Under Armour beats third-quarter financial estimates
Under Armour beat earnings and sales expectations in the third quarter and raised its profit outlook for the current fiscal year as footwear and international sales drove growth.
But executives said the Baltimore-based athletic apparel and footwear brand finds itself operating in a challenging retail environment while it works through bloated levels of inventory.
Under Armour shares fell $1 each — nearly 8.2% — to close Wednesday at $11.22.
The sportswear maker has been struggling with global supply chain disruptions and the need to move away from heavy promotions to reduce inventory, which piled up because of weak sales. The brand also is looking to boost its image by targeting varsity athletes ages 16 to 20 to buy products and influence brand popularity. And it’s launching new lines of apparel and shoes to wear outside sports and training.
Kevin Plank, Under Armour’s executive chairman, brand chief and founder, told analysts during a morning call that the company is “in a good place.”
“We’re strong and tested,” Plank said. “We’ve got the right people and processes working together, and we’re strengthening our leadership . ... We expect to make significant strategic and operational progress this year as we set up to reinvigorate growth.”
Colin Browne, interim president and CEO, said he planned to work with newly named CEO Stephanie Linnartz moving forward to “advance our strategic consumer and product refinements further.”
Linnartz, Marriott International’s president and a 25-year veteran of the lodging giant, will join Under Armour on Feb. 27.
The company on Wednesday reported income of $121.6 million, or 27 cents per share, for the three months that ended Dec. 31, compared with income of $109.6 million, or 23 cents a share, a year earlier. On an adjusted basis, earnings were 16 cents per share, beating Wall Street estimates of 9 cents per share.
Earnings for the year are expected to be 71 cents per share to 75 cents per share, which includes benefits related to prior restructuring and the sale of the MyFitnessPal platform. On an adjusted basis, annual earnings are expected to be higher than previous estimates, in a range of 52 cents per share to 56 cents per share instead of 44 cents per share to 48 cents per share.
“We are pleased with the earnings trajectory but discouraged to see the inventory build,” wrote Jim Duffy, a managing director of Stifel, in a report Wednesday. “With a strong balance sheet, improving earnings and new leadership, we expect investor focus shifts to growth.”
Sales rose 3% to $1.58 billion, beating analysts’ estimates of $1.55 billion. Sales to retail store customers jumped 7%, while “direct-toconsumer” sales were down 1%. The company attributed that result to a 6% drop in sales at company-owned and operated stores, which was only partially offset by an increase in online sales.
Sales in Under Armour’s biggest market of North America fell 2%, but international revenue jumped 14%, with strong gains in Europe and Latin America.
Apparel sales were down 2%, making up the bulk of the business at $1 billion in sales, while footwear revenue soared 25%.
Under Armour saw pressure on
its gross profit margin, driven by higher promotions and adverse effects of changes in foreign currency.
During the call, executives said they’re bracing for an uneven macroeconomic backdrop this calendar year.
This could mean “elevated, sector-wide inventories that could result in ongoing promotions lasting longer than previously expected,” said David Bergman, Under Armour chief financial officer, who noted the company is taking proactive measures to protect the brand’s health.
“A lot of that has to do with some of the building inventories that are out there with all the brands,”
Bergman said during the call. “And that is something that all the retailers are going to need to work through in the coming quarters.”
He added that “the consumers are out there ... but I think folks are being a little bit more cautious here for a while.”
Zachary Warring, an equity analyst at CFRA Research, kept a “sell” rating on Under Armour’s stock, noting that a 50% increase in inventory could prolong promotional activity. Warring said Under Armour has underperformed competitors in areas such as operating margins and revenue growth.
While conditions such as a pullback by the American consumer are mostly outside Under Armour’s control, Neil Saunders, managing director of GlobalData, said: “We believe that the deterioration in demand has hit it a little harder than it has hit some other sporting and athleisure brands . ... The problem here is one of brand relevance and loyalty.”
Under Armour began its new fiscal year 2023 on April 1, 2022, and is comparing results with the period from April 1, 2021, through March 31, 2022.
The company maintained its outlook for revenue growth for the full fiscal year at a low singledigit percentage rate increase. But it expects a decline in gross margin at the higher end of a previously provided range.