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The athletic apparel company made modest progress in the quarter as it undergoes restructuring.
Under Armour (NYSE:UA) was one of the hottest Stocks on the market Thursday, as shares of the athletic shoe and apparel maker rose about 19% on the day.
The catalyst for the company was its first quarter of fiscal 2025 earnings, which were better than analysts anticipated.
The numbers were not great, as revenue was down 10% to $1.2 billion, but analysts had targeted a 13% decline.
The company had a $305 million net loss in the quarter, but on an adjusted basis, eliminating restructuring costs and one-time expenses, it had net income of $4 million, or 1 cent per share. That exceeded projections for an 8 cent per share adjusted net loss.
Making progress with restructuring
Under Armour had a leadership shuffle in April, bringing back founder Kevin Plank to the role of president and CEO. Plank led the company from its founding until 2020, when he stepped down. The stock has sputtered in recent years, falling from about $20 per share in 2021 to its current price of around $7.45 per share.
The quarter showed progress on the company's restructuring plan, which it launched in May. The $70 million to $90 million restructuring plan is designed to strengthen the company's financial and operational efficiencies and it includes expense reductions and layoffs.
In the second quarter, adjusted expenses were down 6% to $555 million, excluding a $274 one-time litigation reserve and $25 million in restructuring costs.
Further, the company was able to reduce inventory by 15% year-over-year to $1.1 billion. Lower inventory typically translates to lower storage expenses and maximized profits, as retailers get rid of older products and focus on selling newer, higher margin products.
These efforts helped Under Armour increase its gross margin by 110 basis points to 47.5%. It also improved Under Armour's cash position by 3% to $885 million.
In addition, it allowed the athletic apparel manufacturer to execute upon its $500 million stock buyback plan, as it repurchased $40 million in stock in the quarter.
“Our renewed energy and alignment are proving to be critical enablers as we work to deliver superior products and storytelling while driving efficiencies, reducing promotional activity, and complexity,” Plank said.
Improving outlook
The turnaround will take time, but already Under Armour has updated its fiscal 2025 guidance, calling for slightly better revenue than expected. Sales in North America will be down 14% to 16%, as opposed to the previous guidance of 15% to 17%.
The gross margin is anticipated to rise 75 to 100 basis points, while adjusted expenses will be down low-to-mid single digits for fiscal 2025.
On the bottom line, adjusted operating income is projected to be $140 million to $160 million, up from previous guidance of $130 million to $150 million. Further, adjusted earnings per share is targeted to fall between 19 cents and 22 cents, up from 18 cents to 21 cents per share.
Under Armour stock is still down about 9% year-to-date, including today's nearly 20% gain. The stock is dirt cheap , with a P/E ratio of 12, and a five year P/E-to-growth (PEG) ratio of 0.71. A PEG under 1 is considered undervalued. Also, the price-to-sales ratio is an extremely low 0.50.
I don't think the stock is going to move much any time soon while the restructuring is underway, but if there is another quarter of solid progress in a difficult economic environment, investors may want to consider this cheap stock with the potential for some modest upside.
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