Coming out of FY23 where sales and profitability increased but gross margin slipped due mostly to currency impact and the promotional environment in its home U.S. market, Under Armour is charging forward under new CEO Stephanie Linnartz with its new “Protect This House 3” objectives.
CEO Stephanie Linnartz has a clear objective for Under Armour
Just 70 days on the job, the former Marriott International senior executive laid out her three initial areas of focus for the brand over the next 12 months as it aims to get better positioned for growth in FY25 and beyond.
“I want this brand to win, really win, but we have much work ahead of us,” commented Linnartz after offering an overview of the company’s “Protect This House 3” (PTH3) objectives. These will focus on brand, product, and the U.S. market, as Under Armour leans more heavily on expansion in footwear, the women’s market, and a “Sportstyle” segmentation where “style and design meet performance.”
Protect This House 3 in action at World Cup and through collaborations
While Under Armour continues its search for both a chief commercial officer and chief communications leader, the company will commence its revitalized Protect This House strategy at the upcoming women’s 2023 Fifa Women’s World Cup.
Women’s sales currently account for less than 25 percent of the brand’s overall revenues and Under Armour faces the challenge of developing more must-have products for the segment.
From a broader product perspective, the group needs to make all items more “premium-focused,” including Footwear, which is seen as the brand’s most significant growth category.
Part of that expansion will be reached through more collaborations, outside input from sneaker and brand experts on product development, and by “repositioning” some existing styles ahead of new rollouts in specific distribution channels.
In Performance Apparel, meanwhile, Under Armour sees an opportunity to expand the Curry brand in the Golf category.
Under Armour’s Q4 and FY23 review
In Q4, the group reported an operating profit of $35.3 million against a loss of $46 million for the period ended March 31. Net income came in at $170.5 million versus a loss of $59.6 million. Gross margin was down by 310 basis points to 43.4 percent from 46.5 percent. Revenues rose by 7.5 percent to nearly $1.4 billion, helped by double-digit growth in both the EMEA and Asia-Pacific.
| Under Armour - Income | |||
|---|---|---|---|
| 2023 | 2022 | Change | |
| Q4 ($ thousand) | |||
| Net revenues | 1,398,913 | 1,300,945 | 7.5% |
| Cost of goods sold | 792,009 | 695,781 | 13.8% |
| Gross profit | 606,904 | 605,164 | 0.3% |
| SG&A expenses | 571,645 | 594,446 | -3.8% |
| Income from operations | 35,259 | -45,956 | – |
| Interest income, net | -1,651 | -6,154 | 73.2% |
| Other income, net | -10,520 | -51 | -20527.5% |
| Pre-tax | 23,088 | -52,161 | – |
| Tax | -147,765 | 8,181 | – |
| Net | 170,545 | -59,610 | – |
| Net income per share (diluted) | 0.38 | -0.13 | – |
| FY ($ thousand) | |||
| Net revenues | 5,903,636 | 5,727,216 | 3.1% |
| Cost of goods sold | 3,254,296 | 2,889,194 | 12.6% |
| Gross profit | 2,649,340 | 2,838,022 | -6.6% |
| SG&A expenses | 2,365,529 | 2,414,499 | -2.0% |
| Income from operations | 283,811 | 333,444 | -14.9% |
| Interest income, net | -12,826 | -36,317 | 64.7% |
| Other income, net | 16,780 | -43,984 | – |
| Pre-tax | 287,765 | 253,143 | 13.7% |
| Tax | -101,046 | 30,372 | – |
| Net | 386,769 | 222,698 | 73.7% |
| Net income per share (diluted) | 0.84 | 0.47 | 78.7% |
| Source: Under Armour | |||
Sales in the EMEA increased by 13.8 percent to $259.5 million and by 23.6 percent in Asia-Pacific to $224.9 million. North American sales jumped by 2.5 percent to $862.2 million and fell by 8.4 percent in Latin America to $41.8 million.
