Under Armour bounced back from a difficult period, reversing its year-ago loss of $30.2 million to post net income of $22.5 million for the first quarter of 2019. Sales rose by 2 percent to $1,205 million, topping analysts' expectations. Shares surged by 9 percent after the announcement.
While North American revenues dipped by 3 percent to $843 million, international sales jumped by 12 percent to $328 million, led by the Asia-Pacific, where they soared by 25 percent to $144.3 million as a result of expanding sales to key partners. EMEA sales advanced by 4 percent to $134.1 million, led by the direct-to-consumer (DTC) channel. Latin America was up by 6 percent to $49.2 million, with wholesale growth being offset by lower sales in Brazil as it has converted to a distributor model there, working through Vulcabras instead of running its own sales subsidiary in the country.
In local currencies, sales were up by 30 percent in Asia-Pacific, by 9 percent in EMEA and by 10 percent in Latin America. Operating earnings rose by 8 percent to $160.3 million in North America. They increased by 71 percent to $12.2 million in EMEA, but they declined by 18 percent to $19.8 million in Asia-Pacific. In Latin America, operating losses fell by 81 percent to around $400,000.
During the quarter, Under Armour has been expanding its international business through new stores, primarily focusing on India and other parts of the Asia-Pacific region. It is also reducing inventories to sell more of its apparel at full price after years of discounting.
Wholesale revenues gained 5 percent to $818 million, boosted by the international business. However, DTC sales fell by 6 percent to $331 million on softer demand as the company has been reducing discounts and striving for a more premium positioning in the market. DTC represented 27 percent of global revenues in the quarter.
The company saw footwear sales improve by 8 percent to $293 million, driven by running shoes such as the HOVER line, which has been enlarged from two models last year to five currently. During the quarter, the group launched premium products such as HOVER running shoes and the Rush clothing line.
Apparel revenues edged up by 1 percent to $775 million. However, accessories tumbled by 11 percent to $82 million, which the company blamed on planned lower sales of backpacks and bags related to a strategic relaunch of key products.
Licensing revenues dipped by 18 percent to $21.7 million due to weaker demand in Japan and North America, while the connected fitness division's revenues improved by 4 percent to $30.1 million.
The gross margin advanced by 1.1 percentage points to 45.2 percent, thanks to product cost improvements, a better regional mix and the absence of last year's restructuring charges, partially offset by a less favorable channel mix.
Looking ahead, Under Armour raised its full year forecast and now expects operating income to reach $220 million to $230 million for the year, up from $210 million in the previous guidance. It maintained its revenue forecast, which calls for growth of 3 to 4 percent.
The management said it sees 2019 as the last year of it restructuring program, so that 2020 should show a return to mid-to high-single-digit growth.
