On the brink of Q1 2018 earning release scheduled for the morning of May 1, 2018; Under Armour had begun a slow recovery towards free cash flow (FCF) yield. After the Winter Olympics, College Basketball Championships and The Rock's endorsement we have seen a Q1 revival of brand recognition. Notre Dame won the 2018 Women's Basketball Championship as well as many preliminary awards. The jerseys prominently featured the Under Armour logo as well as other equipment and garb. This shows Under Armour making advancements in being the gear of champions in niche markets.
Actor and WWE athlete, Dwayne Johnson, aka, The Rock took on a new Under Armour clothing line. The series is called Project Rock and is included in a larger campaign called "Will Finds A Way." This is several athletes across many fields of interest, which includes a popular female America Ninja Warrior athlete, Jessie Graff.
Under Armour, Inc. (NYSE: UAA) stock price per share (PPS) responded positively to the latest, Q1 ramp-up. However, the PPS has historically collapsed from the original bull-run to the $50's. The latest PPS recovery has seen support in the $16-$17 range after hitting a low $13 in February 2018.
Under Armour, Inc. has smaller competitors that appear to have social media better optimized.
Virus is a sportswear that specializes in compression leggings and fight shorts. These are displayed by MMA athletes, Cross Fit celebs, and YouTube sport personalities.
GymShark is similar yet it tends to focus more on the aesthetic appeal in fitness. These companies tend to reach a subscriber following, which lends to more brand loyalty and at a reduced cost compared to television and major sponsors.
Under Armour continues to go after the large sport contracts, such as the NFL Combine sport wear. They may be missing out on growing the brand with the trending and smaller, alt sport spaces.
In 2016 Under Armour, Inc. had positive FCF of $48 million. The company had $364,368,000 in operating cash flow (OCF) and a capital expense (CapEx) $316,458,000. Towards the end of 2016 the company had $11.03 billion in market capital giving them a FCF Yield of 0.43%.
In 2017, the annual FCF was negative, however the last quarter was positive with $207.84m in FCF. If the company continues to manage cash flow positively into Q1 of 2018 the market confidence in the company could return.
Update 5/1/18 - Earnings release reflects CapEx greater than OCF for a negative FCF quarter. The full 2018 outlook is questionable too as stated in the press release:
On the conference call, Jim Duffy with Stifel asked about cash flow and we learned it may be a wait for 2019 before positive FCF and yield:
"Great. And then a follow up on that, with the SKU management and the tightening of lead times also suggests working capital as a source of cash. Dave, any thoughts on cash flow opportunity from tightening the working capital management."
"Yeah. Great question and definitely one that we are much more focused on now and going forward. This year, 2018 is still going to be a little bit of a fight, as we're dealing through the restructuring charges and the fact that probably about 80% of those restructuring charges are cash related. But as we get into ’19 and beyond, when you do think about tighter inventory management and you think about not having the cash impact of restructuring charges in addition to heightened focus across the company on working capital Management and CapEx prioritization, you should see meaningful improvements there and we're driving it through from a longer term free cash flow improving, but also longer term and even more focused on ROIC improvement."
Free Cash Flow is obtained by taking the value of the company's operating cash flow and subtracting from it the value of capital expenses. The yield is then formulated by dividing the result by either the market capital or enterprise value.
Disclosure: I/we are long UAA.