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.