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Why Under Armour Stock Just Popped

By Rich Smith - Feb 10, 2021 at 2:05PM

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Under Armour was supposed to lose money in Q4, but it earned money instead.

What happened

Shares of sportswear maker Under Armour (UA 3.75%) (UAA 3.49%) are powering higher in afternoon trading Wednesday, up 7.5% as of 1:20 p.m. on the back of a big earnings beat -- and a promise of sustained profitability to come.

Heading into Q4 2020, analysts had forecast Under Armour would lose money -- $0.07 per share -- on sales of less than $1.3 billion. As it turned out, though, UA did $1.4 billion in sales last quarter and made a pro forma profit of $0.12 per share.  

Arrow angles up on a green stock chart

Image source: Getty Images.

So what

The news wasn't all great. $1.4 billion in sales was better than expected, but sales were still down 3% year over year. On the other hand, in an unusual development, Under Armour ended up earning a whole lot more when its earnings were calculated according to generally accepted accounting principles (GAAP) than it did according to pro forma standards.  

For fiscal Q4, GAAP earnings were a whopping $0.40 per share (versus a $0.03-per-share loss last year). Helping UA here was a 210-basis-point improvement in gross profit margins (49.4%), a 4% reduction in selling, general, and administrative expenses, and...a big increase in "other income."

Specifically, Under Armour netted $179 million from the sale of its MyFitnessPal platform to private equity firm Francisco Partners.

Now what

That's obviously a one-time event. It's also not necessarily good news for Under Armour, seeing as it bought the fitness platform six years ago for $475 million...and sold it for only $345 million. Still, the company got something from the sale, and something is better than nothing.  

Of course, Under Armour's best news of all is that it may be earning "something" in 2021, even without the help of one-time asset sales. Guiding investors on what to expect in the New Year, Under Armour advised that it hopes to return to "high-single-digit percentage" sales growth this year, to improve its gross profit margins on that revenue, and to achieve positive GAAP operating income of between $5 million and $25 million. While GAAP net income for the year will probably still be negative (from $0.18 to $0.20 per share), management says it expects to book a pro forma profit of between $0.12 and $0.14.

At the midpoint, that hits analysts' hoped-for $0.13 on the nose -- and it seems good enough for investors today, too.

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