A few weeks ago, athletic apparel maker Under Armour Inc. (UA) was having a rough time. Golf star Jordan Spieth, whose name was plastered all over Under Armour’s newest line of golf shoes, had whiffed on the Masters tournament.
To add insult to injury, an analyst at Morgan Stanley advised selling the stock, arguing that slowing footwear sales would likely hurt first-quarter earnings. So, in the days leading up its earnings report, UA shares stumbled. There was a lot of nervousness that UA wouldn’t perform.
Well, as it turns out, those fears were unfounded. This morning, UA shares rallied after it trounced first-quarter sales and earnings expectations. Notably, the company’s had two successful launches last quarter: Its Stephen Curry line of basketball footwear and its Jordan Spieth line of golf shoes.
Driven by strong footwear and apparel sales, company-wide sales jumped 30% year-on-year to $1.05 billion, beating the $1.02 billion consensus estimate. Over the same period, net income increased 63% to $19 million, or $0.04 per share. Analysts were looking for $0.02 EPS, so Under Armour posted a whopping 100% earnings surprise.
Encouraged by these strong results, Under Armour lifted its forecast for FY 2016. The company now expects to bring in $5 billion in revenue, a 26% increase over FY 2015. Under Armour is also targeting operating income between $503 million and $507 million, representing approximately 23% annual growth.
After the big Masters upset, and the chatter from Morgan Stanley, this earnings report is exactly what UA needed. However, while this is great news for existing UA shareholders, I’d hold off on buying more shares at this time. The stock trades at a somewhat high multiple, and UA’s deteriorating Quantitative Grade caused me to downgrade the stock to a hold last weekend.
Now, this weekend I’m going to take another look at UA and see if the latest earnings activity is enough to warrant an upgrade. But in the meantime, I’m playing it safe and keeping UA at a hold.