Under Armour tempers 2023 growth on near-term challenges

Under Armour, despite all its efforts to reshape and fortify its premium-focused business since a 2020 restructuring under president and CEO Patrik Frisk, is facing short-term issues that will impact its sales, profitability, and margins for much of 2022. The company started a new fiscal year, FY23, on April 1 and is forecasting the first half to be heavily impacted by order cancellations, higher freight costs and supply chain delays.

The company’s current outlook for the 12 months ending March 31, 2023, calls for a 5 to 7 percent revenue expansion from the $5.7 billion recorded in the comparable year-ago period. The forecast includes mid-single-digit growth in North America, and low teens increase internationally. Annual gross margin is seen as falling 1.5 to 2.0 percent from the prior period’s 49.6 percent on higher freight costs, an unfavorable channel mix and currency impact. FY23 operating income is currently pegged at $375 million to $300 million, some 5.7 to 11.5 percent below the $424 million from the prior period, producing an operating margin range of 6.0 to 6.5 percent versus 7.4 percent. First-quarter operating income is estimated at $25 million to $35 million. The gross margin is down 250 basis points due to higher freight costs, and total revenues estimated at flat to down slightly. Approximately 1.0 percent of the period’s estimated sales drop will be related to order cancellations due to COVID-19 impacts and supply chain issues.

In detailing Under Armour’s results for the transition quarter ended March 31, Frisk reminded attending analysts that the near-term challenges were temporary, adding, “Higher-priced freight, supply chain issues and Covid-19 are not as powerful as the global passion for sport.”

Under Armour lost $59.6 million in the period as total revenues grew by 3.5 percent to $1.3 billion from $1.26 billion. Gross margin declined by 3.5 percent to 46.5 percent, impacted by elevated ocean freight and higher air freight expenses, unfavorable channel and regional mixes, and currency impact. Spring/summer orders were reduced by 10 percent due to supply constraints despite underlying demand. The company does not expect much easing of freight costs this calendar year as it also deals with higher product costs that will be addressed via select product price increases.

Wholesale revenues increased by 4 percent to $829 million on higher distributor and off-price segment sales. Management reminded that off-price remains at 3 to 4 percent of total sales. Direct-to-consumer sales came in 1 percent higher, flat in stores but 2 percent at the e-commerce level. Licensing revenues were 23 percent higher at $26.6 million.

Geographically, the EMEA paced all regions by increasing 18 percent to $228.1 million with higher wholesale and DTC revenues and a 14 percent gain in segment operating income to $30.3 million. North American sales rose 4 percent to $841 million, but the region’s profitability slid 27 percent to $154.1 million. Asia-Pacific suffered steep declines in sales and operating income due to supply chain and Covid-19-related shutdowns and closures in China. Operating income slipped 88 percent in Asia-Pacific to $5.5 million on a 13.5 percent revenue drop to $181.9 million. Latin America reported $6.3 million in operating income, up 335 percent year-on-year, despite a 5.5 revenue decline to $45.6 million.

Supply constraints contributed to a 4 percent sales dip in footwear revenues to $296.7 million despite strength in training and outdoor. Apparel sales gained 8 percent to $876.6 million on better performance in training and team. Meanwhile, expected lower sales of sport masks contributed to an 18 percent drop in accessories sales to $96.8 million.

Strategies and product introductions planned for later this year include a customer loyalty program in North America by the end of 2022, continued “evolvement” of Under Armour’s Brand and Factory Houses and a next-evolution fleece introduction this fall which is lightweight and made with 80 percent recyclable fibers. On the footwear side, the brand will introduce its first women’s-specific running shoe, the UA Flow Synchronicity, in the fall and two HOVR franchise updates, the HOVR Phantom III with a 100-percent HOVR platform offering “step-in comfort” and the HOVR Phantom IV, a model designed for long-distance running.