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Factors Setting the Tone for Under Armour (UAA) in Q4 Earnings

Under Armour, Inc. UAA is scheduled to report fourth-quarter 2018 financial numbers on Feb 12, before the opening bell. We note that earnings of this Irvine, CA-based company surpassed estimates in three of the trailing four quarters, the average positive surprise being 27.1%. In the last reported quarter, its top and bottom lines surpassed the Zacks Consensus Estimate and also improved year over year. Let’s see what is in store for Under Armour this time around.

How are Estimates Faring?

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 4 cents. The company recorded break-even results in the year-ago quarter. We note that the consensus estimate was stable over the last 30 days. The consensus mark for revenues stands at $1,376 million, up 0.8% from the year-ago quarter’s reported figure.

Under Armour, Inc. Price, Consensus and EPS Surprise


Factors to Affect Under Armour’s Performance

Under Armour undertook impressive store expansion initiatives and e-commerce enhancement endeavors to boost the direct-to-consumer (DTC) business. Further, its sustained focus on brand development, product innovation and foray into technology-based fitness businesses bode well for the impending quarterly performance.

With rising health and wellness consciousness, sports apparel makers are entering the business of fitness gadgets and other tracking platforms to attract customers. The acquisition of MapMyFitness, Endomondo and MyFitnessPal are in tune with the company’s strategy of expanding the reach in the fitness space. Also, the popularity of UA HOVR remains impressive. The company is now banking on three platforms — HOVR, Charge and Micro G — to boost growth.

Under Armour is poised to increase the global footprint and market share via store expansion initiatives, and enhancement of the e-commerce platform. To this end, the company opened factory and brand stores in Canada, and China alongside providing franchise licenses in many nations. Moreover, it is expanding the DTC business in the U.K., Germany and the Netherlands.

Further, the company rolled out e-commerce platforms in countries like Mexico, Australia, New Zealand and Chile. Markedly, management expects international revenues to increase roughly 25% and DTC business to be up in a mid to high-single-digit range in 2018 — which also bodes well for the quarter to be reported.

However, the company has been facing a sales decline in North America over the past few quarters. Also, higher SG&A expenses pose concerns. Management expects these hurdles to linger in the impending quarter. For 2018, management anticipates revenues from North America to decline in a low-single digit while it expects expenses to increase in a mid-single-digit range.

Nevertheless, the company is well on track with its restructuring plan to utilize financial resources more efficiently. This, along with aforementioned upsides, should help Under Armour offset hurdles. Notably, adjusted gross margin is expected to improve in 2018. Also, management recently raised the lower end of its bottom-line view for 2018 and now expects the same to be 21-22 cents per share. These factors make us hopeful about the upcoming results.

What Does the Zacks Model Say?

Our proven model does not conclusively show that Under Armour is likely to beat estimates in the fourth quarter and 2018. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Under Armour currently carries a Zacks Rank #2, its Earnings ESP of -27.27% makes surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post earnings beat.

Ralph Lauren Corporation RL has an Earnings ESP of +2.80% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Foot Locker, Inc. FL has an Earnings ESP of +2.90% and a Zacks Rank #2.

Tilly's, Inc. TLYS has an Earnings ESP of +0.33% and a Zacks Rank #2.

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