Breaking Down Under Armour, Inc. (UA) Financial Health: Key Insights for Investors

Understanding Under Armour, Inc. (UA) Revenue Streams

Understanding Revenue Streams

As of the six months ended September 30, 2023, the total net revenues amounted to $2,883,722 thousand, reflecting a decrease of 1.3% from $2,922,942 thousand for the same period in 2022.

Breakdown of Primary Revenue Sources

The primary revenue sources can be categorized by geographic regions as follows:

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth rates for the first half of the fiscal year are as follows:

• North America: Decrease of 5.4%
• EMEA: Increase of 9.8%
• Asia-Pacific: Increase of 7.9%
• Latin America: Increase of 1.7%
• Corporate Other: Decrease of 65.5%

Contribution of Different Business Segments to Overall Revenue

For the three months ended September 30, 2023, net revenues by product category were:

Analysis of Significant Changes in Revenue Streams

Overall, total net revenues for the three months ended September 30, 2023, were $1,566,710 thousand, down 0.5% from $1,573,885 thousand in the previous year.

• Wholesale: Decreased by 0.9% to $939,725 thousand.
• Direct-to-Consumer: Increased by 3.2% to $595,847 thousand.
• License Revenues: Decreased by 13.5% to $28,646 thousand.
• Corporate Other: Decreased by 83.9% to $2,492 thousand.

A Deep Dive into Under Armour, Inc. (UA) Profitability

A Deep Dive into Under Armour, Inc. Profitability

Gross Profit

For the three months ended September 30, 2023, gross profit increased by $38.2 million to $752.0 million compared to $713.8 million during the same period in 2022. The gross profit margin rose to 48.0% from 45.4%.

During the six months ended September 30, 2023, gross profit was $1,359.7 million, up from $1,344.0 million in the prior year, with a gross margin of 47.2%, compared to 46.0% the previous year.

Operating Profit

For the three months ended September 30, 2023, operating income increased to $145.8 million, compared to $119.4 million in the same quarter of 2022. The operating margin for Q2 2023 was 9.3% compared to 7.6% in Q2 2022.

Over the six-month period, operating income rose to $166.7 million from $153.9 million, reflecting an increase in the operating margin from 5.3% to 5.8%.

Net Profit

Net income for the three months ended September 30, 2023, was $109.6 million, a rise from $86.9 million in Q2 2022. The net profit margin increased to 7.0% from 5.5%.

For the six months ended September 30, 2023, net income was $118.2 million, compared to $94.6 million in the prior year, with a net profit margin of 4.1%, up from 3.2%.

Trends in Profitability

The company has shown consistent improvement in profitability metrics year-over-year, with gross, operating, and net margins all increasing during the latest reporting periods. The gross margin increase can be attributed to supply chain efficiencies and lower freight costs, while the rise in operating and net profit margins reflects better cost management and improved revenue generation strategies.

Industry Comparison

In comparison to industry averages, the company's profitability ratios are relatively competitive. For instance, the average gross margin in the apparel industry is around 45%, while the company's gross margin stands at 48%. The operating margin industry average hovers around 8%, placing the company above this benchmark at 9.3% for Q2 2023.

Operational Efficiency

Operational efficiency is reflected through the management of selling, general, and administrative expenses, which increased only slightly by 2.0% to $606.2 million for the three months ended September 30, 2023, compared to $594.4 million in the same quarter of 2022. This suggests effective cost management strategies in place, allowing the company to enhance profitability despite rising costs in other areas.

Debt vs. Equity: How Under Armour, Inc. (UA) Finances Its Growth

Debt vs. Equity: How Under Armour, Inc. Finances Its Growth

As of September 30, 2023, the company reported total long-term debt of $594.7 million, with a current portion of $80.9 million due within the next year. The breakdown of long-term debt includes:

The debt-to-equity ratio as of September 30, 2023, stands at approximately 0.33, calculated using total debt of $680.9 million against total equity of $2,089.7 million. This ratio indicates a conservative approach to leveraging compared to the industry average of approximately 0.5 to 0.7 for similar companies in the sports apparel sector.

Recent debt issuances include the 3.25% Senior Notes issued in June 2016, totaling $600 million, which are set to mature in June 2026. The company continues to maintain a manageable interest expense, reporting $5.5 million for the three months ended September 30, 2023.

As part of its financial strategy, the company has actively engaged in refinancing activities to optimize its capital structure. For instance, the company reported unamortized debt issuance costs of $1.5 million related to its senior notes and $3.1 million on its credit facility.

The balance between debt financing and equity funding is evident in the company’s operational strategies. As of September 30, 2023, cash and cash equivalents totaled $655.9 million, providing liquidity to fund operations and capital expenditures without heavily relying on additional debt. The company’s approach focuses on maintaining a balance between leveraging debt for growth while ensuring that equity financing remains a significant part of its capital structure.

In summary, the company's financial health reflects a balanced approach to debt and equity financing, with an emphasis on maintaining a sustainable debt-to-equity ratio and optimizing its capital resources.

Assessing Under Armour, Inc. (UA) Liquidity

Assessing Under Armour, Inc.'s Liquidity

Current Ratio: As of September 30, 2023, the current ratio stands at 2.2, indicating a solid liquidity position. This is calculated from current assets of $1,162,548 thousand and current liabilities of $526,210 thousand.

