Revising its targets for the year downward, Under Armour announced a 5 percent overall sales decrease to $1,405 million and a drop of 9.1 percentage points to 4.4. percent in the operating margin for the third quarter. Sales increased at double-digit rates in every region except in North America, where the company suffered an operating loss of €64.0 million on a 12.1 percent drop in revenues to $1,077 million.

The disruption of the sports specialty retail sector in the U.S. was held responsible for a 13 percent drop to $880 million in total wholesale revenues, while the direct-to-consumer business continue to grow, rising by 15 percent to $468 million, or 33 percent of the total turnover.

Globally, apparel revenues declined by 8 percent to $939 million, as growth in golf and sportstyle was more than offset by declines in outdoor, women's training and the youth category. Footwear revenues inched up by 2 percent to $285 million, driven by running and outdoor, offset by drops in basketball and youth. Accessories were up by one percent to $123 million, led by golf and men's training and tempered by a drop in outdoor.

The company's international momentum continued with increases of 35 percent in dollars and 34 percent in local currencies, and the management remained bullish about its opportunities outside the U.S., considering that the international market still represents only 22 percent of net revenues. In Europe, in particular, it sees potential for progress through new wholesale distribution agreements, the development of e-commerce and the opening of new stores.

UA's sales in Europe, the Middle East and Africa (EMEA) went up by 21.7 percent to $127.9 million, delivering an improvement of 102.5 percent in operating income to $16.9 million. The brand established an office in Russia, as we have already reported, and performed particularly well in Germany and the U.K.

In Asia-Pacific, UA grew by 51.9 percent to $130.3 million, driven by running and basketball and reaching a 25.9 percent higher operating profit of $34.1 million. Sales increased by 32.8 percent in Latin America, but they were accompanied by a slightly reduced loss of $10.2 million. Revenues from Connected Fitness rose by 15.9 percent to $233.4 million but led to an operating loss that quadrupled to $44.6 million.

Amer Sports Consolidated Income Statement

(Million Euros, Quarter ended September 30)

 

2017

2016

%
Change

Outdoor

509.1

505.7

0.7

Ball Sports

139.6

147.0

-5.0

Fitness

84.5

84.1

0.5

NET SALES

732.2

736.8

-0.6

Cost of Goods Sold

398.2

383.9

3.7

Licence Income

1.6

1.4

14.3

Other Operating Income (Expense)

(1.9)

4.1

-

R&D Expenses

40.4

22.5

79.6

Selling & Marketing

177.9

183.6

-3.1

Admin. and Other Expenses

41.7

48.2

-13.5

Net Interest Expense

(6.2)

(8.0)

-22.5

Pre-Tax

68.5

96.1

-28.7

Tax

17.9

25.6

-30.1

NET

50.6

70.5

-28.2

Euro/Share, Diluted

0.43

0.60

-28.3

Discontinuing certain projects in the sector, UA decided to take restructuring and goodwill impairment charges of $29 million for its Connected Fitness segment, in addition to the restructuring charges that it had announced last Aug. 1. As a result, the company booked restructuring and impairment charges of $85 million in the quarter and is expecting total charges of $140 million to $150 million for the full financial year.

The gross margin of the group was down by 1.6 percentage points to 45.9 percent for the quarter, as benefits of 0.2 percentage points from currencies and 0.5 percentage points from lower product costs were offset by the regional mix, pricing and other inventory management initiatives. Excluding extraordinary charges, the adjusted gross margin fell by 1.3 percentage points to 46.2 percent.

Similarly, the group reported operating income of $62.2 million for the quarter, down from $199.3 million in the year-ago period, but said it had reached $151 million on an adjusted basis. Net earnings were down to $54.2 million from $128.2 million, and they would have been $100 million excluding charges.

Because of the charges, operating earnings will range from 0 to $10 million for the year, but they will be in the $140-150 million range excluding charges. The adjusted gross margin is expected to decline by about 1.9 percentage points from last year's level of 46.4 percent. Total revenues are projected to decline at a low single-digit percentage rate, with North America down by high single digits and wholesale down by low digits.