Under Armour’s Q1 pain not long-term despite loss and US sales slide
Under Armour pulled up injured on Thursday. The US athletic sportswear brand suffered its first loss since going public 12 years ago and Q1 sales fell in its core (80% of ops) home market. So why did its shares close up almost 10%? The general diagnosis was growing pains allied to a bit of consumer fatigue and a slew of failed US retailers. Results were also ahead of analysts’ expectations and AU convinced enough investors there were brighter days ahead.
UA posted a $2.27m/1 cent a share loss for the opening quarter compared with a profit of $19.2m/4 cents a year earlier. Analysts were looking for a 4-cent loss.
Q1 gross margin fell 70 basis points to 45.2% but came in ahead of analysts’ estimates of 44.8%.
Overall revenue increased 6.6% to $1.12bn, its slowest increase in nearly eight years but still above the on $1.11bn analysts had expected. The gain was helped by a 13% jump in its omnichannel ops, backed by the recent launch of three new e-commerce sites.
But revenue fell 1.1% in its North American business in the most recent quarter despite widening its sales base, including selling through 1,000 Kohl’s stores. But this was not enough to offset the sales it has lost related to bankruptcies that occurred in 2016, with the demise of Sports Authority the expected main culprit.
The company also acknowledged its footwear business, growing just 2% in the quarter to $269.7m, has cooled alarmingly compared to a year ago when related sales leapt 64%, fuelled by strong basketball-related sales and liquidations. Sales of the Curry 3 line of basketball footwear, released late last year, were softer than expected, it admitted.
“We don’t like it and we don’t accept it,” chief executive Kevin Plank said of the latest footwear results on a conference call. He said the company isn’t planning on adding distributors and will focus on improving relationships with existing retail partners. To that end, he expects that by the end of the year, the footwear division “will see sales growth that outpaces that of the company”.
Apparel sales climbed 7.3% to $715.4m, lifted by training, golf, and team sports. Sales of accessories grew 12% to $89m thanks to men’s training, running, youth, and global football (soccer).
Better news still was found abroad. Sales in the much smaller international business surged 52% in the quarter, including a 60% jump in Asia that suggests the brand is resonating strongly overseas and has ample room for growth there.
Plank said the largest opportunity is getting into what he called ‘sport-lifestyle’ with a strategy to develop the sector “from the top versus evolve it from the field.”
On Thursday, the company backed its 2017 guidance for revenue to rise 11-12% to roughly $5.4bn, which “implies a sharp second half acceleration, notably in North America” wrote Cowen analyst John Kernan.