By channel, wholesale revenues increased by 9.6 percent to $908.5 million; gained 3.0 percent in direct-to-consumer to $454.2 million; and fell by 3.2 percent in the licensing segment to $25.8 million.
By product category, Footwear sales stepped up 27.3 percent to $377.4 million; rose by 1.4 percent in Apparel to $889.2 million; and fell 1.1 percent in the Accessories segment to $95.7 million.
| Under Armour - Revenues | ||||
|---|---|---|---|---|
| 2023 | 2022 | Change | ||
| Q4 ($ thousand) | ||||
| Categories | ||||
| Apparel | 889,228 | 876,604 | 1.4% | |
| Footwear | 377,740 | 296,696 | 27.3% | |
| Accessories | 95,698 | 96,803 | -1.1% | |
| Distribution channel | ||||
| Wholesale | 908,505 | 829,179 | 9.6% | |
| Direct to consumer | 454,161 | 440,924 | 3.0% | |
| Net sales | 1,362,666 | 1,270,103 | 7.3% | |
| Licensing | 25,754 | 26,602 | -3.2% | |
| Segments | ||||
| North America | 862,177 | 841,101 | 2.5% | |
| EMEA | 259,514 | 228,056 | 13.8% | |
| Asia-Pacific | 224,923 | 181,908 | 23.6% | |
| Latin America | 41,806 | 45,640 | -8.4% | |
| Corporate other | 10,493 | 4,240 | 147.5% | |
| Total net | 1,398,913 | 1,300,945 | 7.5% | |
| FY ($ thousand) | ||||
| Categories | ||||
| Apparel | 3,871,638 | 3,907,812 | -0.9% | |
| Footwear | 1,455,265 | 1,251,776 | 16.3% | |
| Accessories | 408,521 | 441,301 | -7.4% | |
| Distribution channel | ||||
| Wholesale | 3,468,126 | 3,275,341 | 5.9% | |
| Direct to consumer | 2,267,298 | 2,325,548 | -2.5% | |
| Net sales | 5,735,424 | 5,600,889 | 2.4% | |
| Licensing | 116,746 | 117,568 | -0.7% | |
| Segments | ||||
| North America | 3,820,993 | 3,845,746 | -0.6% | |
| EMEA | 992,624 | 876,684 | 13.2% | |
| Asia-Pacific | 825,338 | 803,450 | 2.7% | |
| Latin America | 213,215 | 192,577 | 10.7% | |
| Corporate other | 51,466 | 8,759 | 487.6% | |
| Total net | 5,903,636 | 5,727,216 | 3.1% | |
| Source: Under Armour | ||||
For FY23, annual operating income improved by 13.7 percent to $287.8 million. Net income, benefitting from a $101.0 million tax benefit, rose by 73.7 percent to $386.8 million from $222.7 million. Gross margin slid 470 basis points to 44.9 percent from 49.6 percent on higher promotions, supply chain impacts that included higher freight and product costs, and currency impacts. Annual revenues were up 6 percent in constant currency at $5.9 billion versus $5.7 billion with EMEA sales of $992.6 million (+23% in constant currency) and footwear (+16%) to $1.46 billion, both up by double-digits.
Annual wholesale revenues increased by 5.9 percent to $3.5 billion as direct-to-consumer sales slipped by 2.5 percent to $2.3 billion and licensing revenues came in essentially flat at $116.7 million. Year-end inventories were up 44 percent at $1.19 billion.
They are forecast to be up in the high 30-percent range at Q1 end and up by a high single digit at Q2 end before declining in H2. The company has packed away approximately $175 million in merchandise that it will sell later this year.
Under Armour predicts a more stable year ahead
Under Armour has forecast an annual operating income range of $310 to $330 million, improving the year-over-year operating margin rate to 5.5 percent from 4.8 percent in FY23. Revenue is expected to be flat to up slightly with markets outside North America rising at a mid-single-digit rate and North American sales flat to down slightly for the 12 months.
In Q1, the company is anticipating a low- to mid-single-digit drop in revenues and a small operating loss as gross margins fall between 75 to 100 basis points due to higher promotional selling.
