Under Armour raised its full-year guidance for sales and profits after reporting better-than-expected results in the first quarter, as its business continues to rebound from Covid-19 shutdowns and a restructuring plan launched last year is bearing fruits.
The brand said it now anticipates that its revenues will rise in 2020 by a high-teen percentage rate as compared to its previous expectations of a high single-digit increase, with high-teen percentage growth in North America and a growth rate in the low thirties in the rest of the world - provided there will be no major new Covid-related shutdowns.
The gross margin is now expected to improve by about 0.5 percentage points as compared to the previous forecast that it will go “up slightly” versus the prior year’s adjusted gross margin of 48.6 percent. Benefits from better pricing and supply chain efficiencies are seen being partly offset by the sale at the end of last year of MyFitnessPal, which enjoyed a high gross margin rate, and higher logistics costs.
UA is now guiding for operating income of $105-115 million for the year versus a previous forecast of $5-25 million. Excluding the impact of restructuring efforts, the adjusted operating income is seen reaching a level of $230-240 million, or an adjusted Ebit margin of 4.5 percent, as compared to previo us guidance of $130-$150 million. There will still be a net loss on a GAAP basis only, but the company should be able to post an adjusted net loss of around $130 million for the year.
In the first quarter, the company’s gross margin increased by 3.7 percentage points to 50.0 percent from the year-earlier period, with contributions of 2.7 percentage points from better pricing, 1.3 percent from supply chain initiatives and extra gains from channel mix. These benefits were offset by the loss of MyFitness Pal, which would have contributed an extra margin of 1.4 percent. Operating expenses were reduced by 7 percent, mainly in terms of marketing and legal costs.
Beating the analysts’ consensus, the quarterly net profit stood at $78 million, compared with a loss of $590 million. Last year’s loss was mainly due to impairment and restructuring charges, which declined to $7 million in the first quarter of this year. They will amount to $35 million in the second quarter and disappear afterwards.
Driven by the running and training categories, revenues increased by a reported 35 percent to $1,257 million and were up by 32 percent at constant currency rates, going well above analysts’ expectations of a $1,130 million turnover. Wholesale revenues jumped by 35 percent to $800 million, thanks in part to a shift in the timing of shipments. Direct-to-consumer (DTC) revenues surged by 54 percent to $437 million, driven by 69 percent growth in e-commerce, which came to represent around 45 percent of the total DTC turnover worldwide. Sales at physical stores grew by 44 percent.
Apparel revenues increased by 35 percent to $810 million and footwear revenues rose by 47 percent to $309 million. Revenues from accessories were 73 percent higher at $117 million, thanks largely to UA’s SportsMask. Inventories declined by 9 percent.
On a geographical basis, revenues increased by 32 percent in North America to $806 million, while international revenues grew by a reported 58 percent to $452 million and were up by 50 percent on a currency-neutral basis. Within the international business, on a constant-currency basis, revenues increased by 33 percent in the EMEA region and by 107 percent in Asia-Pacific but were down by 7 percent in Latin America.
E-commerce and the distributor business helped UA to keep its growth in the EMEA at a high level, although one-third of its stores in the region were closed during the quarter. While Covid-19 is putting the brakes on UA’s prospective development in the EMEA, the group’s management reported on strong bookings from the region for the back half of this year.
To help sustain its momentum, the company plans to make incremental marketing investments in the second half, particularly on the digital front and in relatively under-penetrated markets such as China and Germany. It plans to boost e-commerce and open new stores in China, privileging profitability. As planned, it will exit many more “undifferentiated” retail accounts.
The management expects to return to double-digit growth and double-digit operating margins in the longer term. “Under Armour is off to an excellent start for the year,” commented Patrik Frisk, the company’s CEO. “Our first-quarter results demonstrate that our improved operating model and investments we’re making to amplify our connection with consumers are enabling us to deliver against strong demand for our brand.” He also predicted that UA will “make measured progress to returning to sustainable, profitable growth over the long-term.”