Factors Shaping the Fate of Under Armour's (UAA) Q3 Earnings

Zacks Equity Research
·4 min read

Under Armour, Inc. UAA is likely to register a decline in the top line when it reports third-quarter 2020 numbers on Oct 30, before the market opens. The Zacks Consensus Estimate for revenues is pegged at $1.16 billion, indicating a decline of 19.2% from the prior-year reported figure.

Further, the Zacks Consensus Estimate for earnings for the quarter under review has increased by a penny to 2 cents over the past seven days. The current Zacks Consensus Estimate indicates that the company is likely to swing back to profit following a loss in the last-reported quarter. However, the consensus estimate still suggests a sharp decline from earnings of 23 cents reported in the year-ago period.

We note that the company’s bottom line has outperformed the Zacks Consensus Estimate in the last reported quarter. This developer, marketer and distributor of apparel, footwear, and accessories has a trailing four-quarter negative earnings surprise of 7.2%, on average.

Under Armour, Inc. Price, Consensus and EPS Surprise

Under Armour, Inc. Price, Consensus and EPS Surprise
Under Armour, Inc. Price, Consensus and EPS Surprise

Under Armour, Inc. price-consensus-eps-surprise-chart | Under Armour, Inc. Quote

Key Things to Note

Under Armour has been bearing the brunt of the ongoing pandemic and stiff competition. Although the company has been taking every step to address the challenges, revenues and margins are likely to have remained under pressure. On its last earnings call, Under Armour projected a decline of 20-25% in revenues for the back half of the year.

Impact of slow and progressive return to normalization, a highly promotional environment, soft store traffic and uncertainty related to consumer shopping dynamics cannot be ruled out. Moreover, increased marketing investments and variable expenses associated with direct-to-consumer business may have put pressure on margins.

We note that the Zacks Consensus Estimate for third-quarter revenues at North America, EMEA, Asia-Pacific and Latin America segments are pegged at $788 million, $140 million, $153 million and $41.8 million, respectively. These figures suggest respective declines of 22.4% and 13% for North America and EMEA on a year-over-year basis. The same for Asia-Pacific and Latin America indicate declines of 1.2% and 19.9%, respectively.

Furthermore, the Zacks Consensus Estimate for quarterly revenues for Apparel, Footwear and Accessories categories are pegged at $793 million, $201 million and $94 million, respectively, indicating declines of 19.5%, 19.8% and 20.4% year over year.

Nonetheless, Under Armour has been focusing on strengthening brand through enhanced customer connections and strict go-to-market process. Moreover, the expansion of direct-to-consumer business, product innovation and focus on technology-based fitness businesses appear encouraging. Apparently, the consensus estimate for Connected Fitness revenues stands at $39.9 million, which suggests an improvement of 1.3% from the year-ago reported figure.

We note that the company has been taking several actions to stay firm during such a crisis. These includes strengthening supply chain, managing inventory and containing costs. The company has been also curbing non-essential operating expenses and postponing planned capital expenditures.

What the Zacks Model Unveils

Our proven model conclusively predicts an earnings beat for Under Armour this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Under Armour has a Zacks Rank #3 and an Earnings ESP of +295.06%.

Other Stocks With a Favorable Combination

Here are some other companies that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:

Wolverine World Wide WWW has an Earnings ESP of +17.86% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Gap GPS has an Earnings ESP of +12.68% and a Zacks Rank #3.

Foot Locker FL has an Earnings ESP of +22.42% and a Zacks Rank #3.

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