A major turnaround that began last year continues to gain traction for footwear, activewear and casual apparel maker Under Armour (UAA), observes Mike Cintolo, growth stock expert and editor of Cabot Top Ten Trader.
This was seen in an estimate-smashing second-quarter report, a big reason for the stock’s latest strength, along with recent upgrades by some big-name Wall Street institutions. In Q2, Under Armour saw revenue rise 91% from last year’s virus-depressed quarter, to $1.3 billion, and reported per-share earnings of 24 cents which beat estimates by a jaw-dropping 18 cents.
But a more salient point was made when the company finished the first half of 2021 with 12% more revenue than in the first half of pre-virus 2019 — along with a 26% inventory reduction compared to 2020 — which let everyone know the company’s restructuring efforts are succeeding.
Wholesale revenue rose 157% to $768 million, while direct-to-consumer revenue expanded 52% to $561 million, led by 105% and 99% increases in apparel and accessories sales, respectively, and an 85% jump in footwear revenue.
Under Armour expressed confidence that the bulk of its internal transformation is behind it, setting a “robust foundation” for the company to focus on full-priced premium product sales, which it views as a key earnings growth driver.
Management also sees the global sportswear market growing at an annualized rate of 8% over the next four years and plans to take advantage of this opportunity by doubling down on new product development and expedited go-to-market strategies.
For fiscal 2021, the company expects revenue growth in the low-twenties percent range (compared to prior guidance in the high-teens), and analysts see earnings north of 50 cents per share this year and a 20% gain in 2022; both are almost surely conservative. Under Armour looks like both a solid reopening and turnaround play.
Technically, UAA rallied to $23.5 in February, which effectively marked the end of its post-October rally. There was a breakout attempt in May but that fell flat, with shares then dipping all the way to their 40-week line.
The initial bounce attempt was rather weak, but last week looks decisive, with UAA surging back toward its old highs on a few days in a row of massive volume. We think any minor weakness is a chance to start a position.
