Today, shareholders of Under Armour (UA) are breathing a sigh of relief. It turns out that it didn’t do quite as badly as analysts were fearing last quarter. Shares of UA rallied after the athletic apparel company beat expectations for the first quarter. Under Armour has lost half of its value over the past year; could it be ready for a big comeback? Let’s take a look.
As a refresher, Under Armour makes popular performance apparel, footwear and accessories. Based in Baltimore, Maryland, Under Armour experiments with synthetic fabrics to create clothing that keeps athletes warm in the winter, cool during the summer and every temperature in between. Under Armour offers a wide range of styles, including compression clothing, fitted and loose fits.
However, Under Armour’s cutting edge clothing wasn’t enough to keep it out of trouble in 2016 and 2017. Last quarter, Under Armour shocked investors by posting declining earnings that missed analysts’ estimates. To make matters worse, Under Armour’s CFO Chip Molloy recently left the company after just a year. Since then, analysts have been slashing their 2017 earnings estimates left and right.
Unfortunately, this latest earnings report is a case of too little, too late. Net sales increased 7% to $1.12 billion, a hair above analysts’ estimates of $1.11 billion. Sales in North America, its biggest market, fell 1%. And Under Armour wasn’t even able to turn a profit, reporting a loss of $0.01 per share. That was better than analysts’ projections of a $0.04 loss per share, at least.
However, the fact remains that Under Armour is expected to see shrinking earnings over the next few quarters. The consensus estimate is for a 150% earnings decline this quarter and a 29% decline next quarter. That’s not the kind of results that I’d expect from a big comeback story.
And, if you plug UA into Portfolio Grader, you can see just how weak this company’s fundamentals are. Of the eight fundamental metrics I graded UA on, it outright failed on three: earnings growth, earnings surprises and analyst earnings revisions. It barely squeaked by with Cs on operating margin growth, earnings momentum and cash flow.
Couple this with an F-rated Quantitative Grade, and it’s easy to see why UA is an outright sell. While UA did a little better than expected, I do not see much upside potential from here.