Company Update (NYSE:UA): Under Armour Inc Reports Fourth Quarter Results


Under Armour, Inc. (NYSE:UA) announced financial results for the fourth quarter ended December 31, 2015.  Net revenues increased 31% in the fourth quarter of 2015 to$1.17 billion compared with net revenues of $895 million in the prior year’s period.  On a currency neutral basis, net revenues increased 33% compared with the prior year’s period.  Operating income increased 21% in the fourth quarter of 2015 to $178 million compared with $146 million in the prior year’s period.  Net income increased 21% in the fourth quarter of 2015 to $106 million compared with $88 million in the prior year’s period and diluted earnings per share for the fourth quarter of 2015 were $0.48 compared with $0.40 per share in the prior year’s period.

Fourth quarter apparel net revenues increased 22% to $865 million compared with $708 million in the same period of the prior year, led by growth in training, running, golf and basketball.  Fourth quarter footwear net revenues increased 95% to $167 million from $86 million in the prior year’s period, primarily reflecting the success of the Curry signature basketball line and expanded running offerings.  Fourth quarter accessories net revenues increased 23% to $97 million from $79 million in the prior year’s period, driven primarily by new introductions across the bags category.  Direct-to-Consumer net revenues, which represented 36% of total net revenues for the fourth quarter, grew 25% year-over-year.  International net revenues, which represented 12% of total net revenues for the fourth quarter, grew 70% year-over-year, or 85% on a currency neutral basis.

Kevin Plank, Chairman and CEO of Under Armour, Inc., stated, “Our core business remains incredibly strong and our 31% net revenue growth in the fourth quarter is clear evidence of the continued expansion in the breadth and depth of our Brand.  We delivered our 25th consecutive quarter of more than 20% net revenues growth in our largest product category of apparel.  Moreover, we continued to diversify our product offering and geographic reach, driving significant market share gains in key strategic areas like basketball footwear, while better meeting the needs of the global athlete with investments in our global Brand House stores and e-commerce sites helping drive 70% growth in international.  With our continued investments across people, systems, and digital, we are confident in our ability to build upon this tremendous momentum, reinforcing our belief that we are just getting started in becoming the next great global brand.”

Gross margin for the fourth quarter of 2015 was 48.0% compared with 49.9% in the prior year’s period, primarily reflecting negative impacts of approximately 90 basis points from sales mix, specifically from strong footwear growth, approximately 80 basis points from the continued strength of the U.S. Dollar, and approximately 30 basis points from higher liquidations.  Selling, general and administrative expenses as a percentage of net revenues were 32.8% in the fourth quarter of 2015 compared with 33.6% in the prior year’s period, primarily reflecting the planned timing of marketing expenses and lower incentive compensation expenses.

Review of Full Year Operating Results

For the full year 2015, net revenues increased 28% to $3.96 billion compared with $3.08 billion in the prior year and compared with the Company’s prior outlook of $3.91 billion.  Operating income grew 15% to $409 million in 2015 compared with $354 million in the prior year and compared with the Company’s prior outlook of $408 million.  Total costs of the Company’s two Connected Fitness acquisitions completed in the first quarter, comprised of operating losses, one-time transactions costs, and non-cash amortization charges of the intangible assets generated from the acquisitions, were $23 million for 2015.  Diluted earnings per share for 2015 increased 11% to $1.05 compared with$0.95 per share in the prior year, inclusive of a $0.10 dilutive impact of the Connected Fitness acquisitions.

Apparel net revenues increased 22% to $2.80 billion compared with $2.29 billion in the prior year, led by growth in golf, running and team sports.  Footwear net revenues increased 57% to $678 million during 2015 compared to$431 million in 2014, reflecting expanded offerings in running and basketball.  Accessories net revenues increased 26% to $347 million during 2015 compared to $275 million in 2014.  Direct-to-Consumer net revenues, which represented 30% of total net revenues for 2015, grew 27% over the prior year.  International net revenues, which represented 11% of total net revenues for 2015, grew 69% year-over-year, or 84% on a currency neutral basis.

