billion.

Under Armour (UAA) swings to profit in Q1, beats estimates

Since the weakness in North America persists, Under Armour is betting on international markets to generate sales.  The direct-to-consumer channel is also expected to contribute handsomely. The company has armed itself with an improved price mix to fight the negative market conditions, including weak demand.

Though favorable pricing and marketing initiatives might boost margins, it will be partially offset by higher costs, including store and distribution expenses. The net gain will help in improving the bottom-line compared to last year, but might not be sufficient to lift the company from the red.

However, a sustainable long-term recovery is very much in the cards and that will come from the management’s efforts at brand development and extra focus on technology-based fitness products, under its transformation plan.

Also see: NIKE Q4 2019 Earnings Conference Call Transcript

It needs to be noted that Under Armour recently made a couple of acquisitions with the aim of focusing more on fitness devices and cash in on the growing health awareness among athletes and sportspersons.  Another promising aspect of the strategy is the expansion of the direct-to-consumer segment.

In the first quarter, weakness in the core apparel business and lower accessory sales were more than offset by strong growth in footwear sales. Consequently, the company turned to a profit of $0.05 per share from a loss in the prior-year period.

Then, the management raised its full-year earnings outlook, apparently encouraged by the positive results. Weak North America sales restricted the top-line growth to 2% and total revenues came in at $1.2 billion.

Related: Under Armour Q1 2019 Earnings Call Transcript

Hurt by a marked increase in expenses, Nike (NKE) last month reported a decline in its fourth-quarter earnings to $0.62 per share, which also missed the estimates. Revenues rose 4% to $10 billion.

Under Armour’s shares rose about 55% since the beginning of 2019, but it was a bumpy ride all along. In the past twelve months, the stock gained about 34%.

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