Under Armour's First Quarter Meets Expectations, but Skies Are Far From Clear; Shares Undervalued

Despite parting ways with former CEO Patrik Frisk, Under Armour reported results for its June-ended fiscal 2023 first quarter that were consistent with its guidance and our estimates. Moreover, despite a difficult economic environment, it reaffirmed its outlook for 5%-7% revenue growth in fiscal 2023. This news was tempered by lowered profit guidance for the rest of the fiscal year in anticipation of markdowns to clear inventory (up 8% from last year) and higher shipping and other costs. Under Armour's guidance is now for gross margin around 45.5% for the year, well below our 48% forecast and the 49% average over the past couple of years. The company also now expects fiscal 2023 adjusted earnings per share of $0.47-$0.53, below our $0.61 forecast. Even so, this shortfall will result in just a low-single-digit percentage cut to our $16.30 fair value estimate, and we view both share classes (down more than 50% this year) as undervalued. Although we rate it as having no moat, we think Under Armour—the third-largest player in U.S. sportswear—stands to benefit from the ongoing popularity of activewear and the recovery of the market from the pandemic, as well as its yearslong turnaround efforts.