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Under Armour struggles in U.S. market, warns of coronavirus impact on sales

Under Armour expects sales to decline this year as the brand struggles to regain traction in its key U.S. market and feels the financial brunt of the deadly new coronavirus outbreak in China.

The company lowered its full-year sales estimates Tuesday as it reported a fourth quarter loss of $15 million, or 3 cents per share, well off Wall Street’s expectation of a 10 cents per share profit. Sales for the three months that ended Dec. 31 rose 4% to $1.4 billion, but missed estimates of $1.47 billion.

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Shares of the Baltimore-based sports apparel maker fell more than 18 percent in morning trading to $16.73 each.

The brand is bracing for impact from the virus outbreak in China, where 600 Under Armour stores remain closed. The company expects a sales loss of about $50 million to $60 million in the first three months of this year alone.

Beyond the first quarter, the impact is uncertain, the company said. It could interrupt production, depending on when closed factories can reopen. It also could lead to delays in shipments and sourcing of fabric, trim and packaging.

“Along with all companies that do business there our primary concern is for the health and well being of the Chinese citizens, our teammates and partners, and those affected around the world,” said Patrik Frisk, Under Armour’s president and CEO.

Frisk’s comments came during his first earnings call since taking over Jan. 1 from former CEO Kevin Plank, the company’s founder and now executive chairman.

The death toll from the illness has surpassed 1,000 in mainland China, where the virus originated. Eleven people have tested positive for the virus in the United States, none in Maryland.

Under Armour also said Tuesday that efforts to regain sales in the U.S., its biggest market, are taking longer than expected. Sales in North America this year are expected to drop in the mid- to high-single-digit range.

Overall sales for 2019 rose 1% to $5.3 billion but will be down in the low single-digit percent range this year, the company projected.

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“I’m not satisfied with where we are today,” despite progress in a multi-year turnaround plan, Frisk said. “We see... continued softer demand in North America as we work through our elevated inventory and multiple years of discounting and a highly committed cost structure, which is taking longer to unpack,” and limiting more aggressive spending on brand awareness.

“Earning our way back on the shelf at retailers is taking longer than we thought it would," Frisk said.

CFRA analyst Camilla Yanushevsky cut her 12-month target on Under Armour stock by $1 to $15 per share on Tuesday and maintained a sell rating on the stock.

The brand gained control over excess inventory, boosting profit margins, Yanushevsky noted, but she called the outlook “abysmal, notably in N. America, where [Under Armour] has largely missed out in the athleisure trend and continues to lose share to the likes of Nike and Lululemon.”

Frisk addressed some of that criticism Tuesday, saying Under Armour is designing apparel and footwear to be both performance-based and stylish. He said the brand has conducted close to 15,000 interviews with consumers around the world to determine preferences of the “focused performer” shoppers.

“There are those who believe our focus on athletic performance may currently be too narrow. We disagree,“ he said. “This is not the management team at Under Armour sitting in the closet somewhere trying to figure this one out... We believe we can be absolutely relevant in today’s trend that’s going on right now.”

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Under Armour said it plans to tackle some of the latest challenges by launching a redesigned e-commerce site this summer and possibly undertaking a cost restructuring this year, which would mean $325 million to $425 million in pre-tax charges for 2020.

That would include as much as $250 million in charges if Under Armour decides not to open a flagship store as planned on Fifth Avenue in New York City but instead pursues sublet options for the long-term lease. Under Armour had planned to open a store last year in the famed FAO Schwarz space on Fifth Avenue, next to Apple’s iconic store in Manhattan.

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