Credit: Shutterstock photoUnder Armour ( UA ) reported a solid quarter posting better-than-expected earnings and revenue. The company's sales surged to $1.47 billion this quarter on the back of strong footwear sales and exposure to mega events like the Rio Summer Olympics and the New York Fashion Week. Despite this performance, the apparel giant's stock crashed almost 13% after management warned of a weaker than expected growth outlook for the next two years.
- The management expects the revenue growth rate in 2017 and 2018 to be in the low 20% range, marking the slowest growth pace since 2009. This is primarily due to a slowing apparel market in North America.
- Since almost 85% of Under Armour's total revenues come from the North American market, this is a point of immediate concern.
- Despite being on track to achieve overall sales of $7.5 billion by 2018 (as stated in 2015), the company expects operating income to fall short of its $800 million target.
- Going forward, the management expects annual operating income growth rate to be in the mid-teens percentage, for the next two years, as they focus on "investing to get big fast."
- Under Armour's CEO, Kevin Plank, continues to vie for long-term opportunity, opposing short-term gains at the expense of continued growth. From the prepared statements in theearnings call it is evident that the management is not willing to make any short-term moves, like cutting marketing or R&D spending, in an attempt to reach short-term profit goals.
- In actuality, such a strategy could greatly impact the company's long-term prospects, particularly when it comes to growing its international business and footwear categories. These are areas where the company has invested heavily in order to gain market share and scale. Jeopardising growth in these businesses could have severely detrimental effects on the overall business.
Source: Google Finance
Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment / ask questions on the comments section
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our full analysis for Under Armour
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
