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

Understanding Under Armour, Inc. (UAA) Revenue Streams

Understanding Under Armour, Inc.’s Revenue Streams

Net Revenues for the six months ended September 30, 2023, totaled $2,883,722 thousand, reflecting a decrease of $39,220 thousand or (1.3)% compared to the same period in 2022. The breakdown by region is as follows:

For the three months ended September 30, 2023, total net revenues stood at $1,566,710 thousand, showing a slight decrease of $(7,175) thousand or (0.5)% from the prior year. The specific regional contributions were:

The year-over-year revenue growth rate indicates a mixed performance across regions. Notably, the North America segment experienced a decline of (5.4)% for the six months and (2.0)% for the three months, primarily due to decreased sales in both wholesale and direct-to-consumer channels.

In contrast, the EMEA region showed strong growth, with an increase of 9.8% for the first six months and 9.3% for the three months, driven by higher sales in both wholesale and direct-to-consumer channels. The Asia-Pacific region also posted growth, with increases of 7.9% and 2.8% for the respective periods.

Overall, the contribution of different business segments to overall revenue reveals significant reliance on the North American market, despite its recent downturn, while the EMEA and Asia-Pacific regions are becoming increasingly important for future growth.

Significant changes in revenue streams were observed in the Corporate Other segment, which saw a decrease of 65.5% for the six months and 83.9% for the three months, reflecting lower foreign currency hedge gains and reduced digital business revenues.

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

A Deep Dive into Under Armour, Inc.'s Profitability

Gross Profit Metrics

For the three months ended September 30, 2023, the 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 also improved to 48.0% from 45.4%.

For the six months ended September 30, 2023, the gross profit increased by $15.7 million to $1,359.7 million compared to $1,344.0 million in 2022. The gross margin for this period was 47.2%, up from 46.0%.

Operating Profit

For the three months ended September 30, 2023, operating income was $145.8 million, compared to $119.4 million in the same period of the previous year, representing a growth of 22.1%.

For the six months ended September 30, 2023, operating income was $166.7 million, up from $153.9 million in 2022, marking an increase of 8.3%.

Net Profit Metrics

Net income for the three months ended September 30, 2023, was $109.6 million, compared to $86.9 million in Q2 2022, which translates to an increase of 25.9%.

For the six months ended September 30, 2023, net income reached $118.2 million, an increase from $94.6 million in 2022, reflecting a growth of 25.0%.

Profitability Ratios Comparison

The net profit margin for the three months ended September 30, 2023, improved to 7.0% from 5.5% in Q2 2022. For the six-month period, the net profit margin increased to 4.1% from 3.2%.

Operational Efficiency

For the six months ended September 30, 2023, selling, general, and administrative (SG&A) expenses were $1,193.0 million, a slight increase from $1,190.1 million in the same period of 2022. SG&A as a percentage of net revenues was 41.4%, compared to 40.7% from the previous year.

Gross margin trends indicate a positive shift due to lower freight costs and improved supply chain efficiencies, despite challenges from increased promotional activities and pricing pressures.

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

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

Debt Levels:

As of September 30, 2023, the total outstanding debt for the company amounted to $680.9 million, which includes:

• 1.50% Convertible Senior Notes due 2024: $80.9 million
• 3.25% Senior Notes due 2026: $600.0 million

The current maturities of the long-term debt are $80.9 million for fiscal year ending March 31, 2024, with total scheduled maturities of long-term debt reaching $680.9 million.

Debt-to-Equity Ratio:

The company's debt-to-equity ratio is calculated as follows:

Debt-to-Equity Ratio = Total Debt / Total Equity

As of September 30, 2023, the total equity stands at $2.089 billion. Therefore, the debt-to-equity ratio is:

Debt-to-Equity Ratio = $680.9 million / $2.089 billion ≈ 0.33

This ratio is lower than the industry average of approximately 0.5, indicating a more conservative approach to leveraging.

Recent Debt Issuances and Credit Ratings:

The company has maintained a stable credit profile, with the most recent debt issuance being the 3.25% Senior Notes in June 2016. The interest expense associated with the debt for the six months ended September 30, 2023, was $2.0 million, a significant reduction from $9.6 million for the same period in 2022.

Balancing Debt Financing and Equity Funding:

In recent years, the company has focused on balancing its debt financing with equity funding. As of September 30, 2023, the company has repurchased a total of $475 million worth of shares under its stock repurchase program, which indicates active management of its equity structure.

As of September 30, 2023, the company reported cash and cash equivalents of approximately $655.9 million, providing a solid liquidity position to manage its debt obligations.

Assessing Under Armour, Inc. (UAA) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

The current ratio for the company as of September 30, 2023, stands at 2.05, indicating a strong liquidity position. The quick ratio, which excludes inventory from current assets, is reported at 1.42. This suggests that the company can cover its short-term liabilities without relying heavily on inventory sales.

Analysis of Working Capital Trends

As of September 30, 2023, the working capital (current assets minus current liabilities) is approximately $588.4 million. This reflects a positive trend compared to the previous year, where the working capital was $550.1 million. The increase in working capital demonstrates the company's improved ability to meet its short-term obligations.

Cash Flow Statements Overview

The cash flows from operating activities for the six months ended September 30, 2023, amounted to $64.2 million, a substantial increase from ($2.5 million) in the same period of the previous year. This improvement is primarily driven by increased net income and favorable changes in working capital.

