Under Armour, which has faced more than its share of challenges in recent years, is bracing for another one but vowing to take its message, products, and brand to more consumers worldwide with renewed focus with more than $600 million in global marketing dollars and unaided brand awareness of 92 percent in the U.S. Before much of that occurs, however, the company must cope with elevated inventories in H2 of its financial year and an overall promotional environment that will severely impact gross margins. The company is promising to be “vigilant” in managing the situation.
The company’s annual gross margin is expected to decline from 49.6 percent last year to somewhere between 44.85 percent and 45.85 percent, despite some offset by tight expense controls. That likely scenario has forced Under Armour to lower its annual operating income forecast by 18.75 to 20.0 percent to a range of $300 to $325 million from a prior outlook of $375 to $400 million. There will also be headwinds from higher freight costs, shifts in channel mix and currency to contend with for the remainder of the year. Still, the company maintains its annual revenue forecast of a 5 to 7 percent increase.
| Under Armour - Income | |||
|---|---|---|---|
| Quarter ended June 30 ($ thousand) | |||
| 2022 | 2021 | Change | |
| Revenues | 1,349,057 | 1,351,534 | -0.2% |
| Cost of goods sold | 718,860 | 682,713 | 5.3% |
| Gross profit | 630,197 | 668,821 | -5.8% |
| Selling, general, admin. expenses | 595,714 | 545,003 | 9.3% |
| Income from operations | 34,483 | 121,205 | -71.5% |
| Net interest expense | 6,005 | 13,307 | 54.9% |
| Net other expense | 14,241 | 38,494 | 63.0% |
| Pre-tax | 14,237 | 69,404 | 79.5% |
| Tax | 5,657 | 10,027 | -43.6% |
| Net | 7,682 | 59,207 | 87.0% |
| Net income per share (diluted) | 0.02 | 0.13 | -84.6% |
| Source: Under Armour | |||
“We assume the market will be very promotional, and we will need to participate in many of these promotions, which is the primary factor for our margin call,” explained interim President and CEO Colin Browne.
The shrinking margin issue aside, Under Armour, which expects to name a permanent president and CEO by year’s end, wants to amplify its core business strategy with a greater focus on DTC, international, women’s and footwear and develop strategies to “accelerate broader consideration” for its brand. That will mean giving the label’s athletes more style and usage options that are not strictly relegated to performance sports situations.
Meanwhile, the first quarter reported revenues were flat (up 2% currency neutral) at $1.349 billion versus $1.351 billion. Ebit declined by 80 percent to $14.2 million from $69.4 million, as operating income fell by 72 percent to $34.5 million from $121.2 million. Supply chain impacts, changes in foreign currency valuations against the U.S. dollar and higher-than-planned promotions contributed to a gross margin decline to 46.7 percent from 49.5 percent in the year-ago period.
| Under Armour - Revenue | |||
|---|---|---|---|
| Quarter ended June 30 ($ thousand) | |||
| 2022 | 2021 | Change | |
| By product category | |||
| Apparel | 868,428 | 874,193 | -0.7% |
| Footwear | 347,251 | 342,641 | 1.3% |
| Accessories | 96,831 | 111,503 | -13.2% |
| Total net sales | 1,312,510 | 1,328,337 | -1.2% |
| Licensing revenues | 28,135 | 23,261 | 21.0% |
| Coporate other | 8,412 | (64) | – |
| Total net | 1,349,057 | 1,351,534 | -0.2% |
| By distribution channel | |||
| Wholesale | 791,686 | 767,611 | 3.1% |
| DTC | 520,824 | 560,726 | -7.1% |
| Net | 1,312,510 | 1,328,337 | -1.2% |
| Licensing revenues | 28,135 | 23,261 | 21.0% |
| Coporate other | 8,412 | (64) | – |
| Total net | 1,349,057 | 1,351,534 | -0.2% |
| By segment | |||
| North America | 909,356 | 905,493 | 0.4% |
| EMEA | 205,181 | 207,224 | -1.0% |
| Asia-Pacific | 176,665 | 192,369 | -8.2% |
| Latin America | 49,443 | 46,512 | 6.3% |
| Corporate other | 8,412 | (64) | – |
| Total net | 1,349,057 | 1,351,534 | -0.2% |
| Source: Under Armour | |||
By distribution channel, wholesale revenues rose 3.1 percent to $791.7 million. They declined 7.1 percent in the DTC segment to $520.8 million due to lockdowns in China, lower e-commerce sales and lower sales from North American outlets. License revenues rose 21 percent to $28.1 million from $23.3 million, driven by a solid performance in Japan. Under Armour ended the first quarter with 440 own retail locations, including 243 outside North America with 156 Factory Houses and 87 Brand Houses. North American total stores stood at 197, with 179 Factory Houses and 18 Brand Houses.
By product category, sales of footwear, aided by a better flowing supply chain, rose 1 percent to $347.3 million with good performances from the American football and basketball categories, offset by declines in running. This fall, Under Armour will introduce a new footwear platform through a new technology in a training shoe that it hopes to expand to its other footwear categories.
Apparel revenues slipped 1 percent to $868.4 million, with strengthened team sports sales offset by softness in golf and run. Accessories revenues declined 13 percent to $96.8 million due to planned lower sales of its sports mask.
Regionally, EMEA suffered a 54 percent decline in first-quarter operating income to $18.2 million from $39.9 million as period revenues fell 1 percent on a reported basis (up 6% currency neutral) to $205.2 million with growth in wholesales but a decline in d-t-c. Operational issues impacted shipping and sell-throughs, particularly in the U.K. APAC quarterly sales declined 8 percent to $176.7 million. Under Armour remains cautious on the region due to China’s zero-tolerance policy. But there have been strong post-Covid sales throughout the rest of the region, particularly in South Korea and Japan. North American sales were flat on a reported basis in the first quarter at $909.4 million, with higher wholesale revenues offset by lower DTC sales.
