Un­der Ar­mour, fal­ter­ing, cuts its out­look and shares plunge

South Florida Times - - BUSINESS - As­so­ci­ated Press

BAL­TI­MORE (AP) - Un­der Ar­mour has lost its mo­men­tum. It posted lower rev­enue and cut its out­look again Tues­day, which sent its shares down nearly 24 per­cent.

The sports ap­parel com­pany had pre­vi­ously grown phe­nom­e­nally, and was men­tioned in the same breath with in­dus­try ti­tans like Nike and Adidas. But it has since floun­dered, its shares fall­ing more than 85 per­cent since Septem­ber 2015. The com­pany had said ear­lier this year that it would cut al­most 2 per­cent of its work­force.

“I think we prob­a­bly were a lit­tle brag­gish” about pre­vi­ous suc­cesses, CEO Kevin Plank said in a con­fer­ence call Tues­day.

While the en­tire ath­letic wear sec­tor has strug­gled due to a crowded mar­ket­place and chang­ing con­sumer habits, Un­der Ar­mour’s slide has been markedly worse.

Rev­enue in North Amer­ica, the com­pany’s most im­por­tant mar­ket, fell more than 12 per­cent in the third quar­ter. The Bal­ti­more-based com­pany low­ered its an­nual per-share earn­ings fore­cast for the sec­ond time in three months to about half what it told in­vestors to ex­pect in Au­gust.

Neil Saun­ders, the manag­ing di­rec­tor of Glob­alData Re­tail, asked, “how did the one-time pow­er­house of sports re­tail lose so much trac­tion so quickly?” While there’s been pres­sure on the en­tire sports­wear sec­tor, with U.S. con­sumers in­creas­ingly elu­sive, Saun­ders be­lieves Un­der Ar­mour is in an espe­cially tough place.

“This is now about more than ex­ter­nal fac­tors; it demon­strates is­sues with the brand and its propo­si­tion,” Saun­ders wrote. “Espe­cially so since other brands and re­tail­ers, in­clud­ing Lu­l­ule­mon, have not posted such calami­tous fig­ures.”

And Nike’s first-quar­ter earn­ings last month were down about 24 per­cent from a year ear­lier. Still, its shares are up about 2.6 per­cent since they posted those re­sults.

Plank cited a num­ber of fac­tors for the de­clin­ing North Amer­i­can sales fig­ures, in­clud­ing re­tail bank­rupt­cies and store clo­sures, de­clin­ing pro­duc­tiv­ity and chang­ing fash­ion pref­er­ences.

“As we look to close out 2017, we do not ex­pect th­ese con­di­tions to im­prove,” Plank said. He added that the com­pany ex­pects to per­form well in­ter­na­tion­ally, but sees “a dif­fi­cult en­vi­ron­ment in our North Amer­i­can whole­sale business well into next year.”

In ad­di­tion to its North Amer­i­can is­sues, Plank said the com­pany also had to deal with “com­plex­i­ties” that re­sulted from the com­pany rapid growth.

Quar­terly profit came to $54.2 mil­lion, or 12 cents per share. Earn­ings ad­justed for re­struc­tur­ing costs was 22 cents per share, which was ac­tu­ally 3 cents bet­ter than Wall Street had ex­pected, ac­cord­ing to a sur­vey by Zacks In­vest­ment Re­search. Un­der Ar­mour had re­ported earn­ings of $128.2 mil­lion, or 29 cents per share, for the third quar­ter last year.

Yet rev­enue slumped 5 per­cent to $1.41 bil­lion, short of Wall Street’s ex­pec­ta­tions of $1.49 bil­lion. Given that de­cline, No­mura an­a­lysts said Un­der Ar­mour “is by def­i­ni­tion not a growth com­pany” and was shift­ing to a ma­ture one.

The com­pany now ex­pects an­nual per­share earn­ings of be­tween 18 and 20 cents per share.

Per­haps look­ing for a sil­ver lin­ing, in­dus­try an­a­lyst Ran­dal Konik at Jef­feries wrote, “The guid­ance is low­ered so sig­nif­i­cantly that the com­pany should be able to meet or beat its out­look.” He said Jef­feries an­a­lysts “very much be­lieve in the brand, although the du­ra­tion of the turn will take longer than we orig­i­nally thought.”

Gross mar­gins at Un­der Ar­mour, which ex­cludes a $4 mil­lion im­pact from re­struc­tur­ing ef­forts an­nounced this year, was 46.2 per­cent, a decrease of 130 ba­sis points com­pared with the same pe­riod last year.

Its shares fell $3.89 to close Tues­day at $12.52.


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