All Eyes on Under Armour Inc 4Q:17 Earnings Today

Pivotal's Mitch Kummetz may be sidelined on Under Armour, but he is angling for a beat on back of a strong holiday season.

As Under Armour Inc (NYSE:UAA) preps to dish out its fourth quarter print this morning, one analyst is setting expectations for earnings to reach the tail-end of the company guide.

Though Pivotal analyst Mitch Kummetz is wary on the stock’s expensive valuation and fierce consumer competition, he is placing odds on upside today for the athletic apparel giant.

For the fourth quarter, Under Armour seems to be guiding to “flattish” sales, noting that North America will be taking a dip. For 2018, the company anticipates gross margin will slip to 44.6% and EBIT will hit $140 to $150 million. Kummetz notes, “The GM guidance assumes increased promotional activity, higher airfreight and mix shift to international. The SG&A guidance reflects some demand creation shift from 3Q to 4Q.” The company’s outlook sets 2018 EPS to $0.18 to $0.20, suggesting fourth quarter EPS will range between $(0.01) to $0.01.

From Kummetz’s perspective, a beat is “likely” considering that the fourth quarter of the year before presents “an easier sales comparison.” With weather having been far advantageous than in 2016, the analyst wagers apparel will surpass the UAA team’s own expectations for the fourth quarter- especially considering the consumer player blamed warm weather as a negative in 2016. Footwear performance in North America also has the analyst anticipating strength, and Kummetz finds himself “encouraged” in better demand for the newest Curry model compared to this time last year. Meanwhile, the analyst bets on room for prospective upside to Under Armour’s GM plan. Considering the company’s “conservative” plan for SG&A expenses, there is also space for UAA to outperform here as well.

Likewise, a 2018 EPS guidance beat also seems to be in the cards for the giant, thanks to international and direct-to-consumer (DTC) strength. Kummetz calls for UAA to release an outlook factoring in “modest” sales gains, which will prove more robust for this year than in 2017. Also factoring in the company’s restructuring initiative, the analyst anticipates a guide to better margins, even though this is somewhat offset by a mix shift to international.

Overall, “We’re modeling the quarter at the high end of guidance and upside seems likely. In short, we believe holiday was a stronger season that what was expected when UAA last updated its guidance. More specifically, especially for seasonal product, we believe that full-price selling was stronger, promotions were lower and reorders were better. UAA should have benefitted from this environment, especially relative to its anemic expectations. Additionally, regarding UAA’s FY18 outlook, we believe the company will likely guide to above-consensus EPS, based on modest sales growth and margin expansion. All told, UAA’s short-term set up seems favorable, but the stock remains anything but cheap, especially relative to UAA’s competitive positioning,” concludes Kummetz, leaving him firmly planted on the sidelines ahead of the print.

Therefore, the analyst reiterates a Hold rating on UAA stock with a $14 price target, which implies a 3% downside from current levels. (To watch Kummetz’s track record, click here)

TipRanks indicates Wall Street sentiment leans towards caution on Under Armour stock. Out of 8 analysts polled in the last 3 months, only 2 are bullish, 2 remain sidelined, and 4 are bearish on the stock’s prospects. The 12-month average price target of $13.00 essentially aligns just under where the stock is currently trading.

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