Under Armour, which sees its next FY as the start of growth phase for the company, commenced FY24 by exceeding Wall Street’s revenue and EPS guidance estimates. The international segment, including the EMEA, and DTC channels paced the results.
Under Armour “very focused on profitability”
Operating income slipped by 39 percent to $20.9 million from $34.5 million for the period ended June 30, as total revenues declined by 2.4 percent to $1.32 billion from $1.35 billion. Ebit was off by 9.3 percent to $12.9 million, but net income improved by 11.3 percent to $8.55 million.
Gross margin, impacted by the promotional environment in the U.S., declined by 60 basis points to 46.1 percent from 46.7 percent.
| Under Armour - Income | |||
|---|---|---|---|
| Quarter ended June 30 ($ thousand) | |||
| 2023 | 2022 | Change | |
| Net revenues | 1,317,012 | 1,349,057 | -2.4% |
| Cost of goods sold | 709,276 | 718,860 | -1.3% |
| Gross profit | 607,736 | 630,197 | -3.6% |
| SG&A expenses | 586,806 | 595,714 | -1.5% |
| Income from operations | 20,930 | 34,483 | -39.3% |
| Interest income, net | -1,626 | -6,005 | 72.9% |
| Other income, net | -6,385 | -14,241 | 55.2% |
| Pre-tax | 12,919 | 14,237 | -9.3% |
| Tax | 3,971 | 5,657 | -29.8% |
| Net income | 8,549 | 7,682 | 11.3% |
| Diluted EPS | 0.02 | 0.02 | 0.0% |
| Source: Under Armour | |||
“We’re going to be very focused on profitability, driving higher ASPs (Average Selling Prices), SKU productivity, COGS (Cost of Goods Sold) improvement,” CEO Stephanie Linnartz told analysts. “So, I think we’re going to march on quarter-by-quarter as we return Under Armour to growth in our home market here in the U.S.”
The company largely maintained its FY24 outlook after reporting the results, only altering the make-up of projected total revenues that are forecast to be flat to slightly up from the prior year. Now, North America annual sales are expected to decline by 3 to 4 percent with sales in both the EMEA and APAC predicted to rise by a low double-digit rate.
“Inventory is in a very healthy position”
Inventories, up 10.9 percent at Q1 end from March 31 to $1.32 billion, are forecast to be up by a mid- to high-single digit percentage at Q2 end before falling in Q3 and ending up down by a mid-teen percentage rate at FY24 end to approximately $1 billion.
“Our inventory is in a very healthy position,” CFO David Bergman said. “We don’t have a lot of older products […] and we are normalizing against leaner days last year. So, I think we’re balancing the promotions […] and keeping that third-party, off-price liquidation channel in that 3 to 4 percent of revenues.”
International markets bolster slower US sales
But Q1’s strength for the brand clearly belonged to markets outside the U.S.. Currency-neutral sales in the EMEA increased by 10.5 percent to $226.6 million as both the wholesale and DTC segments grew strongly as the company continues to maintain a segmentation approach. The region’s operating income increased by 70 percent to $30.9 million.
In the U.K. and Germany, the Under Armour brand is positioned as a premium label in both apparel and footwear.
In APAC, Q1 sales increased by 14.5 percent to $202.2 million but operating income fell by 23 percent to $15.4 million as Under Armour positions its label as “the athlete’s brand” to locals.
Latin America revenues rose by 12.7 percent to $55.7 million but the region’s operating profit fell by 7 percent to $5.8 million.
Under Armour’s home market performed most poorly during the period with revenues down by 9.1 percent to $826.7 million as operating income slipped by 17 percent to $158.1 million.
One of the company’s three strategic priorities is to grow its U.S. sales base, something it intends to do through SKU productivity, improved segmentation, higher ASPs, and new product designs and innovations. In July, a brand loyalty program was introduced for the U.S. after initially beginning in China.
Late last month, Jim Dausch joined Under Armour from Marriott International as the company’s Consumer Officer and executive searches for a new Chief Product Officer and Chief Supply Chain Officer are underway. Also, the company is adding to its product design staff as it aims to reach more women, develop new sportstyle products, and open new distribution doors.
| Under Armour - Revenues | |||
|---|---|---|---|
| Quarter ended June 30 ($ thousand) | |||
| 2023 | 2022 | Change | |
| By category | |||
| Apparel | 824,660 | 868,428 | -5.0% |
| Footwear | 363,670 | 347,251 | 4.7% |
| Accessories | 97,862 | 96,831 | 1.1% |
| Net sales | 1,286,192 | 1,312,510 | -2.0% |
| Licensing revenues | 25,072 | 28,135 | -10.9% |
| Corporate other | 5,748 | 8,412 | -31.7% |
| Total net revenues | 1,317,012 | 1,349,057 | -2.4% |
| By channel | |||
| Wholesale | 741,958 | 791,686 | -6.3% |
| Direct-to-consumer | 544,234 | 520,824 | 4.5% |
| Net sales | 1,286,192 | 1,312,510 | -2.0% |
| Licensing revenues | 25,072 | 28,135 | -10.9% |
| Corporate other | 5,748 | 8,412 | -31.7% |
| Total net revenues | 1,317,012 | 1,349,057 | -2.4% |
| By segment | |||
| North America | 826,652 | 909,356 | -9.1% |
| EMEA | 226,641 | 205,181 | 10.5% |
| Asia-Pacific | 202,232 | 176,665 | 14.5% |
| Latin America | 55,739 | 49,443 | 12.7% |
| Corporate other | 5,748 | 8,412 | -31.7% |
| Total net revenues | 1,317,012 | 1,349,057 | -2.4% |
| Source: Under Armour | |||
Product and channel developments coming
Footwear sales stepped up 4.7 percent to $363.7 million in Q1. Under Armour continues to build out its SlipSpeed platform, recently introducing the SlipSpeed mesh for summer workouts, and will introduce two models in the fall including a limited launch of Slipspeed running shoe at the end of October before a wide introduction in Feb. 2024. There will also be a new Curry basketball shoe in October followed by additional footwear, apparel, and accessories for the sub label across basketball, golf and sportstyle.
Q1 Apparel sales declined by 5 percent to $824.7 million. This fall, the group intends to elevate its fleece offerings with more premium products that focus on style and performance and will also introduce a “substantial update” to its original heat pure compression baselayer. Accessories sales inched up 1.1 percent to $97.9 million and licensing revenues declined by 11 percent in Q1 to $25.1 million.
Wholesale revenues fell by 6.3 perce to $742 million. DTC sales increased by 4.5 percent to $544.2 million as license revenues declined by 11 percent to $25.1 million.
Under Armour ended Q1 with 247 retail locations in markets outside the U.S., including 79 Brand House doors, and 196 total locations in North America that included 19 Brand Houses and 177 factory outlets.
