Under Armour has lowered its full-year revenue and operating income outlooks and continues to see short-term business climate hazards. Yet, company senior executives are confident that turnaround initiatives being undertaken over recent months will pay off in 2023 and beyond. The group has zeroed in on making the 16- to 20-year-old team sports athlete” as the brand’s target consumer, has drastically slashed sales into the off-price market, and has begun testing a loyalty customer program that will roll out widely in 2023. Under Armour will address fitness, music, and street culture so it can influence a larger target market. A better, best-product strategy is being implemented with the footwear, women’s and international segments seen as key areas in the future.
“Playing offense and defense in this environment is critical,” interim president and CEO Colin Browne told analysts this morning. According to Kevin Plank, the company founder, Browne remains under consideration for his job on a permanent basis, a position that will be filled by year-end.
Under Armour’s operating income slid by 31 percent in the second quarter to $119.4 million from $172.1 million. Ebit was down by 17.2 percent to $110.1 million as the net profit declined 23 percent to $86.9 million from $113.4 million. A 560-basis point drop in year-over-year gross margin to 45.4 percent from 51.0 percent was attributed to an array of factors, including increased promotions (300 b.p.), supply chain costs (100 b.p.), unfavorable product mix (70 b.p.) and currency headwinds (50 b.p.). Second-quarter revenues inched up 1.8 percent to $1.57 billion from $1.545 billion.
Given current market uncertainties, Under Armour has lowered its FY23 (ending March 31, 2023) and H2 outlooks. Reported annual revenues are now forecast to rise by low single digits versus earlier guidance of 5-7 percent growth, up mid-single digits on a currency-neutral basis. While apparel and the North American region are projected at “flat” year-over-year, international sales are forecast to increase mid-single-digits for the year, and annual footwear sales are expected to rise in the low teens. In Q3, gross margins are forecast to slip 550-560 basis points due to currency headwinds, an elevated promotional market, particularly in North America, and changes in product mix.
The EMEA was the brand’s best-performing region in Q2 ended Sept. 30, rising 9 percent (20% on a currency-neutral basis) to $262.7 million from $241.2 million, helped by gains in wholesale, but the region’s operating income declined 14 percent to $35.9 million. APAC quarterly sales increased 14 percent on a currency-neutral basis (+6.5% reported) to $225.7 million as the region’s operating profit rose 13.8 percent to $46.1 million. Period revenues in Latin America increased 3.2 percent to $58.2 million, but operating income declined nearly 34 percent to $7.2 million. In the home North American market, Q2 operating income dipped 28 percent to $209.2 million on a 2.3 percent sales decline to a reported $1.011 billion. By channel, wholesale revenues increased 4.1 percent to $948.2 million, and global direct-to-consumer sales slipped 4.4 percent to $577.1 million. By product segment, global apparel sales slipped 1.9 percent to $1.038 billion, with strength in team sports and softness in training. Accessory revenues fell 12 percent to $111.1 million but were up low-single digits, excluding mask sales that were strong in the year-ago period. Second-quarter footwear sales increased 14.0 percent to $375.9 million, fueled by double-digit increases in outdoor and training.
Under Armour recently introduced a limited quantity of its new $150 retail, Slip Speed, described as a universal training show. A broader launch of the style in additional colors is set for Feb. 14.
