Why The Market Isn't Sold On Under Armour

Under Armour

Under Armour reported Q2 earnings of $6.12 million or $0.12 a share on revenue  of $291.3 million beating analysts’ estimates. It even raised its guidance 2011 revenue guidance, but the stock is trading down.

UBS analysts believe the retail company has a unique revenue story compared to its peers but maintain a neutral outlook on the stock. Here’s why:

  • Supply chain problems hurt Under Armour’s (UA) profits in the second quarter but investments in supply chain systems and building personnel can boost margins next year. 
  • The company reported 81% jump in direct-to-consumer (DTC) revenue, which comes from targeting consumers directly, rather than going for stores that would stock them. But UBS analysts expect lower profits from its emerging DTC business. 
  • UA is a “preferred long term growth story” according to UBS analysts, given its high-range 30% revenue growth compares with its competitors. For now however, analysts are wary of the impact that higher-than-expected sales of UA’s excess products with lower-margins could have on its profits in the second half of the year.

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