Under Armour's restructuring measures have helped the group post better results for the third quarter, including a slightly higher gross margin and a significant sales rise in markets outside the U.S.
The company has identified further cutbacks and investments, which should raise restructuring and related charges to between $200 million and $220 million for the full financial year. It has earmarked an enlarged budget for an estimated 400 extra layoffs this year. The company had already announced a round of 277 staff cuts last year to shift its resources to more productive areas, such as international expansion and online retailing, and to compete more efficiently with Nike and Adidas. The latest cuts should be completed by the end of March, representing the final component and update to Under Armour's restructuring program.
Overall revenues rose by 2.4 percent from the year-ago quarter to $1,442.9 million, up by 3 percent in constant currencies. The gross margin went up by 0.1 percentage point to 46.1 percent, despite a negative impact of $5 million from the restructuring measures taken in the quarter. The adjusted gross margin reached 46.5 percent. After restructuring and impairment charges of $19 million, the company booked operating income of $119 million, while the adjusted operating income reached $143 million.
The management said these results confirm that its reorganization plan is working. It highlighted efforts such as the closing of underperforming facilities and retail locations, the exit from certain sports marketing contracts, the optimization of the global workforce and aggressive clearance of excess inventories.
Under Armour also shortened lead times along the supply chain and is now continuing to increase distribution efficiencies. Within the various product category and merchandising teams, it has aligned calendars across all functions and streamlined its category structure, removing a significant number of SKUs, styles, trims and materials.
Training and running were key categories behind a 4.2 percent jump in apparel sales to $978.4 million. Footwear suffered a slight decline of 0.1 percent to $284.8 million. Sales of accessories dipped by 5.9 percent to $116.2 million.
The management said that the Hovr cushioning technology found in its Phantom and Sonic running footwear, which is now also available in the newly added CGR styles, has been one of the company's strongest launches so far this year. Pursuit and Assert both had strong showings as well. And in basketball, the Curry 5 continued to perform well. The company also launched the Forge 96 in the quarter, a throwback to the year when the company was founded. This limited edition sold out in just two days.
By channel, sales to wholesale customers were up by 4 percent to $914 million, driven by growth in international markets. Direct-to-consumer revenues were flat compared with the prior year at $465 million, representing 32 percent of total revenue in the quarter. The management said this was expected, due to significantly lower promotional activity.
In North America, revenues were down by 1.6 percent to $1,059.5 million, which was slightly better than expected. In the rest of the world, revenues jumped by 15 percent overall. In Europe, the Middle East and Asia (EMEA), sales advanced by 15.4 percent to $147.6 million, with growth at wholesale and in DTC. They also went up by 15 percent in Asia-Pacific, reaching a level of $149.4 million. Latin American revenues gained 16 percent to $54.3 million. In both regions, the growth was driven by the wholesale business.
Under Armour's connected fitness division brought in sales of $32.1 million, which was an increase of 20.2 percent.
The company is projecting a sales increase of about 3 percent to 4 percent for the full year, combining a low to mid-single digit decline in North America with international growth above 25 percent. Apparel is anticipated to generate sales growth at a mid-single-digit rate. Footwear should deliver a low single-digit sales rise, while accessories should decline at a low single-digit rate.
The group also anticipates that its gross margin will be flat to down slightly compared with 45.0 percent in 2017, but its adjusted gross margin should improve slightly. Under Armour is budgeting an operating loss of between $50 million and $55 million in 2018. Excluding the impact of the restructuring measures, it would amount to an operating income of between $150 million and $165 million.