Under Armour (UA, UAA) is scheduled to report results of its fourth fiscal quarter before the market open on Tuesday, February 10, with a conference call scheduled for 8:30 am EDT. What to watch for:
1. ACCOUNTING PROBE: In November, Under Armour disclosed that federal officials had been investigating its accounting practices for over two years, and that it is cooperating with the probe. "The company began responding in July 2017 to requests for documents and information relating primarily to its accounting practices and related disclosures, and the company firmly believes that its accounting practices and disclosures were appropriate," it said. The Wall Street Journal said in November that former executives at Under Armour said they scrambled to meet sales goals, borrowing business from future quarters to mask slowing demand in 2016 for its athletic apparel, adding that Under Armour "frequently" leaned on retailers to take products early and redirected goods intended for its factory stores to off-price chains to book sales in the final days of a quarter to extend a 26-quarter streak of 20% sales growth. Raymond James analyst Matthew McClintock said he believes the ongoing communication between Under Armour and the SEC/DOJ is likely less to be an overhang to the stock than he originally feared.
2. GUIDANCE: In November, Under Armour forecast its fiscal 2019 EPS view at the high end of its 33c-34c range, against analysts' consensus at the time of 34c. The company also lowered its revenue view to about 2% from 3%-4%, reflecting lower than planned excess inventory to service the off-price channel, ongoing traffic and conversion challenges in direct-to-consumer and negative impacts from changes in foreign currency. JPMorgan analyst Matthew Boss lowered his fiscal 2020 revenue estimates below consensus with his work suggesting North America comps are negative. Susquehanna analyst Sam Poser told investors to sell shares of Under Armour as he believes a recovery in North America is unlikely to materialize in the near future.
3. EXECUTIVE CHANGES: On October 22, Under Armour announced that president and COO Patrik Frisk will become CEO, effective January 1, while current Chairman and CEO Kevin Plank will become executive chairman and brand chief. On the company's Q3 earnings call, Plank said stepping away from the CEO position was "my decision." On February 5, Under Armour named Colin Browne has been appointed COO and Paul Fipps has been named Chief Experience Officer, a newly created position. 4. RESTRUCTURING UPDATE: Last year, Under Armour approved a restructuring plan to better align its financial resources to support the company's efforts as the consumer landscape shifts. As part of the plan, Under Armour is cutting about 2% of its global workforce of 15,000. The company said it is streamlining "all aspects" of the organization to improve business operations.
5. COMPETITIVE ENVIRONMENT: Analysts and investors will listen for comments from the company on how it views the current athletic environment. While the athletic space has generally had a "lid" on promotional activity most of the year, promotional activity started to pick up slightly exiting November and into December, Piper Sandler analyst Erinn Murphy said. As such, the analyst believes Under Armour generally executed "towards" its plan but she would not be surprised if the company needed to be a little more aggressive in promotional activity into 2020 to keep up with its peers.