Under Armour Inc. stock soared in Wednesday trading after a first-quarter earnings beat, raised guidance and research that shows that in one metric the athletic company is even outperforming Nike.
On the earnings call, Chief Executive Patrik Frisk gave credit to a years-long revitalization at the company that has cut the number of items being sold at a discount, improved efficiency and cut distribution in places that he called “undifferentiated.”
“There is no finish line. Yet instead, an ever-present focus on getting better, better process, more optimal structure, more efficient systems, and vigilance around our decision-making,” he said, according to a FactSet transcript of the earnings call.
The company will continue to make investments in areas like technology to stay on an upward path.
“[W]hile it’s left to be seen how sticky last year’s e-commerce results are against this year’s performance, we’re confident that making additional investments in our sites, teams and processes to support our long-term growth expectations is money well spent,” he said.
So far, the strategy seems to be working, with Under Armour even outpacing the leader in the athletic category, Nike
A Jefferies report published this week on the “Sneaker Wars” shows that Under Armour’s average selling price (ASP) in shoes showed greater improvement than Nike in recent months.
“Interestingly, ASP data shows strong improvement for Under Armour on a year-over-year basis in both the apparel and footwear categories, with footwear increasing ~25% over the past four months, on average,” the report said.
Quoting data from Vertical Knowledge, Jefferies says Nike ASPs have improved about 10% on apparel over the last four months.
“Nike’s footwear ASPs were (2%), (2%), 5%, and 19% in the months of January, February, March, and April. [R]espectively, UAA’s apparel and footwear ASPs increased as well, but the increases were greater than Nike’s in footwear, which we believe is encouraging for Under Armour.”
Under Armour’s strengths go beyond shoes, according to UBS analysts, who upgraded the company’s shares to buy from neutral. The stock price target was raised to $36 from $26.
“We believe Under Armour’s effort to improve its margins has progressed far ahead of what’s priced into the stock,” UBS wrote.
Analysts gave credit to drivers like fewer off-price channel sales and a shift to direct-to-consumer for advancements in Under Armour’s business. Analysts forecast mid-single digit percent annual sales growth.
“Under Armour’s brand name isn’t as strong as those of the industry leaders, but it is stronger than many give it credit for,” UBS said. “Under Armour has global brand name recognition and we think the company will leverage this asset to drive strong growth outside the U.S.”
The company is also streamlining, with the sale of MyFitnessPal.
And it has settled charges of misleading investors from the Securities Exchange Commission for $9 million.
“We remain encouraged by Under Armour’s focus on improving quality of sales by limiting inventory, pulling back on discounting, managing down off-price, bringing premium products within key franchises, and improving quality of distribution/segmentation (plans to cut 2,000-3,000 doors taking full effect during 2H),” wrote Baird analysts.
Baird rates Under Armour stock neutral with a $25 price target, up from $22.
“We continue to view consensus estimates on a multi-year basis as underestimating North America recovery and International expansion,” wrote Cowen analysts. “A significant SG&A reinvestment, particularly within marketing dollars, indicates management’s confidence.”
Cowen rates Under Armour stock outperform, but shaved $1 from the price target, down to $29.
Under Armour’s stock soared 6.9% in Wednesday trading.
The stock is up by 48.7% for the year to date while the benchmark S&P 500 index
has gained 11% for the period.