Market Decision: Under Armour'S Tough Choice Is Shoes Or Sportswear?

Under Armour exceeded analysts' expectations in the first quarter and raised expectations in 2019.

The sportswear market is at an important turning point. Its goal is to surpass Lulu lemon sports as a leading high-end brand.

In terms of key financial indicators, the unit is cheap, but there is a significant resistance at $24.

A consistent theme of the 2018 is that Under Armour (UA, UAA) is a valuable brand neglected by the market, resulting from short term product problems leading to temporary inventory and profit margins.

The stock market hit a new high after its first quarter results in 19 years, which further confirmed my optimistic investment view.

Under Armour cut its inventory level in 2018, focusing on the design work in the footwear industry.

Prior to that, the company tried to attract footwear business by putting the UA logo on its shoes, but unfortunately it ended in failure.

The first quarter's performance included a sharp drop in inventory levels of 24% and a sharp rise of 100 basis points in gross margin.

The most impressive number is that footwear increased by 8% in the current quarter to $293 million.

The sportswear company's revenue exceeded $20 million this quarter, but the real problem is that the overall growth is almost nonexistent and sales increase by only 2%.

The apparel business grew by only 1% in the quarter, but Under Armour set a goal to improve footwear products with poor performance. The initial progress is promising.

The opportunities in the footwear market are huge. Under Armour's quarterly revenue is about $300 million, and its main competitor, Nike (Nike), has a quarterly revenue of over $2 billion.

The momentum of Under Armour in the footwear industry has finally been enhanced through Hovr and Project Rock products. This is a good sign that the company can finally achieve growth in the field of clothing through innovative products such as Rush (Rush).

Nike is not a competitor.

One of the biggest problems that Under Armour has encountered in the past few years is that the high-end sports apparel company is starting to sell products to any retailer without any difference.

The company tried to become Nike, though it sold a successful brand focused on high-end sports performance.

In fact, Under Armour is the earliest Lulu lemon sporting goods company (Lululemon Athletica, LULU). In order to achieve annual sales growth target of 20%, the company gave up its sales at discount retail outlets.

Lululemon is currently focusing on high-end yoga clothing, with a market capitalization of $23 billion, and Andemar has no reason not to change the route to win the position of high-end sports apparel brands.

Investors should note that Lululemon's income base is only $3 billion 800 million, while Under Armour's income base is as high as $5 billion 400 million.

The huge difference between the two companies' share price is that due to faster growth and higher profit margins, Lululemon's expected sales volume is 6.1 times, and the P / E ratio has increased substantially.

Shareholders of Under Armour should not have the goal of catching up with Nike.

Our goal is to really become a Lululemon in the sportswear field, and a larger overall target market should generate a bigger company.

The first quarter results and guidelines are a solid step towards a significant increase in profitability.

Under Armour raised its 19 - year earnings per share from $0.31 to $0.33, rising from $0.33 to $0.34.

Analysts now expect the company's earnings per share for 19 years to be $0.35, and its earnings per share jumped sharply to $0.72 in the 21 year.

At the early stage of the plan, these small earnings per share gains will lead to a substantial increase in earnings per share over the next few years.

conclusion

A key conclusion from investors is that, despite the fact that the market is looking back at a waste of time in pursuit of low margin sales, Under Armour has embarked on its way back to a high-end sportswear manufacturer, where shareholder returns are higher profit margins and profits.

UAA rose to $23, and the stock suffered strong resistance near $24. Investors need not rush into the rally before the stock falls below the resistance level.

The best option is to slow up the stock market in the next few years.

The best option is to slow up the stock market in the next few years.