Under Armour stock slides despite earnings
Company says weaker-than-expected growth is ahead
Under Armour’s stock swooned Tuesday even as the Baltimore-based athletic brand reported that sales and profits soared in the third quarter.
The company’s shares plunged more than 13 percent Tuesday, closing at $32.89 each, after its executives warned of a weaker-thanexpected growth outlook for the next two years.
“I believe we operate in a resilient industry,” said Kevin Plank, Under Armour’s founder and CEO, assuring analysts during a conference call that the company remains on track to reach $7.5 billion in sales by 2018.
Citing the popularity of the brand’s basketball and running shoes and exposure through events such as the summer Olympics in Rio and New York Fashion Week, Under Armour reported that sales surged to $1.47 billion in the July-to-September quarter, up from $1.2 billion a year earlier.
The quarter marked the company’s 26th consecutive period of sales growth of more than 20 percent.
Under Armour’s third-quarter income jumped 28 percent to $128 million from $100 million. Per-share earnings were 29 cents, up from 23 cents.
The results beat analysts’ expectations of 25 cents per share earnings and $1.46 billion in revenue. Backing out currency fluctuations, sales grew 23 percent.
But the growth rate going forward will be less robust than projected at the company’s investor day in 2015, Under Armour CFO Chip Molloy told analysts.
The company expects fourth-quarter revenue growth of 20 percent, below analysts’ expectations of more than 22 percent.
Meanwhile, Under Armour’s profit margins were squeezed by the timing of liquidations, increased promotions and foreign exchange rates, though the decrease was partially offset by improvements in product cost margins.
Going forward, Molloy said, he expects annual operating-income growth in the mid-teens, while the company invests in fast-growing areas such as footwear, international markets and branded stores and websites. Management had said it was planning for operating income of $800 million by 2018 at a compound annual growth rate of 23 percent.
The market reacted because investors anticipated a target of $7.5 billion in sales as well as $800 million in operating income by 2018, said Jason Moser, an analyst with the Motley Fool’s Million Dollar Portfolio.
With the company instead focusing on accelerating investments to go after opportunities in footwear and international markets, “the target for that $800 million in operating income really has been cut significantly, so the company is now being valued on that expectation,” he said.
When asked by an analyst why the company would not hit $800 million in operating profit if it reaches $7.5 billion in revenue by 2018, Plank defended the company’s strategy. The apparel maker is taking advantage of opportunities in footwear and international markets, while adjusting for fewer store distribution channels, Plank said.
Plank said the landscape in the North American market is shifting, referring to the loss of wholesale partner Sports Authority and others, forcing the brand to look to reach consumers through new distribution avenues such as Kohl’s department stores starting next year.
Sales in the U.S. and Canada were up 16 percent while international sales jumped 74 percent. Sales outside the U.S. account for 15 percent of revenue.
International sales in the third quarter got a boost from basketball star Stephen Curry’s second tour through Asia for Under Armour and the addition of three new websites, bringing the total to 30 global sites.
Apparel sales rose 18 percent to $1.02 billion, led by strength in men’s training, women’s training, golf and team sports.
Sales of footwear increased 42 percent to $279 million, driven by strong growth in running and basketball shoes.
“We believe we are at a moment in time where we can gain share in footwear and are prepared to make investments to drive long-term profitable growth,” said Plank, adding that investments are planned in talent and infrastructure to develop and market shoes.
Plank said the footwear and women’s businesses each are approaching $1 billion in sales this year. The company now expects sales of about $4.9 billion this year.
Future growth will depend on three key areas, Plank said, “getting big fast, making retail a core competency and getting more shoes on feet.”