Stock Update (NYSE:UA): Under Armour Inc Reports First Quarter 2016 Earnings

Under Armour Inc (NYSE:UA) announced financial results for the first quarter ended March 31, 2016. Net revenues increased 30% in the first quarter of 2016 to $1.05 billion compared with net revenues of $805 million in the prior year’s period. On a currency neutral basis, net revenues increased 32% compared with the prior year’s period. Operating income increased 26% in the first quarter of 2016 to $35 million compared with $28 million in the prior year’s period. Net income increased 63% in the first quarter of 2016 to $19 million compared with $12 million in the prior year’s period and diluted earnings per share for the first quarter of 2016 were $0.04 compared with $0.03 per share in the prior year’s period. Diluted earnings per share calculations for both periods reflect the Company’s Class C Stock Dividend effective April 7, 2016, which has the same effect as a two-for-one stock split.

During the first quarter, wholesale net revenues grew 28% year-over-year to $744 million compared to $579 millionin the prior year’s period, while Direct-to-Consumer net revenues grew 33% year-over-year to $266 millioncompared to $200 million in the prior year’s period.  North America net revenues for the first quarter grew 26% year-over-year, or 27% on a currency neutral basis.  International net revenues, which represented 14% of total net revenues for the first quarter, grew 56% year-over-year, or 65% on a currency neutral basis.

Within product categories, apparel net revenues increased 20% to $667 million compared with $555 million in the same period of the prior year, led by growth in training and golf.  Footwear net revenues increased 64% to $264 million from $161 million in the prior year’s period, primarily reflecting the ongoing success of the Curry signature basketball line and expanded running offerings.  Accessories net revenues increased 26% to $80 million from $63 million in the prior year’s period, driven primarily by growth in headwear and bags.

Kevin Plank, Chairman and CEO of Under Armour, Inc., stated, “For the past 24 consecutive quarters or six years, we have driven net revenue growth above 20% and we are incredibly proud of our start to 2016 with first quarter net revenue growth of 30%.  The strong results posted this quarter truly demonstrate the balanced growth of our brand across product categories, channels and geographies.  It also showcases our heightened focus on providing better service across our distribution channels, ensuring that our consumer consistently finds the newest, most premium product from us wherever they shop.  In footwear, this includes the remarkable success of the Stephen Curry signature basketball line, as well as the exciting launches of our first smart running shoe and our new line of Jordan Spieth inspired golf shoes.  Combined with the introductions of premium apparel technologies like Microthread and CoolSwitch, we will continue to drive elevated innovation and excitement to the athlete throughout the remainder of 2016.”

Gross margin for the first quarter of 2016 was 45.9% compared with 46.9% in the prior year’s period, primarily reflecting negative impacts of approximately 100 basis points from higher liquidations and approximately 70 basis points from foreign currency exchange rates, partially offset by approximately 60 basis points from improved product cost margins.  Selling, general and administrative expenses grew 27% to $446 million compared with $350 million in the prior year’s period, primarily driven by investments in Direct-to-Consumer and overall headcount to support the Company’s strategic initiatives.

Balance Sheet Highlights
Cash and cash equivalents decreased 30% to $157 million at March 31, 2016 compared with $225 million atMarch 31, 2015.  Inventory at March 31, 2016 increased 44% to $834 million compared with $578 million atMarch 31, 2015, primarily driven by the Company’s ongoing strategy to drive higher service levels to customers, resulting in meaningful improvements in fill rates.  Total debt increased 38% to $935 million at March 31, 2016compared with $677 million at March 31, 2015.

Updated 2016 Outlook
Based on current visibility, the Company expects 2016 net revenues of approximately $5.0 billion, representing growth of 26% over 2015 and 2016 operating income in the range of $503 million to $507 million, representing growth of 23% to 24% over 2015.  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 446 million for 2016 reflective of the Class C Stock Dividend.

Mr. Plank concluded, “This year marks our 20th year in business, which is a great milestone for our company.  Our robust growth this quarter demonstrates the power of our brand with growth coming from every part of our business.  Our ability to adapt in a rapidly changing environment has been a critical part of our success and fuels our inspiration to create game-changing products that solve problems and enrich consumers’ lives.  With this unrelenting consumer focus and ongoing investment, we are setting the foundation for our growth story over the next 20 years.” (Original Source)

Shares of Under Armour are up nearly 7% to $47 in pre-market trading. UA has a 1-year high of $52.42 and a 1-year low of $31.30. The stock’s 50-day moving average is $42.00 and its 200-day moving average is $42.52.

On the ratings front, Under Armour has been the subject of a number of recent research reports. In a report released yesterday, Robert W. Baird analyst Jonathan Komp reiterated a Buy rating on UA. Separately, on April 19, Canaccord Genuity’s Camilo Lyon reiterated a Buy rating on the stock and has a price target of $65.

According to, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Jonathan Komp and Camilo Lyon have a total average return of 7.9% and -1.3% respectively. Komp has a success rate of 61.5% and is ranked #1192 out of 3827 analysts, while Lyon has a success rate of 49.0% and is ranked #3077.

Overall, one research analyst has rated the stock with a Sell rating, 4 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 $50.21 which is 14.2% above where the stock closed yesterday.

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