Under Armour reported net revenues of $938 million for the third quarter ended Sept. 30, marking an exceptionally strong 30 percent increase compared with the previous year's period, with impressive jumps of 94 percent for international revenues and 51 percent in footwear. Net income rose by 22 percent to $89 million. Both sales and earnings exceeded analysts' expectations.
At $90.3 million in the quarter, international revenues came to represent 9 percent of the total turnover, up from 6.1 percent a year earlier. They have benefited so far this year from the company's entry into new markets - Brazil, Chile, Hong Kong, Taiwan, Australia and New Zealand - and from the takeover of the distribution of its products in Mexico. The brand intends to invest between 13 and 14 percent of sales in marketing outside the U.S. to build up the business further, compared with a domestic rate of 11 percent.
There are no plans to enter new markets in 2015, but the company has appointed new executives to consolidate its operations in Europe and China. The EMEA region, where Under Armour's sales are now expected to grow to over $100 million this year, is now led by Chris Bate, who seved as footwear director at Nike Europe from 2007 to 2010 and then as EMEA managing director of the PLG brands of Wolverine Worldwide from 2010 to 2013. He worked for Puma and Hi-Tec Sports in the U.K. and Canada before joining Nike in 1998. Bate has replaced Matt Shearer, who previously ran the EMEA region as well as Canada. Shearer has gone back to North America to concentrate on Canada.
Under Armour's business in China will be led by Erick Haskell, a former top executive of Adidas who acted as its chief operating officer for Greater China and then, from the beginning of 2013, as managing director of its Indian subsidiary. He takes the place of Kevin Eskridge, who is returning to Under Armour's head office in Baltimore to “influence our global perspective.”
The company has been opening more and more partner stores in China and Southeast Asia. Its European sales have been rising strongly through a higher degree of brand awareness and concentration on the British, German and French markets. Discussing plans to launch a major advertising campaign in February, Alex Blank, the new German country manager of the company, was recently quoted as stating an objecdtive of taking the third position in the German market in six years' time.
Meawnhile, the apparel business of Under Armour continued to expand strongly in the latest quarter, although the growth rate was more subdued than in the second quarter. Apparel sales increased by 26 percent globally to $705 million, driven primarily by expanded offerings and platform innovations across training, golf and outdoor. The strong boost in the footwear segment was led by new product introductions in running and basketball. The footwear category now accounts for about 13 percent of overall sales, compared with 11.2 percent in the same quarter last year. Revenues from accessories went up by 32 percent to $85 million, primarily driven by expanded offerings in headwear, bags and gloves.
Direct-to-consumer revenues, which accounted for 26 percent of total net revenues for the third quarter, were up by 35 percent. During the quarter, the company launched local e-commerce sites in the U.K., Germany and France, and optimized all global sites for mobile use.
The gross margin grew to 49.6 percent from 48.4 percent in the previous year's third quarter, primarily due to higher import duties in the prior year's period and a favorable year-on-year sales mix. Third-quarter operating income increased by 21 percent to $146 million.
The management raised its 2014 outlook for revenues to $3.03 billion, representing growth of 30 percent over 2013, while operating income should grow by 31 percent to around $348 million in spite of lower gross margins due to higher sales to international distributors. However, the company also said that its global sales growth is expected to slow to 22 percent in 2015.
