Un­der Ar­mour posts $183M loss, but bet­ter-than-ex­pected re­sults

Baltimore Sun - - SPORTS - By Lor­raine Mirabella

Un­der Ar­mour turned in bet­ter-thanex­pected fi­nan­cial re­sults for the sec­ond quar­ter amid store clo­sures dur­ing the coron­avirus, but still posted a steep loss as sales of sports ap­parel and footwear plum­meted both in the U.S. and else­where.

Shares of the Baltimore-based sports ap­parel seller fell 8.2% Fri­day to close at $10.51 each.

Most stores sell­ing Un­der Ar­mour prod­ucts, in­clud­ing com­pany-owned out­lets and other re­tail­ers, were closed for most of the sec­ond quar­ter, caus­ing sharp drops in rev­enue. Stronger than ex­pected on­line sales helped only some­what to soften the blow.

”We con­tinue to an­tic­i­pate sig­nif­i­cant im­pact to our busi­ness in the near term due to the pan­demic based on a high level of un­cer­tainty around con­sumer sen­ti­ment and shop­ping be­hav­iors,” Pa­trik Frisk, pres­i­dent and CEO, said dur­ing a con­fer­ence call Fri­day.

Un­der Ar­mour posted a net loss of $183 mil­lion, or 40 cents per share. On an ad­justed ba­sis, the com­pany re­ported a $141 mil­lion net loss, or 31 cents per share, beat­ing an­a­lysts’ es­ti­mates of 39 cents per share.

Sales fell 41% to $708 mil­lion dur­ing the three months that ended June 30 be­cause of im­pacts of COVID-19, with sales to whole­sale cus­tomers such as sport­ing goods and de­part­ment stores tak­ing a 58% dive. Wall Street an­a­lysts were ex­pect­ing lower rev­enues, of $549.9 mil­lion.

The com­pany had an­nounced Mon­day that fed­eral of­fi­cials have es­ca­lated an in­ves­ti­ga­tion into the brand’s ac­count­ing prac­tices.

Un­der Ar­mour and two top ex­ec­u­tives, in­clud­ing founder Kevin A. Plank, have been alerted that the U.S. Se­cu­ri­ties and Ex­change Com­mis­sion could file a civil or ad­min­is­tra­tive case al­leg­ing un­law­ful ac­count­ing methods, ac­cord­ing to a com­pany fil­ing with the SEC.

An an­a­lyst with CFRA Re­search said Fri­day she was keep­ing a “sell” rat­ing on Un­der Ar­mour’s stock.

“We be­lieve that [ Un­der Ar­mour’s] growth nar­ra­tive is bro­ken,” said Camilla Yanu­shevsky, a CFRA equity an­a­lyst.

She said she be­lieves the com­pany will be un­able to meet five-year tar­gets, in­clud­ing re-el­e­vat­ing the brand to a pre­mium sta­tus by mov­ing away from dis­count­ing.

Through mid-May, about 80% of lo­ca­tions where the brand could be pur­chased glob­ally were closed.

Frisk said most stores have re­opened and mo­men­tum in June and July has been en­cour­ag­ing.

But the rest of the year will be chal­leng­ing, he said, be­cause of un­cer­tainty over shop­ping pat­terns, a highly pro­mo­tional en­vi­ron­ment and the need to cut back on in­ven­tory to meet an ex­pected lower de­mand for prod­ucts.

Sales in the U.S., the brand’s big­gest mar­ket, fell 45% to $450 mil­lion in the sec­ond quar­ter, while in­ter­na­tional busi­ness was off 34% to $224 mil­lion. Sales de­creased in all mar­kets out­side the U.S.

Sales of ap­parel fell 42% to $426 mil­lion, while footwear rev­enue was off 35% to $185 mil­lion. Some of the best-sell­ing cat­e­gories were HOVR footwear and run­ning shoes and men’s and women’s train­ing ap­parel.

The brand was able to boost profit mar­gins by sell­ing less mer­chan­dise to off-price re­tail­ers, typ­i­cally at lower price points, and more to con­sumers at full price through branded stores and on­line. The com­pany saw “sig­nif­i­cant” growth in on­line chan­nels dur­ing the quar­ter.

And the sports ap­parel maker cut ex­penses by 15% as it pulled back on mar­ket­ing and took other cost-cut­ting steps. The brand an­nounced last month that it is sus­pend­ing its record $280 mil­lion con­tract to out­fit UCLA ath­letes over 15 years. . In May, Un­der Ar­mour said it has been rene­go­ti­at­ing ath­lete en­dorsers’ con­tracts.

Asked about long-term mar­ket­ing plans Fri­day, Frisk said the com­pany plans to com­mit to the ma­jor­ity of its con­trac­tual agree­ments. But the com­pany also is look­ing to make “smarter” in­vest­ments to build the brand, he said.

Un­der Ar­mour said its in-store traf­fic is well be­low last year’s sec­ond quar­ter and should re­main lower for the rest of the year. Rev­enue could be down by 20% to 25% in the sec­ond half of the year, of­fi­cials said.

JERRY JACKSON/BALTIMORE SUN

Un­der Ar­mour has seen sales of its cloth­ing and shoes de­cline dur­ing the pan­demic.

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