Under Armour 'took advantage and reshaped' amid the pandemic: Analyst

·2 min read

The past five years have been challenging for Under Armour (UAA), a company whose slogan was once “Protect this House.” But instead of protecting its house, the Baltimore-based retailer spent 2020 getting its house in order. The company’s better-than-expected first-quarter results show the investment is starting to pay off.

Under Armour posted net revenue of $1.26 billion, up 35% year over year, vs. the estimated $1.13 billion estimated by Bloomberg. Adjusted diluted earnings per share came in at 16 cents vs. 4 cents expected. North America revenue increased 32% to $806 million, and international revenue increased 58% to $452 million, which includes a 120% increase in the Asia-Pacific region. 

Analysts who spoke to Yahoo Finance point out that the real success of Under Armour’s Q1 was that its gross margin increased 370 basis points to 50.0% when compared to the prior year.

In April 2020, Under Armour announced a restructuring plan designed to rebalance its cost base to improve profitability and cash flow. 

“Under Armour’s story has drastically improved. This is a company that took the pandemic, took advantage and reshaped who they wanted to be. Now, what that meant was internalizing that they had stretched too far in the past. So now we’re in this amazing profit opportunity,” Simeon Siegel, managing director and senior analyst at BMO Capital Markets, told Yahoo Finance Live.

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“Just looking at first quarter retail reporters, revenues versus 1Q19 are up over 20% on average; the stocks are flat. So I think there’s that dichotomy here. I wouldn’t necessarily look at the stock movement as an indication that the quarter was not strong. This is a great start to a year after a very impressive year behind us and I think that’s going to continue,” Siegel said.

“Success for Under Armour North America will look different than success for a much smaller businesses in North America. Under Armour needs to make smaller, tighter, healthier decisions. ... I think Under Armour’s going to show us that … one way that we see it is the growth of DTC [direct-to-consumer] of stores and e-commerce rather than wholesale.”

Sam Poser, equity analyst at Williams Trading, also weighed in on the report.

“It was a really good mix, higher average selling prices, and less promotional activity on top of improving brand management that led to material margin improvement over the first quarters of 2019 and 2020,” he said.

Poser added that a UA expansion in China, as mentioned in the company's earnings call, could be a growth driver. "I think they can if they do it carefully, China has such as large population that there is room for any company," he said.

Reggie Wade is a writer for Yahoo Finance. Follow him on Twitter at @ReggieWade.

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