Bulls Position for Explosive Earnings for Sports Apparel Company as Consumer Spending Surges
Under Armour (UAA) reporting earnings on Tuesday before the open with the Street looking for $0.06 on $1.215B in sales. Next quarter is guided to $0.08/$1.44B while the FY is $0.34/$5.33B, a 19% increase Y/Y. Shares have closed higher in two of the last three with an average closing move of 8.5% and a max move of 18.92%. The current implied move is 9.75%. UAA has bullish options flow in open interest including 12,500 weekly $20 calls and 5,000 August $20 short puts. The October $25 calls were bought over 14,000X in May. On the chart, shares forming a weekly falling wedge back at $20 and the February breakout. A pop back above $22 has a lot of room to run back to $25 and recent highs and then up to $30+. The $8.58B apparel company trades 39.9X earnings, 1.8X sales, and 6.36X cash. UAA should continue to benefit from a strong consumer spending backdrop, especially around apparel and athleisure. The company is undergoing a significant transformation with a focus on better brand awareness, a better cost structure, and a revamped product slate that includes winning share in the key running category. UAA expects ecommerce to continue to shine after 69% growth globally in Q1 as they expect their investments in digital to help retention among athletes. Analysts have an average target for shares of $24 with a Street High $36. Deutsche Bank raising their PT to $31 on 7/15 expecting ongoing fundamental improvement, with beat and raise quarters, across apparel brands given favorable data points. UAA also has sustainable top- and bottom-line tailwinds into next year as international tourism returns and supply chain headwinds ease. Barclays upgrading to Overweight in May citing an opportunity for multiyear operating margin expansion from current levels. They note that UAA has completed much of heavy lifting in terms of right-sizing inventory and exiting undifferentiated /off-price doors and is now positioned to focus on full-price brand rebuilding from a much healthier base. UBS with a Buy rating and $36 PT for shares as they note that not only did UAA improve its gross margins, but it has also achieved significant SG&A leverage. Short interest is 3.75%. Hedge fund ownership rose slightly.