Is Under Armour's Q4 revenue mismatched with its narrative?

In its fiscal fourth-quarter earnings, athletic apparel brand Under Armour (UA, UAA) reported falling revenue across its various wholesale and clothing categories. On top of all that, Under Armour shared a weaker-than-expected full-year guidance for its fiscal 2025 calendar.

BMO Capital Markets Managing Director and Senior Analyst Simeon Siegel hypothesizes that Under Armour's revenues and forecasts may not be in sync with the narratives around its figures.

"And so the revenue guide was very disappointing. but if you take a step back and look at this, you can realize that Under Armour is an undervalued, under-earning brand," Siegel explains to Yahoo Finance. "And if the company is finally willing to acknowledge that, if they're looking to say 'we really need to do better rather than do bigger,' then the stock is undervalued, in my opinion."

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This post was written by Luke Carberry Mogan.

Video transcript

All right.

Well, under Armor shares are actually moving to the upside here.

We're looking at gains of just about 1%.

Now, this move to the upside coming despite the fact that the company reported a weaker than expected fiscal 2025 outlook for more on where the retailer will likely go from here.

And what exactly this report means for the future of the business we wanna bring in Simeon Siegel BMO capital Markets, managing director and senior analyst Simeon, it's great to talk to you.

So explain to us because I think a lot of people initially looked at the report and would expect to see shares under pressure yet we are looking at gains here this morning.

Why?

Hey, great to see you.

So listen, I think Sean, you and I have talked about this before.

Under Armour was a very large business that was over selling and under earning.

They were selling a lot of goods, they just weren't selling them at a great profit.

And so today you got them coming.

I mean, you and I have used this term sell less charge more for years and in their press release, they said they realize they need to start brand elevating and focus on achieving more by doing less.

And so I think the initial reaction, we all chase revenues, we all want to look at revenues.

And so the revenue guide was very disappointing.

But if you take a step back and look at this, you can realize that Under Armour is an undervalued, under earning brand.

And if the company is finally willing to acknowledge that, if they are looking to say, we really need to do better rather than do bigger, then the stock is undervalued, in my opinion.

Well, Simeon, I'm curious what your thinking is, that's different than the rest of the folks on the street here, particularly because we're seeing that volume on this name is nearing its lows of the day, even pre this earnings print.

So that indicates to me that there might not be a ton of conviction to the upside.

Where is your conviction coming from?

Sure.

Absolutely.

And listen to be fair.

I'm I've, this is not a new view, which means as the stock has been coming down, my view has been wrong according to the market.

So for the market, but, but I think that's the beauty of this.

I think the reality is we're supposed to look for market dislocation, right?

If the view continue, if, if we just chase the market, then you're not actually taking a view.

And so I think what's important here is this notion that it's very hard to internalize that revenues are not necessarily the be all end all.

We're trained to think, grow or die.

We're trained to think everything is predicated on top line.

And so what that means is when a brand that has been a growth brand starts hitting saturation points, you start watching the quality of sale the road long before the actual sale, it's easy to force a revenue.

It's just hurting your brand.

And so when you're thinking about what do you want to pay for brand equity, what do you want to buy from a stock perspective?

I think it's very important to remember that revenues aren't always good.

And so I think we, we are trained in the market and the group and to your point as, as we think about the, the technicals and the dynamics there revenues drive the conversation.

But I would argue revenues are actually lagging.

They're not the leading indicator.

And so I think this will take time.

I I the, the we, we put out a report earlier this morning flagging that the shares are down.

The gross margin is a huge pivot.

It's a huge positive.

I didn't necessarily think the stock was going to be up today, but I thought this was a huge tone shift that meant the stock will be up.

And so whether or not we like the, the day trading and where we end up, I don't know, but I think what we do know is that they're committed to improving this brand.

This is a brand that does $6 billion in revenue and has a market cap that's less than half of that or it's around half of that, there's a mismatch.

So I mean, I think the narrative or one of the narratives that we have uh talked about with other analysts most recently when it comes to Under Armour is that maybe they have a product issue just in terms of their products, not necessarily resonating to the extent that they had years ago with consumers.

Are those fears?

Then do you think just overblown?

So here's my problem with that.

And this is a conversation you and I have had about Under Armour about Victoria's secret about about even Peloton, right about different brands where the story, whether it's the media, whether it's consumers, whether it's us, it doesn't matter.

We say a brand is dead.

We forget that there's $6 billion of revenues arguing otherwise.

And so I think you and actually just talked about this with Nike.

We need to look at the revenue to determine if people are buying the product.

We need to look at the gross margin to determine how much they value it.

So a brand is as big as its revenues, it's as value is its gross margin.

People are willing to buy this product.

And so everyone condemning the product, everyone condemning the brand saying it's missed the plot and it's dead.

It's just not true.

How do I know because of all those billions of dollars of consumer spending?

That's telling me otherwise.

But that doesn't mean it's healthy.

And so if you can take those revenues and actually do more with less, that's that sell less, charge more, then all of a sudden there's actually more value, you can make more money and it's hard to come to that.

And a lot of times the market doesn't give you that benefit while it's happening, it's a painful process to report down revenues, but you emerge stronger on the other side.

And that's something that people pay for.