Quick Ratio: The quick ratio is reported at 1.6. This reflects a quick asset total of $586,500 thousand against current liabilities, demonstrating the company's ability to meet short-term obligations without relying on inventory sales.

Analysis of Working Capital Trends

Working capital as of September 30, 2023, is $636,338 thousand. This represents an increase of 12.5% compared to the previous quarter, indicating improved operational efficiency and liquidity management.

Cash Flow Statements Overview

For the six months ended September 30, 2023, cash flows from operating activities reported a net inflow of $64,243 thousand, a significant recovery from -$2,499 thousand in the same period of 2022.

Cash flows from investing activities showed a net outflow of -$39,144 thousand, primarily due to capital expenditures totaling $84,144 thousand.

Cash flows from financing activities resulted in a net outflow of -$50,537 thousand, attributed to share repurchases and tax-related payments.

Potential Liquidity Concerns or Strengths

The company maintains a solid liquidity position, supported by a robust current ratio. However, the cash outflows from investing and financing activities indicate a focus on growth and shareholder returns, which could pressure liquidity if not managed carefully. As of September 30, 2023, cash and cash equivalents total $655.9 million, providing a buffer against any unforeseen liquidity needs.

Is Under Armour, Inc. (UA) Overvalued or Undervalued?

Valuation Analysis

As of 2024, the valuation metrics of the company indicate the following:

• Price-to-Earnings (P/E) Ratio: 20.0
• Price-to-Book (P/B) Ratio: 2.5
• Enterprise Value-to-EBITDA (EV/EBITDA) Ratio: 14.0

Over the past 12 months, the stock price has shown diverse trends:

The company currently does not offer a dividend, as indicated by a dividend yield of 0% and a payout ratio of 0%.

Analyst consensus regarding the stock valuation is as follows:

Key Risks Facing Under Armour, Inc. (UA)

Key Risks Facing Under Armour, Inc.

The financial health of Under Armour, Inc. is influenced by a variety of internal and external risk factors that investors should consider.

Industry Competition

The sports apparel industry is highly competitive, with major players such as Nike, Adidas, and Puma dominating the market. As of September 30, 2023, the company's net revenues from North America decreased by $103.1 million, or 5.4%, to $1.818 billion from $1.921 billion in the prior year, reflecting competitive pressures in this key region.

Regulatory Changes

Changes in regulations, particularly in labor laws and international trade policies, can significantly impact operational costs. The company is currently involved in ongoing litigation, including a securities class action lawsuit which may have financial implications if settled adversely.

Market Conditions

Fluctuations in consumer demand due to economic conditions can adversely affect sales. For example, net revenues for the three months ended September 30, 2023, decreased by $7.2 million, or 0.5%, compared to the same period in 2022.

Operational Risks

Operational challenges, such as supply chain disruptions, can impact inventory levels and costs. The company reported a $52.7 million decline in accounts receivable for the six months ended September 30, 2023, indicating potential issues in sales collection.

Financial Risks

Financial risks include exposure to interest rate fluctuations and credit risks associated with lenders. The scheduled maturities of long-term debt as of September 30, 2023, amount to $680.9 million, with $80.9 million due in fiscal year 2025.

Strategic Risks

The company’s reliance on direct-to-consumer sales is increasing, which accounted for $595.8 million in net revenues for the three months ended September 30, 2023, up 3.2% from the previous year. However, this channel is vulnerable to changes in consumer preferences and digital marketing effectiveness.

Mitigation Strategies

To mitigate these risks, the company focuses on enhancing its inventory management and supply chain logistics. As of September 30, 2023, Under Armour reported approximately $655.9 million in cash and cash equivalents, providing a buffer against operational disruptions.

Future Growth Prospects for Under Armour, Inc. (UA)

Future Growth Prospects for Under Armour, Inc.

Analysis of Key Growth Drivers:

• Product Innovations: The company has focused on enhancing its product lines, with significant investments in R&D. For instance, the gross profit increased by $38.2 million to $752.0 million during Q2 2024 compared to Q2 2023, reflecting the positive impact of new product launches.
• Market Expansions: The EMEA region saw a revenue increase of 9.3%, reaching $287.1 million in Q2 2024, driven by growth in both direct-to-consumer and wholesale channels.
• Acquisitions: The company benefited from an earn-out of $45 million from the sale of its MyFitnessPal platform, contributing positively to cash flows.

Future Revenue Growth Projections:

Analysts project a compound annual growth rate (CAGR) of approximately 5% to 7% in revenues over the next five years, driven by increased e-commerce sales and global market expansion.

Earnings Estimates:

For the fiscal year 2024, earnings per share (EPS) are estimated to reach $0.26, up from $0.20 in 2023.

Strategic Initiatives and Partnerships:

• Partnerships with professional athletes and teams are expected to enhance brand visibility and drive sales.
• The expansion of e-commerce platforms is anticipated to contribute to a 3.2% increase in direct-to-consumer sales.

Competitive Advantages:

The company maintains a strong brand identity and customer loyalty, which positions it favorably against competitors. The gross margin increased to 48.0% in Q2 2024, up from 45.4% in Q2 2023, indicating effective cost management and pricing strategies.

The company's focus on innovation, market expansion, and strategic partnerships, combined with its competitive advantages, positions it well for future growth.