Will Under Armour’s Margin and Bottom Line Impress in 2019?

Under Armour’s 2019 Growth Prospects (Continued from Prior Part) ## Margins For the first three quarters of 2018, Under Armour’s (UAA) gross margin contracted by 70 basis points to 45.1%, due mainly to an unfavorable channel mix. However, fewer promotions and improvement in product costs offered some cushioning to the gross margin. However, selling, general, and administrative (SG&A) expenses have risen in 2018. For the first three quarters, SG&A expenses rose 6.0% year-over-year or YoY to $1.59 billion. Though marketing costs decreased 3%, other costs increased 9.4%. The spurt in expenses was driven by increases in incentive compensation and investments in the expansion of direct-to-consumer and international operations. The SG&A expense rate as a percentage of sales increased by 30 basis points to 41.9%. Due to higher expenses and restructuring charges, the company reported operating loss of $14.6 million versus operating profit of $64.9 million for the first nine months of 2017. For 2018, Under Armour expects its adjusted operating income at $160 million–$165 million. ## EPS numbers As a result, Under Armour’s EPS for the first three quarters of 2018 were -$0.11, compared with EPS of $0.09 for the first three quarters of 2017. Higher expenses, coupled with reduced operating income, dented the bottom-line performance in 2018. For the fourth quarter, analysts expect Under Armour to report adjusted EPS of $0.04, marking an improvement over the breakeven earnings reported in the fourth quarter of 2017. For 2018, analysts expect Under Armour to report adjusted EPS of $0.22, reflecting increases of 15.8% YoY. Under Armour management expects adjusted EPS for fiscal 2018 at $0.21–$0.22. For 2019, management projects EPS of $0.31–$0.33. ## Vision 2023 For 2023, Under Armour has forecast EPS growth of a five-year CAGR of ~40%. The gross margin is likely to rise by 275–300 basis points to at least 48.0% by 2023. The company’s operating margin is projected at a low double-digit percentage. Under Armour expects a return of 20% on capital invested while its annual cash flow from operations is estimated at $700 million by 2023. Continue to Next Part Browse this series on Market Realist: * Part 1 - What to Expect from Under Armour’s 2019 Revenue Growth * Part 3 - What Wall Street Analysts Are Saying for Under Armour * Part 4 - Under Armour’s Price-to-Earnings versus Peers’