As usual, Under Armour posted strong sales for the second quarter, boosted by Stephen Curry's performance and demand for his shoe line, but profits were hit by a $23 million write-off of bad debt from the bankruptcy of The Sports Authority, the big American sporting goods retail chain, and a $52.6 million charge from a shareholder lawsuit. Revenues increased by 28.0 percent over the year-ago quarter to $1,000.8 million, but the company posted a net loss of $52.65 million - its first loss as a public company – against net income of $14.76 million.
Total wholesale revenues rose by 27.0 percent to $635 million, while direct-to-consumer sales jumped by 28.0 percent to $321 million. Sales grew by 22.0 percent in North America and at a much higher rate of 68.0 percent in the rest of the world, or by 72.0 percent on a currency-neutral basis. Sales doubled in the U.K., UA's largest market in Europe. With a new set-up coming into place in the continent, as we have reported, the upside is still strong for the brand in international market, where its sales were still relatively small for the quarter at a level of $150 million, or 15 percent of total revenues.
Under Armour has opened 60 new international stores so far this year. It has 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.
On a global basis, the Apparel segment saw revenues increase by 19.0 percent to $613 million, led by growth in men's training, women's training and golf. In the footwear segment, sales soared by 58.0 percent to $243 million, primarily reflecting the continued success of the basketball category led by the Curry signature basketball line, as well as growth in the running category. The accessories segment grew by 21.0 percent to $101 million, largely due to growth in bags and headwear. The connected business grew by 73 percent to $23.5 billion, while revenues from licensing increased by 16 percent to $21.0 million.
However, the gross margin decreased by 0.7 percentage points to 47.7 percent. Operating losses in international operations and the connected business were halved, but the overall operating margin dropped by 2.1 percentage points to just 1.9 percent, weighed down by the $23 million charge resulting from the loss of Sports Authority, which is closing all its stores through bankruptcy. In addition, due to the bankruptcy, the company said it was only able to recognize $43 million of the originally planned $163 million in revenues from The Sports Authority for 2016.
To make up for it, Under Armour announced a final agreement with a lower-end American retail chain, Kohl's, that will give it a presence across 1,100 stores beginning March 1, 2017. Analysts from Morgan Stanley believe that the partnership with Kohl's could be worth $190 million a year.
The company said that it will extend and grow in “new and different ways” during the second half of the year, widening access to its brand through categories, channels and geographies - as reflected also by the launch of a premium line of apparel, Under Armour Sportswear, this coming autumn.
The company reiterated its guidance for the full year, with revenues expected to reach $4,925 million, representing growth of 24.0 percent over 2015.
Meanwhile, the Baltimore Business Journal reports that Under Armour has acquired a 58-acre parcel of land in Port Covington, the waterfront of Baltimore, to build its future headquarters. It bought the land for $70.3 million from Sagamore Development, a company owned by its main shareholder and chief executive, Kevin Plank. According to the newspaper, Sagamore had paid $35 million for the parcel, but made site improvements including environmental remediation, so Plank is not making any profit from the transaction.
In another major new real estate investment, Under Armour is taking over the prestigious location previously occupied by the the big FAO Schwartz toy store on Fifth Avenue in New York City, not far from a Niketown and an Apple store. The brand is expected to open a flagship store in the 53,000-square-foot space in 2018.
