Under Armour Inc: Bear Still Sees 40% Downside Potential Despite Strong 4Q International Revenue Growth

Though the rest of the Street is celebrating Under Armour's quarterly print today, FBR's Susan Anderson isn't budging from the bearish camp.

Under Armour Inc (NYSE:UAA) clearly is enjoying the fruits of its stellar fourth quarter showcase, benefiting from rocket-fire international growth. In reaction, investors have been racing to buy shares, sending the stock on a close to 17% vault. Yet, one bear doesn’t buy encouraging international revenue that has rode a tidal wave of new store-driven gains.

FBR analyst Susan Anderson recognizes strength in the company’s brand name legacy, but still stands by her negative thesis: dipping earnings growth stemming from margin pressure lies ahead.

Therefore, the analyst reiterates a Sell rating on UAA stock with a $10 price target, which implies a close to 40% downside from current levels. (To watch Anderson’s track record, click here)

“In-line EPS on Positive Int’l Revenue Driven by New Stores, FY18 EPS Guidance Below the Street & More Restructuring Charges”

For the fourth quarter, the giant delivered $0.00 in EPS, which may have met consensus expectations, but came up shy one cent of Anderson’s forecast. Strength in EPS rode on back of improved gross margin and SG&A that came up under estimates. Revenue jumped 5%, which sent bulls cheering today, as this was a mega outclass against consensus expectations calling for 0.4% and Anderson’s projection 0.8%. Yet, Anderson cannot help pointing out that while international growth surged nicely, domestically suffered, with North America hitting -4%.  Revenue for 2017 hit $0.19, which met Street-wide expectations but was a penny short of meeting Anderson’s forecast. Revenue growth reached 3%, which beat out consensus of 2.0% and the analyst’s estimate of 2.1%.

However, the UAA management team cut its full-year 2018 guide once more. Under Armour calls for EPS between $0.14 and $0.19, compared to Anderson’s conservative projection of $0.16- yet notably, underperforming the Street’s $0.21.

GM contracted –150 bps (vs. B. Riley FBR/consensus of –450 bps/– 384 bps). The contraction reflected negative impacts from pricing pressure and inventory management initiatives, offset by benefits from FX and product costs.

However, inventory experienced 26% year-over-year growth to $1.2 billion.

Anderson highlights, “New stores continue to drive growth, while comps are negative. New store openings continued to drive growth. Total new store growth was +22% vs. 11% direct to consumer revenue growth (indicating negative comps). In international, new stores were +58% vs. total international growth of +47% (indicating store comps are likely negative in international markets also).”

On a negative note, “Inventory continues to be heavy. Inventory ended very high, up 26% including mid teens in North America (vs. -4% growth) and +50% in international vs. +47% growth),” Anderson surmises, likewise noting that “more restructuring charges” await.

TipRanks highlights a largely neutral sentiment circulating through the Street on Under Armour stock’s potential. Out of 10 analysts polled in the last 3 months, 3 are bullish on UAA stock, 2 remain sidelined, and 5 are bearish on the stock. With a loss potential of nearly 8%, the stock’s consensus target stands at $14.11.

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