When Under Armour (NYSE: UA)(NYSE: UAA) released strong first-quarter 2019 results on Thursday, investors were rightly pleased. Revenue increased a modest 1.6% to $1.205 billion, helping Under Armour swing to a net profit of $22.5 million, or $0.05 per share, from a loss of $0.07 per share in the same year-ago period. Both the top and bottom lines arrived well ahead of analysts’ consensus models for a breakeven quarter on revenue closer to $1.18 billion — and shares soared as much as 9% before settling to close up around 4% on the day.
To better understand what’s driving Under Armour, it helps to listen to management’s perspective during their subsequent quarterly conference calls. Here are five important points they brought up during this quarter’s call:
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1. On the recent change in segment reporting
Bergman reminded investors that Under Armour shifted its reporting of costs related to “support functions” — think digital, IT, and supply chain investments, as well as some global marketing costs for prominent athletes — into their own segment in an effort increase transparency into the progress of ongoing efforts to revitalize their core North American business, where a general slowdown in athletic apparel and retail partner bankruptcies have stymied growth in recent years.
2. On progress in North America
Bearish investors might balk at Under Armour’s extended slump in North America. But bulls should be encouraged the company is continuing to take small steps to effectively stabilize its biggest business and reposition the Under Armour brand for sustained, profitable stateside growth.
3. Entering a promising new international market
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For perspective, Under Armour’s international segment continued to outperform, with sales climbing 12% (or 17% at constant currencies) to $328 million and comprising roughly 27% of total revenue. Growth was most pronounced in the Asia-Pacific region (up 25% as reported, and 30% at constant currency) — and that was without any brand houses prior to this period in the potentially massive India market.
Later in the call, Frisk elaborated:
4. On reinvesting in growth
Under Armour did modestly raise its full-year outlook for both adjusted gross margin (to be up 70 to 90 basis points from 2018, up 10 basis points from both ends of its old range) and operating income (of between $220 million and $230 million, a $10 million increase from the low of its previous guidance). But in the future, Plank is being forthright in stating the company may choose to plow those extra profits right back into growing business rather than letting them fall to the bottom line. This could be a welcome change of pace for long-term investors who are pining for Under Armour to echo its previous years of outsize growth.
5. The bottom line
Put simply, Under Armour is exactly where it wants to be in these final stages of its multi-year turnaround. And when all is said and done, it should emerge a stronger company that’s better positioned than ever to achieve its longer-term goals.
Even with shares up 23% so far in 2019 as of this writing, that’s why I think patient investors would do well to consider opening or adding to their positions now.
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Steve Symington owns shares of Under Armour (C Shares). The Motley Fool owns shares of and recommends Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool has a disclosure policy.
