Under Armour Inc. is expected to report second-quarter earnings on Tuesday before the opening bell.
The athletic wear and accessories company on May 31 cut its sales outlook for the full year to $4.93 billion from $5 billion in light of The Sports Authority liquidation.
Analysts reacted immediately with price-target and earnings-per-share estimate cuts.
Now, analysts expect Under Armour UA, +1.00% to use the second-quarter earnings report to discuss avenues for growth further down the line.
Under Armour shares have an average overweight rating among 37 analysts polled by FactSet. The average price target is $48.71, or about 13% above its current trading level.
Here’s what to expect:
Earnings: Analysts polled by FactSet expect earnings of 1 cent per share, down from 4 cents per share for the same period last year.
Estimize, a software platform that gathers estimates from buy-side analysts, hedge-fund managers, academics, and others, is expecting EPS of 3 cents per share.
Revenue: Analysts surveyed by FactSet are expecting sales of $1.00 billion for the quarter, up from $783.6 million for the same period last quarter.
Estimize analysts are expecting sales of nearly $1.01 billion.
Stock reaction: Under Armour shares are down 14% for the past year, but are up 2.4% for the year so far. The S&P 500 index SPX, -0.46% up 6% for the year to date.
Other issues: Analysts at Stifel see little risk to second-quarter earnings since Under Armour was largely through the quarter when it released its sales warning and saw retail trends improve for the final portion of the period.
Investor focus for the earnings announcement will be on sales drivers for the second half of the year and progress to improve inventory levels, especially in light of the hole left in the sporting goods retail space by The Sports Authority following its bankruptcy.
“Specific to the U.S. market, we expect management to emphasize footwear business momentum, innovative new apparel platforms for the second half, improved service levels, and channel expansion opportunities,” Stifel wrote in a note. Analysts said Under Armour has distribution in 11,000 stores in North America while Nike Inc. NKE, +0.41% has distribution in 24,000.
The bank expects Under Armour will also discuss upcoming distribution at Kohl’s Corp. KSS, +1.85% stores.
“While bears will question the quality of this growth, we note, the brand will be keeping good company alongside Nike and Adidas ADS, +1.53% and incremental volume from Kohl’s (1,167 doors as of April 16) can do a lot to de-risk forward estimates,” the bank wrote.
Stifel rates Under Armour shares a buy with a $53 price target.
UBS analysts said the Kohl’s distribution deal will minimize further sales disruption, but analysts are concerned about a slowdown in like-for-like apparel sales at the beginning of the year and sluggish trends in women’s and children’s trends.
“With Nike reporting heavy inventory in the clearance channel, we think Under Armour could use its second quarter update to lower current guidance for 2016 gross margins to be flat year-over-year,” the bank wrote in a note. “Current 2016 guidance is for gross margins to inflect in the second half of 2016 to get to flat for the year – but we think Under Armour will either push this into the fourth quarter or lower fiscal year 2016 gross margin guidance.”
UBS will be looking for international growth, particularly in China, and footwear sales growth to serve as possible stock drivers. The bank rates Under Armour shares neutral with a $39 price target.
Cowen & Co. analysts, noting that the second quarter is Under Armour’s smallest, believe sales will slow to 22% growth in the second half of the year from an estimated 29% in the first half.
Cowen & Co. also called out results from its Cowen Consumer Tracker Survey in a note published last Wednesday, which found a preference for Nike.
“When men age 18 to 34 were asked their ‘first choice’ of brand preference when buying basketball sneakers, Under Armour, despite the success of its Curry 2 shoe, actually saw a decline in the percentage of responses that prefer the brand from Dec. 2015 to June 2016,” the bank wrote.
Nike had 49% of preference share in basketball, followed by Jordan with 23%. In the running category, preference for Under Armour remained largely flat. In apparel, Under Armour continued to gain share, though Nike holds the top spot.
Cowen & Co. rates Under Armour shares outperform with a price target of $42.