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More cuts loom for Under Armour as Q4 improvements offer hope

Is Under Armour still under pressure? Yes, but there are signs of improvement. Although injured North America ops are still limping along, total Q4 revenues rose, beating estimates, mostly on strong international sales. And that pleased analysts/investors with its share price closing up over 17% yesterday.

But there’s still a long way to go, and that’s why the US athletic sportswear giant also said on Tuesday it would further restructure its business, closing stores and terminating leases, resulting in a pre-tax charge of $110m-$130m this year.

But yesterday’s results also suggest some of the in-place turnaround efforts are working, as overall sales for the final quarter rose 4.6% to $1.37bn, beating analysts’ $1.31bn call. Direct-to-consumer sales also jumped 11%. Wholesale revenues declined 1% to $733m.

Apparel sales rose 2.5% to $951.7m, as growth in men’s training and global football (soccer) was tempered by declines in the team sports and outdoor categories.

Footwear revenues grew 9% to $246m, driven by strength in running, offset by team sports and basketball. Accessories grew 6.1% to $111m, led by men’s training and running.

International revenue saw strong growth, with double-digit percentage rises in Asia-Pacific, Latin America and Europe, the Middle East and Africa.

But sales in North America continued to decline, down 4.5% to $1.02bn, as bigger rivals Nike and a bullish adidas continued to gain market share.

The company also reported a loss of $87.9m/20 cents in the quarter ended December 31, compared with a profit of $103.2m/23 cents a year ago, largely due to restructuring charges and a one-time tax expense.

Excluding items, the company met analysts’ expectations that it would break even for the quarter.

Gross margin declined 150 basis points to 43.2% as benefits from changes in foreign currency rates and product costs were more than offset by pricing and other inventory management initiatives, and channel mix.

But not much of an upbeat message from the usually positive CEO Kevin Plank. “After years of rapid growth and building a globally recognised brand, the dynamic landscape of 2017 was a catalyst for us to begin strategically transforming Under Armour into an operationally excellent company,” he said.

“A year into this journey, our fourth quarter and full year results demonstrate that the tough decisions we’re making are generating the stability necessary to create a more consistent and predictable path,” he added.

So for 2018, expect net revenue to grow in the low-single-digit percentage range, taking into account a mid-single-digit decline in North America sales.

Also expect gross margins to rise about half a percentage point to 45.5% as it cuts promotional activity and product costs.

#UnderArmour #Sales

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