Fly Intel: What to watch in Under Armour earnings report

Under Armour (UA, UAA) is scheduled to report results of its fourth fiscal quarter before the market open on Tuesday, February 12, with a conference call scheduled for 8:30 am EDT. What to watch for: 1. GUIDANCE: In December, Under Armour, at an investor meeting, narrowed its fiscal 2018 adjusted EPS view to 21c-22c from 19c-22c. The current consensus is 22c. Gross margin is now expected to be flat versus the previous expectation of "flat to down slightly" versus 45.1% in 2017. The company also sees fiscal 2019 EPS of 31c-33c, against analysts' current consensus of 34c, with revenue up approximately 3%-4%, reflecting a low double-digit percentage rate increase in the international business and relatively flat results for North America. At the time, Under Armour said it expects revenue to return to a low double-digit growth rate by 2023, with EPS up at a five-year CAGR of approximately 40%. Under Armour's gross margins have inflected positively and are set to "expand materially" as the company executes quality of sale initiatives while also benefiting from mix shifts towards international markets and direct-to-consumer, Goldman Sachs analyst Alexandra Walvis said last month. Morgan Stanley analyst Lauren Cassel called Under Armour's 2019 guidance "appropriately conservative," but she believes the company needs to show investors next year's numbers are achievable before they put faith in the company's 5-year targets, which "met elevated expectations." Deutsche Bank analyst Paul Trussel said Under Armour's FY19 guidance "looks quite achievable given modest expectations for margin recapture and no acceleration in top-line sequentially." Canaccord's Camilo Lyon expects a "fairly lackluster" quarter. 2. 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. In September, Under Armour announced an update to its plan and said it would cut about 3% of its workforce. The company now expects approximately $200M-$220M of pre-tax restructuring and related charges to be incurred in 2018. The reduction in workforce is expected to be completed by March 31, 2019. Piper Jaffray analyst Erinn Murphy is positive on Under Armour into 2019 and views the story as an "underappreciated turnaround." The analyst believes the upcoming Q4 results gives Under Armour the opportunity to revisit key themes from its investor day: improving gross margin dynamics, better segmentation, return to growth in North America and innovation. Baird analyst Jonathan Komp said the company set a very achievable/beatable bar and 2019 should mark the final year in its three-year turnaround plan. Its shift toward a more balanced long-term growth outlook emphasizes margin improvement and restoring a premium positioning within North America, he said. 3. COMPETITIVE ENVIRONMENT: Analysts and investors will listen for comments from the company on how it views the current athletic environment. Jefferies analyst Randal Konik says his firm's January webscrapes illustrated that Under Armour's percentage of product on discount was down for the tenth month in a row year-over-year, while Adidas's (ADDYY) percentage was up for the eleventh month in a row.