Under Armor Stock is Getting Undervalued

Athleisure apparel and footwear maker Under Armour NYSE: UAA stock has been falling within the proximity of revisiting its pandemic lows. The Company concluded its 2020 restructuring plan with the recognition of $57 million during its transition quarter ending March 31, 2022. COVID lockdowns in China impacted demand dynamics leading to cutting full-year estimates. Headwinds including supply chain disruption and rising logistics costs caused gross margins to sink (-350 bps) to 46.5%. Inflationary pressures, COVID effects, and ongoing supply chain problems led the Company to low ball estimates moving forward as visibility remains questionable. The Company recently announced on May 18, 2022, that CEO Patrick Fisk would step down as CEO and board members effective June 1, 2022, and will remain an advisor through September 1, 2022, as the Company undergoes a CEO search. The Company plans to launch its loyalty program by the end of the year. Prudent investors seeking exposure at a discount ahead of a new CEO can look for opportunistic pullback levels to scale into position.

Fiscal Q1 2022 Earnings Release

On May 6, 2022, Under Armour released its fiscal first-quarter 2022 results for the quarter ended March 2021. The Company reported a diluted earnings-per-share (EPS) profit of $0.01, missing consensus analyst estimates of $0.12 by (-$0.11). Revenues grew 3.4% year-over-year (YOY) to $1.30 billion, missing analyst estimates of $1.34 billion. Gross margin decreased (-350 bps) to 46.5% driven by rising freight expenses. The Company authorized a stock buyback program of up to $500 million over the next two years through an open market, privately negotiated, and accelerated repurchase transactions. Under Armor CEO Patrick Frisk commented, "Having successfully executed a multi-year transformation and after delivering a record year in 2021 – we are continuing to serve the needs of athletes amid an increasingly more uncertain marketplace. As global supply challenges and emergent COVID-19 impacts in China eventually normalize, we are confident that the strength of the Under Armour brand coupled with our powerful growth strategy positions us well to deliver sustainable, profitable returns to shareholders over the long-term."

Fiscal 2023 Full-Year Outlook

The Company provided a fiscal full-year 2023 outlook for revenues to grow 5% to 7% versus a comparable baseline period of $5.7 billion including 3% headwinds related to the strategic decision to work with vendors and customers to cancel orders affected by capacity issues, supply chain delays, and emergent COVID-19 impacts in China. Gross margins are expected to be down (-150 bps) to (-200 bps) to 49.6%. Operating income is expected to reach $375 million to $400 million versus comparable baseline adjusted operating income of $24 million. Diluted EPS is expected between $0.79 to $0.84, including a $0.28 tax benefit.

Conference Call Takeaways

CEO Frisk reminisced about the turnaround transformation for the Company during his tenure and his confidence in Under Armor’s long-term growth potential. The growth will be driven by direct-to-consumer (DTC), women’s footwear, and international businesses anchored in five platforms to accelerate scale and growth for the brand. The five platforms are consumer-centricity, product engine, go-to-market platform, end-to-end planning, and omnichannel excellence. Under Armor plans to launch a loyalty program in North America by end of 2022 to engage its customers with content, events, rewards, and community-based interactions. He went on to talk about some of its high-profile sponsorships including basketball players Stephan Curry, and Joel Embiid having some of their best seasons. Major League Baseball star Bryce Harper continues to gain momentum from his 2021 national MVP and World Series Performance. Jordan Spieth of the PGA extended their partnership for four more years. He stated, “These are just a few examples of how we drive brand affinity, utilizing the best athletes on the planet, a halo that manifests itself through our run, train, and recover products. And in the second half of 2022, we have several exciting innovations coming.”

UAA Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precise view of the landscape for UAA stock. The weekly rifle chart formed an inverse pup breakdown after rejecting the $17.93 Fibonacci (fib) level as the stochastic crossed back down through the 20-band on a mini inverse pup. The weekly inverse pup breakdown has a falling 5-period moving average (MA) resistance at $12.48 and a 15-period MA resistance falling at $15.24. The weekly 200-period MA resistance sits at $18.71. The weekly lower Bollinger Bands (BBs) sit at $9.00. The monthly lower BBs sits at $9.86. The weekly market structure low (MSL) buy triggers a breakout up through the $10.75. The daily rifle chart formed an inverse pup breakdown with a falling 5-period MA at $10.35 followed by the 15-period MA resistance at $11.72 with daily lower BBs at $6.20. The daily stochastic crossed back down off the 20-band rejection. Prudent investors can watch for opportunistic pullback levels at the $9.53 fib, $8.82 fib, $8.17 fib. $7.69 fib, $7.15 fib, and the $5.87 fib level. Upside trajectories range from the $13.38 fib up towards the $17.66 fib level.