Hail Mary (UAA)

Under Armour (UAA, UA) is set to report Q4 results tomorrow before the market opens with a conference call to follow at 8:30am ET. UAA is expected to report results at 7:15am. Last quarter the co provided its Q3 results at 7am and then provided prepared conference call remarks on its website shortly after the earnings release. Current Capital IQ consensus stands at EPS of $0.25 on revenues of $1.409 bln. 

Guidance

• Expects Q4 revenues to grow ~20%. (Approx $1.404 bln, Capital IQ consensus $1.409 bln) 
• Gross margin is expected to be relatively flat versus prior year.
• Expect operating income in the range of $186-191 million, representing growth of 5-8% y/y.
• Reaffirmed guidance for FY16, seeing FY16 revs of $4.93 mln vs. $4.94 bln Capital IQ Consensus Estimate. 
• Reaffirmed 2016 operating income of $440 million to $445 million.
• On track to achieve 2018 revenue goal of $7.5 billion and expect to grow full year revenues consistently in the low-20s in both 2017 and 2018.
• Lowered its 3-year CAGR for EBIT to the mid-teens from 23%.
• Expect annual operating income growth in the mid-teens in each of the next two years; Focus is on investing to 'get big fast'.
• North America Apparel growth is slowing across the industry. While expect to continue to significantly outpace the apparel industry, the growth rate going forward will be less than expected from Investor Day in 2015.
• Will invest more heavily in areas that can grow faster such as footwear, direct-to-consumer and international as well as more aggressively enter Sport Fashion, like UAS, and the much broader sports lifestyle category.

Key Issues

• Border Tax- UAA would be seen as a big loser if a border tax was enacted. It currently has approx 85% of its sales in the United States. It produces approx 65% of its products overseas in China, Jordan, Vietnam and Indonesia. 
• Valuation- UAA is trading at approx 42x Forward P/E compared to 20x for Nike (NKE). 

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Slicing the Competition ($AAPL Earnings Preview)

Apple, will report Earnings after Tuesday's close.

• Investors are anxious to see what type of sell-through Apple has achieved with its new iPhone 7 and what the company says about demand expectations for the fiscal first quarter, which will encompass the holiday selling period
• Shares of AAPL have surged 21% since the company's better-than-feared fiscal third quarter report in July.  Investors will have higher expectations from AAPL's earnings which provides guidance. Failure on either front could lead to some material downside for the stock, which would act as a major drag on the broader market.

Expectations have ratcheted up in recent weeks on the back of Samsung's disclosure that it has stopped production, and sales, of its Galaxy Note 7

• International sales accounted for approximately 60% of revenues in fiscal 2015, so investors will be looking for remarks on global demand trends and the impact of foreign exchange
• Apple is the most heavily-weighted stock in the market-cap weighted S&P 500, the most heavily-weighted stock in the market-cap weighted Nasdaq 100, and the seventh highest-priced stock in the price-weighted Dow Jones Industrial Average, so it clearly has market-moving capability
• With a huge installed base of Apple products around the globe (iPhone, iPad, Mac, iTunes, iPod, and Apple Watch), the company's performance is watched closely as a gauge of consumer spending activity
   

Key Earnings Items

• Any color on the iPhone 7 release as a demand driver
• Average selling price and gross margin trends
• Apple's ability to monetize its installed base (viewed through revenue growth in the services businesses)
• The performance of its "Other Products" (Apple Watch, iPod, and Apple Pay)
• The performance, and outlook, for its three largest geographic regions
  • Americas segment accounted for 40.2% of net revenue last year
  • Greater China accounted for 25.1% of net revenue last year (China is seen as company's most important growth market)
  • Europe accounted for 21.5% of net revenue last year
     

Stocks Affected
 

Smartphones

• Samsung (SSNLF)
• Blackberry (BBRY)
   

Component suppliers

• Broadcom (AVGO; Apple more than 20% of fiscal 2015 net sales)
• Cirrus Logic (CRUS; Apple was 72% of fiscal 2015 sales)
• InvenSense (INVN; Apple 30% of fiscal 2015 net sales) 
• Qualcomm (QCOM) 
• NXP Semiconductors (NXPI)
• Micron Technology (MU)
• Analog Devices (ADI)
• Skyworks Solutions (SWKS)
• On Semiconductor (ON)
• Western Digital (WDC)
• Seagate Technology (STX)
   

Wearables 

• Fitbit (FIT)
• Garmin (GRMN)

Wireless carriers 

• AT&T (T)
• Verizon (VZ)
• T-Mobile (TMUS)
• Sprint (S)
• China Mobile (CHL)
   

Related ETFs

• PowerShares QQQ ETF (QQQ)
  • AAPL is top-weighted holding at 10.77% of assets
• SPDR S&P 500 ETF (SPY)
  • AAPL is top-weighted holding at 3.24% of assets
• SPDR Dow Jones Industrial Average ETF (DIA)
  • AAPL is tenth-weighted holding at 4.22% of assets
• Technology Select Sector SPDR ETF (XLK)
  • AAPL is top-weighted holding at 13.56% of assets

 

$UA Earnings Preview

Under Armour (UA) reports Q2 results tomorrow July 26 followed by conference call at 8:30am ET.

Current consensus is for Q2 EPS of $0.02, operating income of ~$19 mln on revs +28% to $1.00 bln (guided for revenues in high 20s, operating income of ~$17-19 mln and flat gross margin). Since becoming a publicly traded company, UA has never missed earnings estimates.

Last quarter, Under Armour beat Q1 EPS estimate by $0.02, reported revs in-line, guided Q2 operating income / revenues in-line and slightly raised FY16 guidance / reaffirmed margin guidance.

Headed into the print: UA has held onto these recent gains and is back near pre-Q1 levels. 

Based on UA options, the current implied volatility is 14% higher than the historical volatility (over the past 30 days). UA Weekly Jul29 $42.5 straddle is currently pricing in a move of ~8% in either direction by weekly expiration (Friday).

Key metrics and areas of interest:

• Current Quarter: Following the decision of the bankruptcy court to approve the liquidation of The Sport Authority's business rather than a restructuring or sale, Under Armour determined to recognize a Q2 impairment charge of ~ $23 mln and updated its Q2 and FY16 outlook. The company reaffirmed Q2 revenue growth in the high 20s but revised operating income to $17-19 mln (prior $40-42 mln) as a result of the impairment.
• Guidance: The Sport Authority mid-quarter update included revised 2016 guidance for operating income to ~$440 -445 mln (prior +23-24% to $503-507 mln) on net revenues +24% to $4.925 bln (prior +26% to $5.0 bln). Updated outlook will be included in the earnings press release - estimates are tracking slightly ahead of the this prior outlook with operating income of +11% to ~$453 mln estimate and revenues +25% to $4.96 bln.

Techs:

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