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Category: Stock Market and Under Armour
Date: 11 February 2020 Stock Price: $16.78 (down -17.97% for the day) We take a look at the 4th quarter earnings report of their 2019 fiscal year of Under Armour a leading manufacturer of performance athletics apparel. The stock of Under Armour plunged following the release of their 4th quarter 2019 earnings report. Is the stock plunge warranted?
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About Under Armour
Under Armour, Inc., headquartered in Baltimore, Maryland, is a leading inventor, marketer and distributor of branded athletic performance apparel, footwear and accessories. Powered by one of the world’s largest digitally connected fitness and wellness communities, Under Armour’s innovative products and experiences are designed to help advance human performance, making all athletes better
Overview of Under Armour's 4th quarter 2019 earnings report
The data below refers to the latest quarter's data (unless specified otherwise)
- Net revenues: $1.441 billion (up from $1.389 billion for the same quarter of the previous year)
- Net revenues increased by 3.74% over the last 12 months
- Cost of goods sold: $759.69 million (down from $764.753 million for the same quarter of the previous year)
- Cost of goods sold decreased by 0.6% over the last 12 months
- Net loss: -$15.3 million (down from $4.281 million for the same quarter of the previous year)
- Diluted earnings per share: -$0.03 (down from $0.01 for the same quarter of the previous year)
- Number of shares in issue: 451.629 million (down from 452.497 million for the same quarter of the previous year)
- Cash and cash equivalents: $788.072 million
- Cash and cash equivalents per share: $1.74
- Cash and cash equivalents makes up 10.4% of Under Armour's market capital
- Cash and cash equivalents makes up 16.27% of Under Armour's total assets
- Accounts receivable: $708.714 million
- Accounts receivable makes up 14.6% of Under Armour's total assets
- Inventories: $892.258 million
- Inventories makes up 18.4% of Under Armour's total assets
- Goodwill in Under Armour: $550.178 million
- Goodwill per share: $1.21
- Goodwill makes up 11.35% of Under Armour's total assets
- Stockholders equity in Under Armour: $2.150 billion
- Stockholders equity per share: $4.76
- So Under Armour is trading at 3.52 times its stockholders equity per share which is well within the expected range of between 2 and 4 times that most firms tend to trade at
- Cash generated from operations for the full fiscal year: $509.031 million
- Cash generated from operations per share for the full fiscal year: $1.12
Under Armour (NYSE: UAA) management commentary on 3rd quarter 2019 earnings
Under Armour, Inc. (NYSE: UA, UAA) today reported unaudited financial results for the fourth quarter and fiscal year ended December 31, 2019.
“Under Armour is an operationally better company following our transformation over the past few years, with a clearly defined and focused strategy, enhanced go-to-market process, cleaner inventories and a stronger balance sheet,” said Under Armour President and CEO Patrik Frisk. “However, ongoing demand challenges and the need to drive greater efficiencies in our business requires us to further prioritize our investments to put our company in the best position possible to achieve sustainable, profitable growth over the long-term.”
“Under Armour is an operationally better company following our transformation over the past few years, with a clearly defined and focused strategy, enhanced go-to-market process, cleaner inventories and a stronger balance sheet,” said Under Armour President and CEO Patrik Frisk. “However, ongoing demand challenges and the need to drive greater efficiencies in our business requires us to further prioritize our investments to put our company in the best position possible to achieve sustainable, profitable growth over the long-term.”
Initial 2020 Outlook
The company’s initial 2020 outlook currently includes an estimated negative impact of the coronavirus outbreak in China of approximately $50 million to $60 million in sales related to the first quarter of 2020. This outlook does not contemplate additional financial or operational impacts past the first quarter of 2020. Given the significant level of uncertainty with this dynamic and evolving situation, full year results could be further materially impacted. The following outlook also does not include any possible benefits or costs from a potential restructuring initiative. Key points related to Under Armour's full year 2020 outlook include:
2020 Restructuring Initiative
The company also announced it is currently assessing a potential 2020 restructuring initiative to rebalance its cost base to further improve profitability and cash flow generation. In connection with this potential plan, the company is considering $325 million to $425 million in estimated pre-tax charges for 2020, including approximately $225 million to $250 million related to the possibility of foregoing opening a flagship store in New York City while pursuing sublet options for the long-term lease.
Based on initial assessments and timing of a potential restructuring initiative, the company could realize approximately $30 million to $50 million in pre-tax benefits in 2020. The company expects to complete its assessment during the first quarter of 2020, and subject to board review and approval, would announce any potential restructuring charges upon adoption of any plan.
The company’s initial 2020 outlook currently includes an estimated negative impact of the coronavirus outbreak in China of approximately $50 million to $60 million in sales related to the first quarter of 2020. This outlook does not contemplate additional financial or operational impacts past the first quarter of 2020. Given the significant level of uncertainty with this dynamic and evolving situation, full year results could be further materially impacted. The following outlook also does not include any possible benefits or costs from a potential restructuring initiative. Key points related to Under Armour's full year 2020 outlook include:
- Revenue is expected to be down at a low single-digit percent compared to 2019 results. This reflects a mid to high-single-digit percentage decline in North America as work continues to rebalance the business against market demand dynamics and pro-active strategies to better protect the company’s premium brand positioning. The international business is expected to grow at a low double-digit percentage rate.
- Gross margin is expected to be up approximately 30 to 50 basis points versus the prior year due to ongoing supply chain initiatives and regional mix benefits.