Gross margin for 2015 was 48.1% compared with 49.0% in 2014, primarily reflecting a negative 70 basis point impact from the continued strength of the U.S. Dollar.  Selling, general and administrative expenses as a percentage of net revenues were 37.8% for 2015 compared with 37.5% for 2014, primarily reflecting broad-based investments to support global growth initiatives.

Balance Sheet Highlights

Cash and cash equivalents decreased 78% to $130 million at December 31, 2015 compared with $593 million atDecember 31, 2014.  Inventory at December 31, 2015 increased 46% to $783 million compared with $537 million atDecember 31, 2014.  Total debt increased to $669 million at December 31, 2015 compared with $284 million atDecember 31, 2014, primarily reflecting borrowing to fund the two Connected Fitness acquisitions.

Updated 2016 Outlook

Based on current visibility, the Company expects 2016 net revenues of approximately $4.95 billion, representing growth of 25% over 2015 and 2016 operating income of approximately $503 million, representing growth of 23% over 2015, in line with the financial targets outlined at the Company’s September 2015 Investor Day.  Below the operating line, the Company expects interest expense of approximately $35 million, an effective full year tax rate of approximately 38.5%, and fully diluted weighted average shares outstanding of approximately 223 million for 2016.

Mr. Plank added, “In 2016 we celebrate our 20th year in business.  We started by redefining the sports apparel industry through performance fabrics and today we are raising the bar for what athletes expect across all of their health & fitness needs.  Our footwear business, driven by the outstanding success of our signature Curry basketball line, will deliver new iterations of signature product across premium price points and distribution throughout the year.  Our momentum in footwear extends across categories, including elevated running styles where we are doubling our offerings priced above $100 including the launch of our first smart shoe, SpeedForm Gemini 2 RE, and SpeedForm Slingshot, made with a 3D knitting process to deliver incredible fit and feel.  In apparel, we will continue to lead with purposeful innovation through the debut of two new HeatGear® apparel cooling technologies, Microthread and CoolSwitch, while also launching a proprietary ColdGear® insulation story called Reactor.”

“In Connected Fitness, we ended 2015 with nearly 160 million unique registered users across our platform that logged nearly 8 billion foods and 2 billion activities during the year.  Earlier this month at the Consumer Electronics Show, we unveiled the new UA Record, the digital dashboard app for your health & fitness, and a suite of new products led by Under Armour HealthBox, the world’s first complete Connected Fitness system.  Working seamlessly together, these products create the framework for all athletes to measure their health & fitness.  Now with a more complete picture of our consumer, we are establishing our data-driven math house that will provide us with real-time information to make better decisions and build even better products.  More importantly, it will provide deeper insights, recommendations, and personalized content to empower consumers to live healthier lives.”

Mr. Plank concluded, “The Under Armour brand has built tremendous equity over the past 20 years and our financial results are a reflection of that strength.  Quarter after quarter, year after year, we continue to post meaningful growth across our core businesses with significant opportunity to grow as we diversify both our product portfolio and our geographic reach.  From shirts and shoes to your connected life, Under Armour will continue to be a leader in innovation to make all athletes better and redefine expectations for what a sports brand should be.”(Original Source)

Shares of Under Armour closed yesterday at $68.58. UA has a 1-year high of $105.89 and a 1-year low of $63.23. The stock’s 50-day moving average is $76.90 and its 200-day moving average is $90.96.

On the ratings front, Under Armour has been the subject of a number of recent research reports. In a report issued on January 26, Piper Jaffray analyst Erinn Murphy maintained a Hold rating on UA, with a price target of $64, which implies a downside of 6.7% from current levels. Separately, on the same day, Deutsche Bank’s Dave Weiner maintained a Buy rating on the stock and has a price target of $95.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Erinn Murphy and Dave Weiner have a total average return of -12.4% and -0.8% respectively. Murphy has a success rate of 32.2% and is ranked #3532 out of 3596 analysts, while Weiner has a success rate of 40.0% and is ranked #2263.

Overall, one research analyst has rated the stock with a Sell rating, 2 research analysts have assigned a Hold rating and 10 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $102.50 which is 49.5% above where the stock closed yesterday.

Under Armour Inc is engaged in designing, development, marketing and distribution of technologically advanced, branded performance products for men, women and youth.