Under Armour, Inc. :UA-US: Earnings Analysis: Q2, 2017 By the Numbers : August 10, 2017

Under Armour, Inc. reports financial results for the quarter ended June 30, 2017.

Highlights

  • Summary numbers: Revenues of USD 1,088.25 million, Net Earnings of USD -12.31 million.
  • Gross margins narrowed from 47.74% to 45.87% compared to the same period last year, operating (EBITDA) margins now 3.53% from 5.52%.
  • Change in operating cash flow of -249.50% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 1088.25 1117.33 1308.13 1471.57 1000.78
Revenue Growth (%YOY) 8.74 6.65 11.74 22.21 27.72
Earnings (mil) -12.31 -2.27 104.91 128.23 -52.66
Earnings Growth (%YOY) 76.63 -111.85 -0.66 27.62 -456.6
Net Margin (%) -1.13 -0.2 8.02 8.71 -5.26
EPS -0.03 -0.01 0.23 0.29 -0.12
Return on Equity (%) -0.61 -0.11 5.31 6.94 -3
Return on Assets (%) -1.32 -0.25 11.45 14.42 -6.34

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, UA-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if UA-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -2.60% and earnings by -441.73% compared to the previous period.

Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 45.87% to 47.74% for the same period last year, while operating margins (EBITDA margins) went from 3.53% to 5.52% over the same time frame.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

UA-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 104.88 days, compared to last year’s level of 104.69 days.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

UA-US‘s year-on-year change in operating cash flow of -249.50% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin History
PreTax Margin History

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Company Profile

Under Armour, Inc. engages in the developing, marketing and distributing of branded performance apparel, footwear and accessories for men, women and youth. It operates through the following geographical segments: North America; Latin America; Asia-Pacific; and Europe, the Middle East, and Africa. The company was founded by Kevin A. Plank in 1996 and is headquartered in Baltimore, MD.

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