UA: Thoughts Into The Print

Yeah, we all know they’ll beat big. Market share trends have been so dominant – which is solid given higher inventories last quarter. Top-line trajectory is more vital here than any other name in retail (sans lulu). We need to start to envision $4 in earnings power – else margin of error is nil at $78.


You don’t need to take too much time out of your day running regressions around POS market share data to tell you that Under Armour is performing well at retail. The market  is telling you all you need to know. Well, almost…


1)      First off, market share trajectory is  looking very good in a category that’s been outperforming.

  1. In apparel, UA’s share gains in the quarter were very meaningful, and its share of the industry is sitting at about 11.5%, a full 150bps ahead of last year.  Not bad for a $15bn category at retail.
  2. Footwear is still down yy, so clearly it’s less upbeat there at face value. But the trendline has been hitting higher highs and higher lows. ASPs look very good, and inventories look very clean. This is happening about one quarter away from when we should see meaningfully accelerating growth in the footwear business that was structurally built over the past 2-years by Gene McCarthy.

2)      The bad news is that top line trends HAVE TO continue to work. Aside from the obvious cost pressures that everyone on the planet is talking about, UA is also building working capital business to support retail as well as footwear. So with no margin trigger, no capex/working capital trigger, it needs to be revenue, revenue, revenue. I’m not going to get lost in ‘comps’ here, but UA posted 20-30% organic growth in each of the past four quarters. That’s fantastic, and it’s right in line with the long term plan. But the numbers do get harder as the year progress.


Will this still be a super-human growth rate for a company in this environment? Heck yeah. But I just don’t see how you get paid buying the stock at $78 on $1.60 in EPS with cash flow eroding on the margin.


Putting on my ‘where could I be wrong’ hat, we’d need to get a big jolt in realizing that this company has $4 in earnings power over the next 3-years (5-years is more realistic). That’s about 20x earnings and 10x EBITDA on a 20% long term grower – without penalizing valuation due to having to wait until 2014 to see the earnings.


I think that this company will continue to do the right thing, and invest where it’s warranted in order to enhance long-term value. When it does so, the market tends to get overly punitive. That’s when I’d be more interested in getting involved.



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