Tuesday, May 12, 2020

Anyone Game for Under Armour Shares?

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What’s happening: Shares of Under Armour dipped on Monday after the sportswear maker reported a wider-than-expected loss for the first quarter.

What happened: Under Armour witnessed plummeting demand for its clothing and other gear in the first quarter, especially in Asia, a region where the Baltimore, Maryland-based company generates almost half its revenues.

Under Armour saw a decline in revenues of up to 60% in the second quarter, with most of the company’s stores remaining closed due to the coronavirus pandemic. The company’s brand was already struggling due to stiff competition from its main rivals, including Nike and Lululemon Athletica. Moreover, various retail stores, like J.C. Penney and Neiman Marcus, which sell Under Armour merchandise are on the verge of bankruptcy. Despite these issues, one of the company’s metrics improved during the first quarter.

How were the results: Under Armour reported a decline in revenues for the first quarter, with both top-and bottom-line numbers missing expectations.

  • Under Armour swung to a quarterly loss of $559.7 million, or $1.30 per share, versus a profit of $22.5 million, or 5 cents per share, in the same quarter last year.
  • Revenue contracted to $930 million, from $1.20 billion in the year-ago quarter, and missed the consensus estimate of $976 million.
  • On an adjusted basis, Under Armour posted a loss of 34 cents per share, short of expectations of a loss of 17 cents per share.

Why it matters: Under Armour announced that around 80% of its business around the world has remained closed since April, despite other outlets in Asia reopening.

Under Armour’s revenue from North America plunged 28% to $609 million during the first quarter, while international sales were down 12%.

The company had previously announced temporarily layoffs of around 600 employees at its distribution centers in the US and withdrawn its outlook for the year. The company is also looking to lower its planned operating expenses by around $325 million for the year.

Amid all the grim news, Under Armour performed well in maintaining its gross margins. The company’s gross margin widened 110 basis points to 46.3% in the first quarter, driven by more sales of higher margin products. The company’s ecommerce business in North America and Europe also witnessing strong trends.

Under Armour had $959 million in cash and cash equivalents at the end of the quarter and management expressed confidence in being able to weather the pandemic crisis.

How the shares responded: Shares of Under Armour nosedived almost 10% on Monday, following the release of dismal quarterly results. The stock has lost over 13% in the past month and is down 58% year to date.

What to watch: Investors expect Under Armour to recover gradually from the sharp slump in sales. There are heightened concerns around the company’s CFO David Bergman expressing doubts on the spending behaviour of customers even when stores reopen. Some retailers might offer deep discounts to attract customers, which may exert pressure on profitability for the whole industry.

The Markets Today

     

Investors will be focusing on US stocks today, ahead of economic reports scheduled for later in the day.

Context: US stocks closed mixed on Monday, with investors assessing potential issues in reopening the economy. The Nasdaq 100 surged for the sixth consecutive session, with technology shares posting strong gains.

Details: The US government has been easing lockdown restrictions with a slowdown in the rate of coronavirus infections and the loss of more than 20 million jobs in April. Investors remain uncertain, however, regarding the economy reopening amid the coronavirus pandemic, and speculations of a second wave of infections in the country.

The Nasdaq 100 rose 71.02 points to close at 9,192.34 on Monday. The tech-heavy index rose 2.4% for the year and remains only 6% below its record high in February. The S&P 500 rose slightly to 2,930.19, while the Dow closed lower by 109.33 points at 24,221.99.

Shares of AMC Entertainment Holding spiked close to 30% on Monday following a report stating that Amazon may be interested in buying the theatre chain. Marriott International’s stock fell more than 5% after the hotel operator reported downbeat quarterly earnings.

In commodities news, WTI (West Texas Intermediate) crude for June declined 2.4% to end at $24.14 a barrel on the NYMEX (New York Mercantile Exchange), while June gold fell 0.9% to settle at $1,698 an ounce.

What to watch: COVID-19 continues to remain the main focus for investors, with the total number of cases exceeding 4,177,500 globally. The number of positive cases in the US has surpassed 1,347,880 with around 80,680 deaths.

Markets await a basket of economic reports from the US, including the NFIB small business optimism index, inflation rate and government budget. Annual inflation rate, which dropped to 1.5% in March, is expected to fall further to 0.4% in April. The US budget deficit is expected to widen to $747.5 billion in April, from $119.1 billion in March.

Other Markets: European indices were trading slightly higher at 9:00 am GMT, with the FTSE 100, German 30 and Italy’s FTSE MIB up by 0.1%, 0.1% and 0.5%, respectively.

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Mexico’s industrial production, India's retail price inflation, manufacturing production and industrial production as well as the US Redbook index and API crude oil stock change.