Written by Brenda Nakalema

Under Armour stock dropping after earnings report. Here’s what to know.

Under Armour stock fell on Friday after the company posted its strong fiscal fourth-quarter earnings; however, the company asserted that …

Under Armour stock fell on Friday after the company posted its strong fiscal fourth-quarter earnings; however, the company asserted that supply-chain issues remain at the core of their current challenges and are having a bigger effect than expected.

The company posted earnings revenue to the tune of $1.5 billion for the quarter ended Dec 31, an 8% gain from the previous year. The posted earnings beat FactSet consensus estimate of $1.4 billion. Revenue earned from North America increased 15% to $1.1 billion, and international revenue increased to $461 million, a 3% rise. The stock dropped 10% to $18.

Adjusted diluted earnings per share reported at 14 cents, beating the FactSet consensus of 6 cents. “Under Armour had a good 4Q21 as demand remained elevated for athletic apparel and footwear, and the company benefited from premium pricing and less clearance and off-price sales, which positively contributed to both sales growth and profitability,” wrote analyst at Telsey Advisory Group, Cristina Fernandez.

However, first-quarter guidance was contradictory as management indicated the possibility that elevated supply chain costs could put pressure on profitability, Fernandez said. She maintained an Outperform rating on the stock.

The company announced its intention to change its fiscal year date from Dec 31 to March 31. Under Armour’s next fiscal year will start April 1 and run to March 31, 2023, following a three month transition period from Jan 1, 2022, to March 31.

During the transition period, sales will be expected to be up a mid-single-digit rate, compared to a prior outlook of a low-single-digit rate. The forecast takes into account 10 percentage points related to issues tied to reductions in its spring and summer order book from ongoing supply chain constraints, the company said. Earnings are expected to be 2 cents to 3 cents for the period.

“As we work through our transition quarter and head into fiscal 2023, we’re monitoring and tracking the dynamic supply chain and inflationary pressures, and we’ll be mindful of the uncertainty and volatility that comes along with it,” said David Bergman, Chief Financial Officer.

The brilliant pricing and restructuring changes that propelled the company to profitability could prove futile in the face of increased freight costs, an unfavourable product mix and increased labour costs, among other factors, said Susan Anderson, an analyst at B. Riley securities. Anderson maintained a neutral rating on the stock with a $21 price target.