Under Armour, Inc. (UAA Quick QuoteUAA - Free Report) came up with first-quarter fiscal 2023 results, wherein the top line came ahead of the Zacks Consensus Estimate, while the bottom line met the same. The impact of supply chain disruptions and higher than planned promotions was visible in the sportswear maker’s quarterly results, as gross margin contracted sharply. Also, the company’s Asia Pacific business remained sluggish. As a result, the company trimmed its fiscal 2023 earnings view.

This Zacks Rank #4 (Sell) stock has fallen 41% in the past three months compared with the industry’s decline of 18%.

Revenues & Earnings Picture

Under Armour reported first-quarter fiscal 2023 adjusted earnings of 3 cents a share that matched the Zacks Consensus Estimate. However, the figure declined sharply from adjusted earnings of 24 cents a share reported in the year-ago period due to margin contraction.

Meanwhile, net revenues of $1,349.1 million came ahead of the Zacks Consensus Estimate of $1,338 million but declined marginally by 0.2% on a year-over-year basis. However, the metric grew 2% on a currency-neutral basis.

While wholesale revenues increased 3.1% year over year to $791.7 million, direct-to-consumer revenues fell 7.1% to $520.8 million owing to an 8% decline in owned and operated store revenues. E-commerce revenues decreased 6% and represented 39% of the total direct-to-consumer business.

Let’s Take an Insight

By product category, Apparel revenues edged down 0.7% year over year to $868.4 million, while Footwear revenues increased 1.3% to $347.3 million. Revenues from the Accessories category declined 13.2% to $96.8 million. Meanwhile, Licensing revenues surged 21% to $28.1 million.

Net revenues from North America inched up 0.4% to $909.4 million. Revenues from international business declined 3.3% (or up 1.5% on a currency-neutral basis) to $431 million. Within international business, net revenues from EMEA decreased 1% to $205.2 million. We note that revenues from Asia-Pacific declined 8.2% to $176.7 million, while revenues from Latin America region grew 6.3% to $49.4 million.

The company’s gross margin shrunk 280 basis points to 46.7% from the prior-year period owing to elevated freight costs related to COVID-19 supply chain impacts, higher than planned promotions, and the adverse impact of changes in foreign currency. SG&A expenses jumped 9% to $595.7 million. Meanwhile, adjusted operating income of $44.5 million was significantly down from $124.2 million reported in the year-ago period.

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $1,049.4 million, long-term debt (net of current maturities) of $672.8 million and total stockholders' equity of $1,729.1 million. Inventory was up 8% to $954.4 million. For fiscal 2023, management expects capital expenditures to be approximately $225 million.

During the quarter, the company repurchased shares worth $25 million, and had $175 million remaining under its share buyback program.

FY23 Outlook

Under Armour continued to expect 5-7% increase in fiscal 2023 revenues. Excluding roughly 200 basis points of anticipated foreign currency headwinds, the company guided 7-9% increase in revenues, on a currency-neutral basis.

Management now foresees gross margin contraction of 375 to 425 basis points compared to the baseline period's gross margin of 49.6%. The decline is mainly driven on expectations of higher promotional activities, channel mix, and additional negative impacts from anticipated changes in foreign currency. The company had earlier forecast 150 to 200 basis points decline in gross margin.

SG&A expenses are expected to be flat compared with the prior year. Under Armour guided operating income between $300 million and $325 million versus the comparable baseline period operating income of $333.4 million. The company had earlier projected operating income in the range of $375 to $400 million.

Excluding an expense related to ongoing litigation matters, the company forecast adjusted operating income in the band $310 million to $335 million for fiscal 2023 versus the comparable baseline period adjusted operating income of $424 million.

Under Armour now expects adjusted earnings in the band of 47-53 cents a share, down from its pervious call of 63-68 cents a share. The company had reported adjusted earnings of 68 cents a share for the comparable baseline period.

Pick These 3 Stocks

Here we have highlighted three better-ranked stocks, namely, Dollar Tree (DLTR Quick QuoteDLTR - Free Report) , G-III Apparel (GIII Quick QuoteGIII - Free Report) and Costco (COST Quick QuoteCOST - Free Report) .

Dollar Tree operates discount variety retail stores. The stock currently sports a Zacks Rank #1 (Strong Buy). DLTR has an expected EPS growth rate of 15.5% for three-five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Dollar Tree’s current financial year revenues and EPS suggests growth of 6.7% and 40.5%, respectively, from the year-ago reported figure. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average.

G-III Apparel designs, sources and markets apparel and accessories under owned, licensed and private label brands. The stock currently flaunts a Zacks Rank #1.

The Zacks Consensus Estimate for G-III Apparel’s current financial year revenues and EPS suggests growth of 13.8% and 8.2%, respectively, from the year-ago reported figure. G-III Apparel has a trailing four-quarter earnings surprise of 97.5%, on average.

Costco, which is engaged in the operation of membership warehouses, carries a Zacks Rank #2 (Buy). COST has an expected EPS growth rate of 9.2% for three-five years.

The Zacks Consensus Estimate for Costco’s current financial year sales and EPS suggests growth of 15.3% and 18.1%, respectively, from the year-ago period. COST has a trailing four-quarter earnings surprise of 9.7%, on average.