Under Armour shares jump after it posts better than expected sales for second quarter

Under Armour shares rose Thursday after the company posted better-than-expected quarterly sales and said it is on track to become more efficient and strengthen its brand.

Sales growth of 8 percent, to $1.17 billion, for the April-to-June period topped the expectations of analysts, who had called for revenue of $1.15 billion. Sales were $1.09 billion in the same period last year.

The news sent shares of the Baltimore-based athletic apparel maker up more than 4 percent in Thursday trading before the price closed up 80 cents a share at $20.54 each.

“In no way are we declaring victory,” said Kevin Plank, Under Armour’s chairman and CEO, during a call Thursday with analysts. “We are in the meatiest part of the transformation we are going through. … We’re always playing the long game.”

After years of rapid growth, the company stumbled toward the end of 2016 amid intense competition, closures of key retailers and changing consumer tastes in the sports apparel category. Since then, the company has worked to reverse a slide in sales and stock price.

Under Armour reported a loss of $95.5 million, or 21 cents per share, for the second quarter, compared with a loss of $12.3 million, or 3 cents per share, last year. Adjusted for the effect of the company’s restructuring plan and federal tax reform, the company said it lost 8 cents per share, meeting Wall Street analysts’ expectations.

The company is revamping its structure and operations while remaking the way it designs and delivers products across the globe, Plank said. A restructuring plan is expected to cost up to $210 million and turn around underperforming parts of the business, partly by improving product distribution and bringing excess levels of inventory under control.

Under Armour has reduced the time it takes to design a new product and get it into stores, for instance, helping it better respond to consumer demand. And it is streamlining the number and type of products it sells within categories.

The plan includes pulling out of some team or athlete sponsorship contracts and vendor contracts as well as closing several underperforming Under Armour brand house and outlet stores in the United States. Officials did not disclose which contracts or leases have been dropped, but said no Baltimore-area stores are slated to close.

In May, Sports Business Daily reported that Under Armour would save $50 million by not supplying uniforms to Major League Baseball as previously announced, but there’s been no confirmation of that move.

“We’re on a path to becoming a more efficient and effective company,” said Patrik Frisk, who was brought in a year ago to oversee Under Armour’s restructuring as president and COO. “What you’re seeing now is a stabilization. As we look at the North America business, we feel very good about where we are ... and confident as we look ahead.”

Analysts at Stifel said they consider the second-quarter results a “steppingstone” toward a turnaround.

The quarter “demonstrates progress towards establishing a foundation for driving sustainable and profitable growth in 2019,” analyst Jim Duffy said in a report Thursday.

The quarter’s results prompted CFRA Research analyst Paul Beland to raise his rating on the company’s stock to “sell” from “strong sell.”

“The North America region, which has been particularly weak, showed stabilization and increased 2 percent,” Beland said in a report. “Nevertheless, we continue to be concerned with brand deterioration from price discounting and inventory management.”

Excess inventory has been a problem for Under Armour since last year, when the company ordered products to meet a level of demand that never materialized.

Company officials said Thursday they have been aggressively working through excess inventory, partly by selling apparel and footwear at discounts in Under Armour stores and at “off-price” channels such as T.J. Maxx and Ross.

That strategy has helped shrink the inventory overhang faster than expected, which in turn helped boost U.S. sales, company officials said. Still, the improvement came at a cost, eating into profit margins.

“It is short-term pain for long-term gain,” Frisk said during the conference call.

The jump in sales during the quarter was driven by a 9 percent rise in sales to wholesale customers, such as sporting goods stores, a 7 percent increase in sales to consumers both online and in Under Armour-branded stores and a 28 percent increase in international sales. Sales through websites and in branded stores accounted for 35 percent of global sales, the company said.

In the United States, the brand’s biggest geographic market, sales edged up just 2 percent.

Sales of apparel rose 10 percent to $747 million, driven by strong activity in the training and running categories. The smaller footwear division rose 15 percent, to $271 million, led by sales in running and team sports categories. Strong sellers have included UA Hovr running shoes, UA Curry 5 basketball shoes and collections by Under Armour endorsers Dwayne “The Rock” Johnson and MIsty Copeland, Plank said.

Under Armour updated its full-year outlook on Thursday. The company said its revenue is expected to rise 3 percent to 4 percent, due to a low- to mid-single-digit decline in U.S. sales but with international sales growth of more than 25 percent.

Without the impact of restructuring costs, the company anticipates adjusted earnings for the year of 14 cents to 19 cents per share.

lorraine.mirabella@baltsun.com

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