New Premium Footwear And Apparel Will Shape Future Success

Key Takeaways

• Under Armour's focus on reducing discounts and revamping product lines aims to boost pricing power and enhance revenue quality.
  
• Strategic shifts like a category-managed model and streamlined SKUs may improve operational efficiency and long-term profitability.
  
• Challenges in North America, APAC competition, inventory management, currency headwinds, and wholesale dependency could hinder Under Armour's short-term revenue growth and stability.

Catalysts

Engages developing, marketing, and distributing performance apparel, footwear, and accessories for men, women, and youth.

• Under Armour aims to increase its pricing power by reducing promotions and discounts, which should enhance the quality of their revenue and improve gross margins over time.
  
• The company plans to launch a new product lineup, including premium footwear and apparel offerings, which could drive future revenue growth and improve branding efforts.
  
• Under Armour is transitioning to a category-managed operating model to increase accountability and efficiency, which could positively impact earnings and net margins over the long term.
  
• Investments in marketing and brand strategy geared toward young athletes, coupled with partnerships with top-tier athletes and sports teams, are designed to enhance brand positioning and potentially boost revenue.
  
• Streamlining product assortments and implementing SKU reductions aims to improve operational efficiency and profitability, possibly leading to improved net margins.

Under Armour Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Under Armour's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.4% today to 4.9% in 3 years time.
• Analysts expect earnings to reach $275.7 million (and earnings per share of $0.67) by about May 2028, up from $-127.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.0x on those 2028 earnings, up from -19.6x today. This future PE is greater than the current PE for the US Luxury industry at 14.8x.
• Analysts expect the number of shares outstanding to decline by 1.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.9%, as per the Simply Wall St company report.

Under Armour Future Earnings Per Share Growth

Risks

• The decline in North American revenue, mainly due to lower eCommerce sales limited by efforts to reduce promotional activities, may suggest ongoing challenges in achieving top-line growth in this key market, impacting revenue.
  
• APAC region's competitive landscape, high inventory levels, and macroeconomic factors leading to increased discounting may put pressure on revenue and margins.
  
• Planned reduction of SKUs and a tiered approach in owned retail stores to manage inventory may restrict revenue growth opportunities in the short term.
  
• Currency fluctuations creating headwinds, as mentioned for the fourth quarter, present risks to international revenue and earnings.
  
• Dependency on certain distribution channels, like wholesale, which are experiencing inconsistent execution, may impact future revenue stability.

Valuation

• The analysts have a consensus price target of $8.345 for Under Armour based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $14.5, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.6 billion, earnings will come to $275.7 million, and it would be trading on a PE ratio of 16.0x, assuming you use a discount rate of 8.9%.
• Given the current share price of $5.81, the analyst price target of $8.34 is 30.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.