UA

We’re Impressed with Under Armour’s First-Quarter Results; Raising Our Fair Value

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Under Armour (UA) reported strong first-quarter results that were in-line with our expectations. On the heels of the strong report, we’ve reassessed our discounted cash-flow model and are now forecasting more optimistic future assumptions. The high end of our fair value range is now $78 per share, as we expect the firm to raise prices on its core segment products and leverage marketing expenses better than we had previously assumed. We initially extrapolated Nike’s (NKE) slightly slower apparel growth into the view that Under Armour might struggle disproportionately in the first quarter of 2012, given the unseasonably mild weather across much of the US. However, to our surprise, sales increased 23% versus the first quarter a year ago, and net … Read more

We Prefer Nike to Under Armour

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When it comes to iconic American brands, Nike (NKE) stands side-by-side with Coca-Cola (KO), McDonald’s (MCD) and Apple (AAPL). Like other iconic American brands, Nike has rebounded strongly from its 2009 lows, with shares up over 11% this year alone. Though we think shares are fairly valued, we still like Nike much more than Under Armour (UA) on a fundamental basis. Surprisingly, Nike is taking share in apparel. Under Armour might pride itself on its innovation and first-mover advantage in the compression and weather-appropriate layer materials. However, we think Nike is taking share thanks to a more fashionable and affordable line up. Our channel checks at Dick’s Sporting Goods (DKS), which just reported a spectacular quarter, suggest that not only are Nike racks emptier … Read more

Under Armour’s Fourth Quarter Hurt by Poor Weather

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Under Armour (UA) posted fiscal fourth-quarter results Thursday that weren’t as impressive as previous quarters. Though revenue grew 34% from the same period a year ago, the growth rate represents a modest slowdown from the previous quarter’s pace of 41.7% and the 35.7% rate recorded in the fiscal fourth quarter of last year. Under Armour cited the unseasonably warm weather as the main culprit in the slowing growth, and while we wouldn’t exactly call this revenue expansion subpar, several of our concerns regarding the firm are starting to come to fruition. For one, gross margins continue to fall. Granted, the 10-basis-point decline isn’t substantial, but profit margins aren’t growing, and we don’t expect them to expand anytime soon. Earnings per share, however, … Read more

Under Armour Performing Well But Still Significantly Overvalued

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Over the last several weeks, we’ve seen stronger than expected sales in athletic apparel at Dick’s Sportin Goods (DKS), Footlocker (FL), and The Sports Authority. Additionally, we’ve noticed strength at Under Armour (UA) in both indirect and direct retailing channels. Furthermore, we think some of the footwear, particularly the bright colored running and training is resonating slightly better than expected with consumers.  As a result, we are raising our fair value of Under Armour to just under $50 per share. This price implies a 2011 price to earnings ratio of 26 times our forecast and remains significantly below where it is currently trading.  Footwear isn’t good, but it’s getting better Some of the recent footwear releases in Under Armour’s running have … Read more

Under Armour Posts Strong Third Quarter; Shares Remain Overvalued

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Under Armour (UA) posted terrific third-quarter results Wednesday. Sales were up nearly 42%, with net income up 32%. As a result, we are raising our optimistic case fair value to $53 per share, implying a 24x 2012 earnings multiple, and another year of 30%+ revenue growth. Higher price mixes, higher costs One of the most positive takeaways from the quarter was Under Armour’s ability to sell higher price-point apparel. CEO Kevin Plank mentioned the success in the hooded sweatshirt market, which consumers generally purchase in the $20-25 range, selling for upwards of $70. Additionally, Plank cited continued success with their charged cotton t-shirts and storm fleece hoodies. However, these higher price-points were tempered by the large rollout of footwear and higher … Read more

Nike: An Attractive Candidate in a Declining Market

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Nike looks like an attractive investment candidate in a falling market Nike is one of the most recognizable brands on earth. With sales of over $20 billion in fiscal year 2011, it’s easily the largest athletic retailer on the planet. After growing revenues 9% in a tough retail environment, and on an enormous base of $19 billion, we think Nike is a best-in-class company, and we are initiating coverage with a fair value of $95. This implies a multiple of about 18x 2012 earnings, and earnings per share growth of over 18%. Fourth quarter profit reveals operational strength It’s not often we get excited when a company has its gross margin fall over 300 basis points in a single quarter, … Read more

Under Armour’s Second Quarter Earnings: Our Thesis Remains Intact – Shares Are Overvalued

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UA beats consensus expectations, but we think our thesis is still intact. Under Armour (UA) reported second-quarter earnings Tuesday morning, with results topping consensus top-line and earnings per share estimates. Revenue grew by 42% and diluted EPS by 73%. However, the $0.12 per share earnings number only beat our estimate by two cents, and the company was cash flow negative. We still think Under Armour should be trading at around $50, and see no reason to raise our fair value estimate. We make our DCF valuation model template available here, which can be used to value any operating firm. Gross margins fall As we predicted, gross margins fell by 250 basis points, which was even worse than we expected. The company … Read more

Big 5 Sporting Goods Looks Extremely Undervalued, But Proceed With Caution

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This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/277117-big-5-sporting-goods-looks-extremely-undervalued-but-proceed-with-caution If you read nothing else, consider these 3 points: Big 5 is disproportionately affected by unemployment in its key home states The company continues to grow slowly and conservatively Big 5 finds homes in niche markets that Dick’s (DKS) and The Sports Authority aren’t interested in What Big 5 does Big 5 is a small sporting goods retailer with 396 stores in 12 western states. The vast majority of its shops are concentrated in California and Nevada. They sell shoes, apparel, athletic gear, and accessories. For shoppers in bigger cities, one might find The Sports Authority or Dick’s Sporting Goods, as Big 5’s stores operate on a much smaller scale. The … Read more

Stumbles in Europe, Footwear, and Rising Input Costs Could Keep Shares of Under Armour at Bay

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This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/277905-under-armour-solid-company-but-shares-are-significantly-overvalued  We wanted to provide subscribers with our thoughts on Under Armour (UA). Although we expect the company to follow Nike’s excellent results and post solid performance in its second quarter, the shares look significantly overvalued to us in the $75-$80 range. The risk-reward balance is not in investors’ favor at these levels. Apparel Remains Strong… If we can gather anything pertinent about Under Armour from Nike’s (NKE) earnings released Monday, we can see that athletic apparel, specifically in North America, is on fire. Year-to-date, Nike’s North American apparel sales are up 21%, including a second-quarter surge of 28%. This is consistent with the apparel growth we’ve seen at Adidas (ADDYY.PK) and Lululemon (LULU). Under Armour, with a smaller base than Nike, … Read more

Earnings Roundup: Pinterest and Peloton

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Image Source: Peloton Interactive Inc – Second Quarter of Fiscal 2021 Shareholder Letter By Callum Turcan The outlook for the world economy, keeping near-term headwinds in mind, remains bright as global health authorities are actively working towards putting an end to the coronavirus (‘COVID-19’) pandemic largely through ongoing vaccine distribution efforts. As vaccine production scales up, widespread distribution efforts will become a much easier task. We’re continuing with our earnings commentary in this note by covering a social media contender and an upstart exercise company. Pinterest (PINS) On February 4, social media contender Pinterest Inc (PINS) reported fourth quarter earnings for 2020 that beat both consensus top- and bottom-line estimates. Most of Pinterest’s revenues come from its digital advertising business, … Read more