UA: Numbers Are Not What They Seem

Takeaway: Lower rev guidance plus lower SG&A on top of leadership chg does not fill us with confidence that UA will be smoking top line net yr.

Overall, a good print from UA with top line (+25%) and EBIT (+47.5%) both accelerating and beating expectations and EPS a penny ahead of consensus. The top line came in robust at face value – there’s no denying that. But after adjusting for retail gross-up it was slightly less impressive. That said, Gross Margins were weak – coming in -132bp vs last year, compared to guidance that they could be down at a rate nearing -100bp.


As an offset, SG&A grew at 13%, the slowest rate since 2Q09.  The reality is that guidance for the upcoming year is a tad light at +20-21% top line, and there was zero mention in the press release of the strategic issues that we think are looming in the footwear organization (evidenced by UA’s FW czar Gene McCarthy departing last week). If the company would have had a mor normalized SG&A rate, it would have missed by about a nickel. Perhaps there’s a great reason for that, which we’ll hear about on the 8:30 call. But given the lack of traction in FW, we’d rather see the company keep SG&A in the business in order to stimulate continued share gains.


Lower revenue guidance plus lower SG&A on top of leadership changes does not fill us with confidence that the company will be smoking top line estimates next year – something it will need to support its multiple.


Also, a little factoid to keep in mind as it relates to UA’s revenue… Given a $59mm sequential positive pop in direct-to-consumer revenue, we should juxtapose that against the -$69mm decline in aggregate revenue. We won’t penalize the company for going more direct. That’s the wave of the future. But booking retail revenue is optically more attractive than going wholesale. The way we look at it, if you ex out the retail gross up, there was no sequential uptick in revenue. In fact, it was down slightly.


One of the biggest positives was the improvement in inventories, which clocked in $5mm below last year despite a $100mm boost in revenue. A clean balance sheet is something UA needs right now. 

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more