Under Armour (UA) is expected to report its first-ever operating loss tomorrow. The stock dropped 20% in January following dismal Q4’16 results. UA has projected a mere 10-12% revenue growth for 2017 vs it’s 20%+ growth in the last 26 quarters. During the earnings call, investors would want to focus on these areas:
North Amercian(NA) region wholesale channel performance
Geographically, NA contributes ~85% of total revenues, with wholesale being the dominant channel of distribution. NA growth in Q4 was very low at 5%. Bankruptcies of several of UA’s wholesale partners primarily led to this decline. Investors will be keen to look for signs of growth in this key area.
Focus on international revenue growth, footwear and DTC business expansion as revenue drivers
As opposed to falling revenues in NA, UA’s international market growth has been encouraging. International sales, that contribute to ~15% of its total revenues have been growing ~60% annually. UA’s footwear business growth has also been outpacing its apparel business growth. The company is also trying to veer away from wholesale business to the more profitable DTC business.The investors will be keen to look for initiatives in these areas and expect these revenue drivers to continue to outpace overall growth
The Company’s increasing debt levels
UA’s interest expenses doubled in the Q4’16 to $8mn and the company expects the number to rise to $40 mn for fiscal 2017. Investors would want to hear management views on tackling these increasing debt levels and managing interest expenses amid dwindling profits
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