Under Armour Makes Strides Despite Weak North American Sales

The ath-leisure brand beat Wall Street's forecasts for fourth-quarter earnings and sales.

Under Armour Inc. is making progress with its turnaround plan as it strives to catch up with its competitors and move away from discounts.

Shares in the Baltimore-based ath-leisure brand rose 4.5 percent to $20.01 Tuesday after it released fourth-quarter earnings that surprised on the upside.

Investors zeroed in on adjusted income, which totaled $42 million, or 9 cents per share — more than double the 4 cents Wall Street had penciled in. Net income was $4 million and compared with year-ago losses of $87.9 million.

The company, which lags behind Nike Inc. and Adidas AG on the top line, logged sales of $1.39 billion, slightly ahead of expectations of $1.38 billion as well as year-ago sales of $1.37 billion.

“While the past year has certainly presented a number of challenges, our fourth-quarter and year-end 2018 results demonstrate both stability in our business and the emerging strength of our operating model to deliver more consistently for our consumers, customers and shareholders,” said Kevin Plank, chief executive officer, on a call with investors.

Earlier in the year, Under Armour suffered with high inventory levels, which led to heavy discounting and dented margins. The firm subsequently started to undergo a transformation that prompted job cuts, store closures and sourcing changes.

But fourth-quarter results were not all smooth sailing. Some analysts pointed to North American sales, which were down 6 percent to $965 million and compared unfavorably with the international sales gain of 24 percent to $395 million.

The company said it reduced its promotions in North America by around a third, creating a more difficult comparison in the second half of the year.

Under Amour also said first-quarter sales would most likely be flat to slightly down due to the North America landscape, but it would stick by its plan to reduce promotional activity and move to a more premium positioning.

A further breakdown of the numbers revealed that while apparel revenue increased 2 percent to $970 million, footwear revenue decreased 4 percent to $235 million, primarily driven by lower sales to the off-price channel.

Accessories revenues also dipped 2 percent to $108 million due to softer demand and continued actions to optimize our inventory and distribution.

Wall Street was broadly upbeat. For instance, Randal J. Konik, an analyst at Jefferies, said there are “better days ahead” for North American sales.

Elsewhere, the company made no changes to its 2019 outlook, which was provided at its December investor day — the first in three years, during which Plank detailed that losses will continue to shrink between now and 2023.

The daylong investor meeting was a chance for the company to shift focus toward its comeback plan and away from the roiling controversy stemming from revelations that, until earlier this year, Under Armour executives were permitted to expense strip-club visits.

It has since said Tchernavia Rocker would be joining the group in the newly created position of chief people and culture officer to show just how serious it is about changing its culture after a difficult 2018.

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