Under Armour (UAA) may have bested the Street's consensus in the first quarter of the year, but it gave surprisingly bad current-quarter targets, and some experts are raising flags about what they call the sportswear brand's "out of control" inventory situation.
The rival of Nike (NKE) and Adidas (ADDYY) posted a break-even quarter, up from a penny-per-share loss in the prior-year quarter and surprising analysts who expected a per-share loss of 5 cents. Revenue ticked up 6.1% to $1.185 billion, better than views for $1.122 billion.
But "the quality of the results is low and brand issues will not go away quickly," wrote Wedbush analyst Christopher Svezia early Tuesday. Under Armour has to perform solidly in the back half of the year, he said, and it will "take time" to turn things around in North America, where competition is fierce. He has a neutral rating and 14 price target on the stock.
Sales in the key North America market were "relatively flat" or down 1% on a constant-currency basis in Q1, said the company, while international sales rose 27% and now account for almost a quarter of its business. Shoe sales grew only 1%, while clothing revenue rose 7%.
While management did not tweak full-year guidance for 14 to 19 cents in adjusted EPS and low-single-digit net revenue growth, execs on the call said they expect a 9- to 10-cent loss in the current quarter, well below current consensus for losses of 6 cents.
Shares of Under Armour reversed sharply to finish 1.5% higher at 18.03 on the stock market today, paring some losses and finding support at their 50-day average. Nike fell 0.4%; Adidas lost 0.2%.
During the quarter, inventory levels rose 27%, and "accelerated inventory management initiatives" weighed on gross margin, more than offsetting foreign-exchange benefits.
"The inventory levels continue to appear out of control, and the increase in receivables appears to highlight large shipments at the end of the quarter," wrote Susquehanna analyst Sam Poser early Tuesday, prior to the earnings call. He also expressed skepticism about the health of Under Armour's business abroad.
"The combination of high receivables and elevated inventory levels looks like a ticking time bomb to us," he wrote.
Others are less panicky.
Jefferies' Randal Konik reaffirmed his buy rating, and believes that "progress can be made" with inventory over the rest of the fiscal year, "boding well for gross margin expansion ahead."
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The post Under Armour Is Threatened By This 'Ticking Time Bomb': Analyst appeared first on Investor's Business Daily.
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