- Operating income is expected to reach $105 million to $125 million.
- Interest and other expense net is planned at approximately $30 million.
- Diluted earnings per share is expected to be in the range of $0.10 to $0.13, inclusive of an estimated $0.01 to $0.02 negative impact from the company’s equity interest in its Japan licensee.
- Capital expenditures are planned at approximately $160 million compared with $144 million in 2019.
2020 Restructuring Initiative
The company also announced it is currently assessing a potential 2020 restructuring initiative to rebalance its cost base to further improve profitability and cash flow generation. In connection with this potential plan, the company is considering $325 million to $425 million in estimated pre-tax charges for 2020, including approximately $225 million to $250 million related to the possibility of foregoing opening a flagship store in New York City while pursuing sublet options for the long-term lease.
Based on initial assessments and timing of a potential restructuring initiative, the company could realize approximately $30 million to $50 million in pre-tax benefits in 2020. The company expects to complete its assessment during the first quarter of 2020, and subject to board review and approval, would announce any potential restructuring charges upon adoption of any plan.
Under Armour (NYSE: UAA) stock price history
The image below obtained from Google, shows the stock price history of Under Armour over the last 5 years. And its been a very miserable time for Under Armour stockholders. 5 years ago the stock of Under Armour was trading at around $36.90 a stock and its currently trading at $16.78 a stock. That's a loss of -54.5% suffered by Under Armour stockholders over the last 5 years.
The stock of Under Armour is trading at a lot closer to its 52 week low of $16.66 than it is to its 52 week high of $27.72 a stock, which to us is a clear indication that the short term sentiment and momentum of Under Armour stock is very negative at this point in time,
The stock of Under Armour is trading at a lot closer to its 52 week low of $16.66 than it is to its 52 week high of $27.72 a stock, which to us is a clear indication that the short term sentiment and momentum of Under Armour stock is very negative at this point in time,
Recent coverage of Under Armour
The extract below discusses the Under Armour stock price meltdown as obtained from Marketwatch.com
Under Armour Inc. UA, stock plummeted 14.8% in Tuesday premarket trading after the athletic apparel company reported fourth-quarter earnings and revenue that missed expectations and gave weak guidance. Net losses were $15.3 million, or 3 cents per share, after net income of $4.2 million, or a penny per share, last year. Revenue of $1.44 billion was up from $1.39 billion the previous year.
The FactSet consensus was for EPS of 10 cents and revenue of $1.46 billion."Ongoing demand challenges and the need to drive greater efficiencies" were responsible for the shortfall, according to a statement from Chief Executive Patrik Frisk. For first-quarter 2020, the company expects an impact of $50 million to $60 million in sales from the coronavirus outbreak. For the full-year, Under Armour expects revenue to be down at a low-single digit percentage and EPS in the range of 10 cents to 13 cents. The revenue outlook also doesn't include benefits or costs from potential restructuring. The FactSet guidance is for revenue of $5.51 billion, implying a 4.7% rise, and EPS of 46 cents. Under Armour stock has fallen 1.6% over the past year while the S&P 500 index SPX, +0.54% has gained 23.7 percent for the period.
Read the full article here
Under Armour Inc. UA, stock plummeted 14.8% in Tuesday premarket trading after the athletic apparel company reported fourth-quarter earnings and revenue that missed expectations and gave weak guidance. Net losses were $15.3 million, or 3 cents per share, after net income of $4.2 million, or a penny per share, last year. Revenue of $1.44 billion was up from $1.39 billion the previous year.
The FactSet consensus was for EPS of 10 cents and revenue of $1.46 billion."Ongoing demand challenges and the need to drive greater efficiencies" were responsible for the shortfall, according to a statement from Chief Executive Patrik Frisk. For first-quarter 2020, the company expects an impact of $50 million to $60 million in sales from the coronavirus outbreak. For the full-year, Under Armour expects revenue to be down at a low-single digit percentage and EPS in the range of 10 cents to 13 cents. The revenue outlook also doesn't include benefits or costs from potential restructuring. The FactSet guidance is for revenue of $5.51 billion, implying a 4.7% rise, and EPS of 46 cents. Under Armour stock has fallen 1.6% over the past year while the S&P 500 index SPX, +0.54% has gained 23.7 percent for the period.
Read the full article here
Under Armour (NYSE: UAA) stock valuation
So what do we value Under Armour stock at after the release of their 4th quarter 2019 earnings report? Based on Under Armour earnings report our valuation models provides a target price (full value price) for Under Armour at $15.40 a stock (up slightly from our 3rd quarter 2019 earnings report valuation of Under Armour). We therefore believe that the stock of Under Armour is overvalued.
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $15.40 therefore we believe a good entry point into Under Armour stock is at $13.90 or below. We expect the stock of Under Armour to continue its downward slide especially after the weak fiscal guidance and the announcement of a restructuring plan.
Since Under Armour is trading at well above our suggested entry price and the investigations into accounting malpractices are taking place and their outlook is weakening we rate the stock of Under Armour as AVOID
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $15.40 therefore we believe a good entry point into Under Armour stock is at $13.90 or below. We expect the stock of Under Armour to continue its downward slide especially after the weak fiscal guidance and the announcement of a restructuring plan.
Since Under Armour is trading at well above our suggested entry price and the investigations into accounting malpractices are taking place and their outlook is weakening we rate the stock of Under Armour as AVOID
Next earnings release of Under Armour
It is expected that Under Armour will publish their 1st quarter 2020 earnings report in early May 2020