Summary
- Under Armour's stock saw significant appreciation after reporting 4th-quarter earnings due to expanding margins.
- International growth, fewer promotional activities, and inventory optimization were largely responsible.
- Trends are expected to continue with 2019 guidance, which should lead to additional stock gains; however, execution remains a significant risk.
Investment Thesis
Under Armour (UAA, UA) is an innovative company with a premium brand that has faced margin issues as a result of growing pains and a competitive athleisure marketplace. The company has begun to reverse these issues and is showing signs of a turnaround. Given this, I think Under Armour’s stock has room to appreciate; however, don’t be surprised if there are selloffs on the way due to lack of execution.
Introduction
When Under Armour reported 4th-quarter 2018 results, the stock was rewarded by the market. Despite revenue only growing 1.5% year-over-year to $1.39 billion (3% increase on a constant currency basis), the company was able to beat non-GAAP and GAAP earnings per share estimates by pretty large margins. As a result, at points during the release day, the stock was trading nearly 8% higher than the previous day. It has been a difficult recent history for Under Armour facing various headwinds that have really hit the stock price hard and have set expectations low. The 4th quarter signaled life to the Street and provided optimism for 2019, but should investors be excited? Here’s a breakdown of the company’s earnings:
