Granted, clothing retailers haven't exactly had the best run of things lately, but as is commonly the case with everything, there are usually exceptions to be found somewhere. One of those exceptions in clothing seems to be Under Armour (NYSE:UA). Under Armour turned in a breathtaking earnings report recently that should make investors reconsider any lack of support for the company they may have held.
A Profitable Fourth Quarter Takes Most By Surprise
Retailers commonly look for the bulk of their profits to be realized in the fourth quarter. That's not a surprise, as the fourth quarter contains the largest number of gift-giving holidays by volume. Between Christmas, Hanukkah and Kwanzaa, it's a safe bet, somebody, somewhere is getting a present that month, and probably more than one.
As such, Under Armour turned in beats on both earnings and revenue, with earnings per share coming in at $0.12. Not bad by itself, but considering the consensus expected the company to turn in a loss of $0.07 per share, it's much, much better than expected. It's nearly three times expected earnings, in fact, which is great news by any standard. Revenue came in solidly ahead of expectations as well, as the company turned in $1.4 billion against an expected $1.27 billion.
Comparisons to previous quarters were even better; the company posted income of $184.5 million this quarter, and last year at the same time, the company was reporting a loss of $15.3 million.
The primary reason behind the gains, reports suggest, was the explosion of online shopping in the wake of the pandemic, as e-commerce sales were up 25%. Those gains were apparently sufficient to help grow the entire direct-to-consumer sales arm fully 11% and offset wholesale revenue drops of 12%.
Not So Fast, Say Analysts
As good as those results were, it doesn't seem to be enough as yet to tip the scales on the analyst front, as noted by our latest research. The company has been rated a “hold” for the last six months, though the ratios comprising that rating have fluctuated in the meantime.
Currently, the stock has nine “hold” ratings and one “buy” rating, which is, interestingly enough, the exact same proportions that it held last month. Three months ago, however, the company had nine “hold” ratings and two “buy” ratings, its most bullish consensus in the entire span. All of these ratings, however, are more bullish than the rating six months ago, which featured 11 “hold” and one “buy” rating.
The price target has been slipping for the last month as well. Six months ago, it came in at $14.50. Three months ago, it was hiked to $15.11. A month ago, it was dropped to $13.25, where it remains today, and for the first time in six months, represents some downside risk as the current share price is $22.58 as of this writing. However, it's worth noting that there has been little recent adjustment in Under Armour's price target or even critical analysis; the last such adjustment came from Jefferies Financial Group on October 30, when it boosted the price target from its then-level of $13 to its current level of $20.
Still a Name to Watch
We know that Under Armour had a very solid quarter, which should be expected as the holiday shopping season drives purchases of just about everything. However, it's also worth noting that we're still at least somewhat in pandemic-mode, which means the everything-at-home culture is likely to stay in play for some time as well. That's likely to drive demand for sportswear like Under Armour's as we see an increasing focus on comfort wear. Throw in recent initiatives focused on growth and some growth is likely to occur; when a company is actively working toward growth, only complete failure will prevent growth, and complete failure is about as rare as complete success. We've also seen some high-profile wearers of Under Armour, for good and ill; Tom Brady was recently spotted wearing Under Armour to the point where he actively covered up a Nike swoosh icon he was wearing, but then, so too was a streaker who made an appearance on the field wearing nothing but sneakers from—you guessed it—Under Armour.
However, these conditions for growth come with some caveats. North American sales were down 6%, reports note, as international sales led the way with a 7% growth in revenue. Under Armour also pointed out that most of its stores are open, but very few are open at full capacity due to one set of restrictions or another hampering operation.
In the end, Under Armour is in a good position for future growth. Putting more effort behind making growth happen is likely to produce such an outcome on one level or another, and there's little doubt the stock is attractively priced. At the end of the day, this should make for a positive environment for Under Armour, and a win overall for its investors going forward.
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