Buoyed by Stephen Curry's performance and demand for his shoes, Under Armour achieved sharp rises in sales and profit for the first quarter, which encouraged it to upgrade its guidance for the full year.
Sales leapt by 30.2 percent to $1,047.7 million, with a hike of 32 percent in constant currencies. Kevin Plank, Under Armour's chief executive, pointed out in a conference call with analysts that the group's turnover increased by more than 20 percent for 24 quarters or six years in a row.
Under Armour's turnover was up by 25.7 percent to $880.6 million in North America, with an increase of 27 percent in constant currencies, despite the bankruptcy of one of its largest customers, The Sports Authority. The growth was supported by strategic moves to improve service for wholesale customers, which carried associated investment in inventories from the second quarter of last year but yielded significant improvements in customer fulfillment rates.
Meanwhile, sales increased by 56 percent to $149.4 million in other markets, with a rise of 65 percent in constant currencies. These international sales accounted for 14 percent of the group's turnover, which is an increase of 2.0 percentage points compared with the prior-year period and getting closer to the target set at Under Armour's investor day to make 18 percent of its sales outside North America by 2018.
Under Armour said that China has become its largest international market. Chinese sales nearly tripled for the quarter and they reached more than the brand's Chinese turnover for all of 2014. Sales of footwear and women's products are both over-proportional in China. Plank said 120 more own and partner stores are projected to open this year.
Under Armour expanded with key accounts such as Sports Direct and JD in the U.K., and throughout Europe, the Middle East and Africa with its own retail business and controlled retail space. The company also started distribution in Turkey and several African countries.
Under Armour's wholesale turnover was up by 28 percent to $744 million for the quarter. Plank said there was plenty of scope for Under Armour to expand its North American wholesale business, where the brand reaches about 11,000 points of sale, compared with 24,000 for one of its rivals. But he emphasized that added wholesale distribution in the North American market would come with extra merchandising efforts.
Under Armour's retail sales inflated by 33 percent to $266 million for the quarter. The group had 198 company-owned stores at the end of March, including 162 factory outlets and 36 brand stores. Among them were 42 stores in markets outside of North America. Under Armour's online retail business expanded to 26 websites after the addition of Mexico in the quarter. More than half of the traffic for the U.S. website in the quarter came from mobile devices.
Apparel sales were up by 20.0 percent to $666.6 million for the quarter, led by the golf and training categories. The Microthread and Coolswitch apparel technologies are among the innovations meant to fuel growth for the remainder of the year.
Owing to the take-up of the Curry shoe and a wider range of running shoes, footwear sales surged by 64.2 percent to $264.2 million. Growing sales of headwear and bags contributed to an increase of 26.2 percent in sales of accessories to $79.7 million.
Plank was eager to emphasize that average selling prices for footwear increased at a high single-digit rate for the quarter. They are raised by products such as Curry basketball shoes, golf shoes endorsed by Jordan Spieth, the Gemini smart shoe and Under Armour shoes with 3D printed midsoles.
But Plank explained that the company required volume at lower price points to become an important customer for shoe manufacturers and added that it takes time to build technical footwear ranges. While Under Armour had four styles of running shoes retailing at more than $100 last year, the number has doubled to eight this year and it should reach 14 in 2017.
The brand also reaches price points such as $140 for its football cleats. This was Under Armour's first footwear category ten years ago and Plank wants his company to become the brand with the largest share in the market for football cleats.
Connected fitness brought in sales of $18.5 million, more than double the turnover of the prior-year period. It saw the online launch of the Health Box in the U.S. market and strong improvements in sales coming from Under Armour's connected fitness community. The group said these sales nearly matched the turnover derived from people interacting on its platform for all of 2015. The community has grown to more than 160 million registered users, with well over 100,000 new users logging on every day.
The group's gross margin for the quarter amounted to 45.9 percent, down by 1.0 percentage point. Unfavorable currency exchange rate changes reduced Under Armour's gross margin by about 0.7 percentage points, and higher liquidations diminished it by another 1.0 percentage point.
Under Armour's operating income increased by 26 percent to $34.9 million for the quarter. The operating income margin for the group's business outside of North America jumped by 3.0 percentage points to 7.5 percent, owing to the leverage of its fast-growing international sales. Under Armour's net income soared by 63 percent to $19.2 million.
Under Armour is projecting sales of about $5.0 billion for the full year, which would amount to an increase of 26 percent. This includes buoyant sales of women's products, which are expected to reach $1 billion this year. The group's guidance points to a flat gross profit margin and operating income in the range of $503 to $507 million, up by 23 to 24 percent for the year.
