UA: Get Used to Revenue Beats

   

For a name with so much emotion surrounding it (mostly negative), the results were here were pretty dang predictable in the context of our call. Revenue beat, the footwear launche(s) are moving according to plan, and apparel revenue is actually picking up slightly on the margin. Yes, gross margins are in tank - as we expect given the high fixed costs that need to be amortized in the face of a new product launch like running footwear - but this is more than made up for by SG&A, which is down meaningfully vs. last year. To top it all off, with sales +27% we're looking at inventories -2%, which leaves us with the biggest positive spread in these metrics we've seen out of UA in 3 years. Capex coming down by 20% this year is gravy.

 

What does all this mean? This is an incredibly solid brand that the consumer genuinely wants to succeed - something this space has not seen in a while. It went through a year and a half where sales slowed, margins rolled over, SG&A costs rose, inventories built, and capex headed up. Yes, this was a rapidly growing free cash flow monster that pulled a 180 and financially morphed into something ugly and confusing in 2008 for those not willing to look through all the noise. Now we've got this company coming out the other end with accelerating sales, margins and cash flow - which I don't think is a one quarter event.

 

I still think that the addition of $300-$400mm in footwear revenue over 3-4 years plus another $100-$200mm internationally (as it branches away from dependence on US football and into running, basketball and training) should keep UA in the upper echelon of growth in the world is US consumer companies.  Off a base of $750mm in revs? Not bad at all. And yes, this can happen even in a prolonged US/global recession.

 

UA: Get Used to Revenue Beats - UA SIGMA


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