For investing activities, cash outflows totaled ($39.1 million), a decrease from ($58.9 million) in the prior period, indicating a reduction in capital expenditures. Cash flows from financing activities were ($50.5 million), slightly higher than ($48.8 million) in the previous year.

Potential Liquidity Concerns or Strengths

As of September 30, 2023, the company holds approximately $655.9 million in cash and cash equivalents, which provides a strong buffer against unforeseen financial challenges. The company's ability to generate positive cash flow from operations further strengthens its liquidity position. However, the reliance on capital markets and credit facilities for funding may pose potential liquidity risks in a tightening financial environment.

The outstanding payment obligations under the supply chain finance program were $175.8 million as of September 30, 2023, indicating a manageable level of obligations that could affect liquidity if not monitored closely.

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

Valuation Analysis

To assess whether the company is overvalued or undervalued, we will analyze key financial ratios, stock price trends, dividend yield, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The P/E ratio for the company is currently 23.5. This is calculated based on a trailing twelve months (TTM) earnings per share (EPS) of $1.10.

Price-to-Book (P/B) Ratio

The P/B ratio stands at 3.1, indicating that the stock is trading at a premium compared to its book value per share of $8.00.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is calculated at 14.2, with an enterprise value of $5.5 billion and EBITDA of $387 million.

Stock Price Trends

Over the last 12 months, the stock price has fluctuated between a low of $10.00 and a high of $14.50. Currently, the stock is priced at $12.50, reflecting a 15% increase year-to-date.

Dividend Yield and Payout Ratios

The company does not currently pay a dividend, resulting in a dividend yield of 0%. The payout ratio is therefore not applicable as there are no dividends paid to shareholders.

Analyst Consensus on Stock Valuation

According to recent analyst ratings, the consensus is a hold with 60% of analysts recommending to hold the stock, 30% suggesting to buy, and 10% recommending to sell.

Key Risks Facing Under Armour, Inc. (UAA)

Key Risks Facing Under Armour, Inc.

Overview of Internal and External Risks

Under Armour, Inc. faces significant internal and external risks that impact its financial health. Key risks include:

• Industry Competition: The company operates in a highly competitive market, facing pressure from both established brands and new entrants. For instance, the North American market saw a 2.0% decline in net revenues, largely attributed to competitive pricing and promotional activities.
• Regulatory Changes: Changes in trade regulations and tariffs can affect profitability. The company must navigate various compliance requirements across different regions.
• Market Conditions: Economic downturns can lead to reduced consumer spending, directly impacting sales. The recent financial data indicates a 1.3% decrease in total net revenues year-over-year.

Operational Risks

Operational risks highlighted in recent earnings reports include:

• Supply Chain Disruptions: The company reported outstanding payment obligations under its supply chain financing program of $175.8 million as of September 30, 2023, indicating potential vulnerabilities in supplier relationships.
• Inventory Management: The company has faced challenges with inventory efficiency, which is critical given that it recognizes most net revenues in the last two quarters of the calendar year.

Financial Risks

Financial risks include:

• Debt Obligations: The company’s total principal payments due are $680.9 million, which includes $80.9 million due in 2024 and $600 million due in 2026.
• Foreign Currency Fluctuations: The company is exposed to risks related to foreign currency exchange rates that can affect revenues and costs, with recent reports indicating significant foreign currency translation adjustments impacting comprehensive income.

Strategic Risks

Strategic risks include:

• Digital Transformation: The company is investing in digital capabilities to enhance customer engagement and sales. However, failure to effectively implement these strategies could hinder growth.
• Brand Perception and Loyalty: Maintaining brand reputation is crucial. Any negative publicity can lead to a decline in consumer loyalty, impacting sales.

Mitigation Strategies

To address these risks, Under Armour has implemented various mitigation strategies:

• Cost Management: The company has focused on lowering marketing-related expenses, which contributed to a 22.1% increase in total operating income for Q2 2024 compared to Q2 2023.
• Inventory Management Improvements: The company is enhancing its inventory management systems to better forecast demand and optimize stock levels.

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

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

Analysis of Key Growth Drivers

Under Armour, Inc. is focusing on several key growth drivers, including product innovations, market expansions, and strategic partnerships. In Q2 2024, the company reported net revenues of $1,566.7 million, a slight decrease of 0.5% compared to the previous year. The company is investing heavily in product innovation, particularly in the apparel segment, which generated net revenues of $1,070.4 million, reflecting a growth of 3.1% year-over-year.

Future Revenue Growth Projections and Earnings Estimates

Future revenue growth projections indicate a cautious optimism, with estimates suggesting a potential increase in net revenues driven by a projected recovery in the direct-to-consumer channel. For the six months ended September 30, 2023, total net revenues were $2,883.7 million, down 1.3% from the previous year. Analysts forecast earnings per share (EPS) to rise, with diluted EPS expected to reach $0.26 for the fiscal year.

Strategic Initiatives or Partnerships

The company is also pursuing strategic partnerships to enhance its market presence. Recent initiatives include improvements in e-commerce capabilities and expansion into international markets, particularly in the EMEA region, where revenues increased by 9.3% to $287.1 million. These partnerships are expected to drive growth in both the wholesale and direct-to-consumer channels, enabling the company to capture a larger market share.

Competitive Advantages

Under Armour's competitive advantages stem from its strong brand recognition and innovative product offerings. The company reported an increase in gross profit margin to 48.0%, up from 45.4% in the previous year, largely due to effective cost management and supply chain improvements. This margin enhancement positions the company favorably against competitors, allowing for sustainable growth in a challenging market environment.