Under Armour puts SEC battle, pandemic woes behind it in Q1
Closing the book on an investigation that's been ongoing since 2017, Under Armour on Monday settled its dispute with the SEC over "pull forward" sales, agreeing to pay $9 million in a civil monetary penalty.
The retailer specified in a release that the settlement "relates to the Company's disclosures and does not include any allegations from the SEC that sales during these periods did not comply with generally accepted accounting principles. The Company neither admitted nor denied the SEC's charges."
Under Armour announced better than expected first quarter earnings on Tuesday, releasing a "meaningfully updated outlook" that brings the company back in line with its pre-pandemic performance.
Under Armour managed to put a few things behind it this week.
The first was settling with the SEC after an investigation that called its accounting practices into question, and threatened enforcement actions against the company and specific executives, including former CEO Kevin Plank. As a result of the settlement, there will be no enforcement actions taken and all claims will be resolved.
The second was the shadow of the pandemic, which loomed over Under Armour and other retailers for the past year. CEO Patrik Frisk said on a call with analysts that compared with 2019, the company is running a "better, higher-quality business" today, thanks to progress on key initiatives like reducing the amount of sales through off-price channels and moving away from undifferentiated wholesale.
Revenue for the quarter was up 35% to $1.3 billion, while DTC revenue grew 54% to $437 million, according to a company press release. E-commerce surged 69%, and the retailer posted $78 million of net income, compared to a whopping $590 million loss last year. However, these numbers are compared to 2020, when the pandemic was closing retail doors across the country.
"[I]t is more meaningful to use the benchmark of the first quarter of 2019 against which Under Armour grew by a solid, but less dramatic, 4.4%," GlobalData Managing Director Neil Saunders said in emailed comments. "That the company has made up ground on lost pandemic sales, and then some, is a positive indication that momentum has started to come back."
Thanks to its strong performance, the retailer is carrying on with its strategy, which includes placing more emphasis on DTC sales and closing up to 3,000 wholesale doors. The retailer expects to return to a double-digit operating margin, Frisk said on the call, and raised its full-year outlook across the board. Revenue is expected to be up by a high-teen percentage rate compared to the high-single-digits expected earlier, while operating income is expected to hit $105 million to $115 million, up from the high-end of its previous range, which was $25 million.
There is still room for improvement. Executives touted the brand's performance in North America, which has been challenging for Under Armour, with Frisk saying the region is in "the healthiest position it's been in, in quite a few years." DTC in North America also grew, and executives are committed to decreasing promotions in the region. However, the region was down 4.4% compared to 2019, according to Saunders, and growth was at a slower pace than other regions.
"We still believe that Under Armour has more rebuilding to do within North America," Saunders said. "The company had a much choppier 2020 than many rivals, with revenue declining more sharply. It also does not appear to have benefitted quite so much from an upswing in spending during periods when consumers were flush with stimulus checks or when they were focusing on comfortable or athletic apparel. In our view, this is mostly because, while it is a solid player, Under Armour is a diffuse brand that needs more clarity and stronger points of differentiation so that it can build up better loyalty among consumers."