Recent restructuring efforts seem to have been quite effective, as Under Armour reported better-than-expected results for the fourth quarter of 2020. The company surprised analysts by reporting a profit for the quarter, thanks primarily to strong digital growth due to the popularity of its athletic apparel for home workouts, as well as efforts to keeps expenses at bay. After the announcement, the group’s shares jumped by more than 10 percent.
The good results led Under Armour to issue an upbeat guidance for 2021, with sales expected to rise in the high-single digits, while the gross margin is forecast to be up slightly from the prior year. Operating losses will be eliminated, at least on an adjusted basis, as the management is now forecasting an adjusted operating profit of between $5 million and $25 million.
The brand will be seeking a more premium positioning, trimming the off-price channel, restricting the demand and cutting off some undifferentiated wholesale accounts from the second half of the year, while pushing direct-to-consumer operations. For the first quarter of 2021, Under Armour is calling for sales to be up by about 20 percent, due in part to a shift in orders, but ongoing restructuring charges will cause an operating loss of $55 to $70 million. No charges are expected for the second half of the year.
In the fourth quarter of 2020, net earnings reached $184.5 million, versus a loss of $15.3 million for the fourth quarter of 2019. The Wall Street consensus called for a loss in the quarter. The company’s return to profitability was made possible through an adjusted operating profit of $120 million for the period and proceeds of $182 million from the sale of MyFitnessPal that more than offset restructuring charges of $52 million.
Total revenues decreased by 2.6 percent to $1,404 million, which was also higher than analysts’ estimates. Wholesale revenues plunged by 12 percent to $662 million, while direct-to-consumer sales rose by 11 percent to $655 million, driven by a 25 percent gain in e-commerce. Overall, apparel revenues contracted by 4.0 percent to $931 million, footwear revenues declined by 7.1 percent to $241 million, and accessories grew by 32.0 percent to $145 million, thanks largely to the success of the Under Armour Sportsmask.
In North America, sales were down by 6 percent to $924 million, but they increased by 4 percent in constant currencies elsewhere. By region, on a constant-currency basis, sales dropped by 14 percent in EMEA, but increased by 21 percent in Asia-Pacific and by 8 percent in Latin America.
The company’s gross margin improved by 2.1 percentage points to 49.4 percent. Excluding the impact of restructuring efforts, the adjusted gross margin increased by 3.0 percentage points to 50.3 percent, driven primarily by benefits from the channel mix, supply chain initiatives and the regional mix. The group ended the third quarter with cash and cash equivalents of $1.5 billion.
For the full year, revenues were down by 15.0 percent to $4,475 million, including a 25 percent drop in wholesale revenues and a two percent gain in direct-to-consumer revenues, lifted by e-commerce. The gross margin rose by 1.4 percentage points to 48.3 percent, but operating expenses were cut by 6.1 points as a percentage of sales. Under Armour had to book a net loss of $549.2 million for the year against a profit of $92.1 million in 2019. The loss included $473 million in pre-tax restructuring charges, which represented the bulk of a restructuring plan estimated to cost $550-600 million.
North American revenues fell by 19.5 percent to $2,945 million and international revenues dropped by 4 percent to $1,400 million, including a 5 percent drop in EMEA in constant currencies. Apparel revenues were off by 16.9 percent to $3,882 million, footwear revenue fell by 14.0 percent to $934 million, and accessories remained flat at $414 million.UA also reported declines of 23.8 percent in licensing income and 0.4 percent in Connected Fitness, down to $105.8 million and $135.0 million, respectively. The gross margin expanded by 1.4 percentage points to 48.3 percent. The net loss for the year amounted to $549 million, compared with a profit of $92.1 million in 2019.
The results came after the company started to implement a $600 million restructuring plan designed to improve profitability and cash flow. As previously reported, Under Armour completed in December the sale of the MyFitnessPal business to Francisco Partners for $345 million, inclusive of the achievement of potential earn-out payments. In connection with this transaction, Under Armour discontinued its European-based Endomondo platform at the end of 2020. UA had bought MyFitnessPal and Endomondo in 2015, respectively for $475 million and $85 million.
The company announced that its board has authorized a change in its fiscal year-end to March 31 from Dec. 31, effective with the fiscal year beginning on April 1, 2022.