Athletic footwear, sports, and apparel retailer Under Armor (Ticker Symbol: UA) reported earnings before the opening bell on Thursday. Under Armor reported an earnings beat of .05 cents per share vs. Wall Street analysts expectations of break-even. Revenue also came in better than expected at $1.2 billion vs. Wall Street expectations of $1.18 billion. Under Armor raised its 2019 earnings forecast within a range from .33 to .34 cents, up from its previous forecast of .31 to .33 cents. The Baltimore based company also raised its revenue guidance and is looking for revenues to grow by roughly 3% to 4% overall. Under Armor reported North American sales at $843 million, down 3% for the quarter. However, international revenues, which now make up over 25% of its sales, were up 12% in the quarter at $328 million.
Over the past two years Under Armor has been making efforts to turn its business around. Under Armor is known for its performance clothing and compression shirts but over the past 2 years its competitors Nike, Lululemon, and Adidas have taken market share. The company cut 3% of its workforce which was done over the course of 6 months that ended in March of this year. Under Armor has also cut excess inventory that was sitting in warehouses, along with focusing more on women’s items, and its best-selling footwear brands Project Rock, Curry 6 and the Hovr sneaker.
Under Armor’s stock has been under pressure over the past three years. Two very negative earnings and guidance reports sent the stock gapping sharply lower, trading below both its 100 and 200-day Moving Averages. The stock continued to trade lower throughout the remainder of 2017 and 2018 forming an Inverse Head and Shoulders reversal pattern. (As indicated on the charts by the red lines.) Traders and investors sometimes look at Head and Shoulders patterns for a possible reversal in trend, which would get triggered to the upside with a move above its neckline around $22.50. The stock is currently up over 25% on the year, trading just above the psychological $20.00 price level.
(Chart above courtesy of www.tipranks.com)
Based on a survey of 13 analysts offering 12-month price targets, the average price target for Under Armor’s stock is $21.31. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $20.24.
Some of Wall Street’s top analysts are stating that Under Armor is struggling in the “athleisure” space, deciding not to focus on yoga pants and casual athletic wear as much as its competitors like Lululemon and Nike. Under Armor’s Chief Executive Officer, Kevin Plank said that the company will continue to focus on its “performance” gear, like its famous moisture-wicking shirts. Under Armor’s North American sales have been weak and much of its profits are coming from overseas, but the company is taking steps to build up its domestic sales. Investors should be watching the Head and shoulders pattern for a neckline failure or breakout opportunity above that level.