Under Armour's stock surges after third-quarter results show turnaround may be on track

Shares of Under Armour soared Tuesday, climbing more than 27 percent, after the Baltimore-based brand announced better-than-expected third-quarter results and said its multiyear turnaround plan is working.

The sports apparel and footwear maker reported a profit of $75 million, or 17 cents per share, for the three months that ended Sept. 30. Adjusted to exclude charges from a company-wide restructuring and the effect of federal tax reform, income was $112 million, or 25 cents per share, beating Wall Street estimates of 12 cents per share.


“The company is on track, … in its second year of transformation as we work to protect this house,” Under Armour CEO Kevin Plank said during a morning conference call with analysts. “Momentum is an essential asset to this transformation.”

Shares of Under Armour closed up $5.04 each at $23.23 on the New York Stock Exchange.


The company, which had stumbled after years of rapid growth, has taken steps such as closing underperforming stores and facilities, pulling out of high-cost marketing agreements and trimming its global workforce by 400 people. It also has shortened the time it takes to design and bring merchandise to market, trimmed the number of products, improved distribution and started to reduce high inventory levels.

“With one quarter to go in 2018, our playbook is working,” Patrik Frisk, Under Armour’s president, told analysts during the conference call.

As Under Armour prepares to announces its third quarter results, one analyst sees the sports apparel brand making inroads controlling expenses and inventory, with continued growth in international sales.

The company reported sales rose 2 percent, to $1.44 billion, beating analysts’ estimates of $1.41 billion.

Sales to retailers such as Dick’s Sporting Goods rose 4 percent to $914 million, while sales through websites and Under Armour branded stores remained unchanged at $465 million, making up 32 percent of total sales.

U.S. sales fell 2 percent, to $1.1 billion, but international business soared 15 percent, to $351 million.

Sales of apparel rose 4 percent to $978 million with growth in training, golf and team sports, while shoe sales remained unchanged compared with the third quarter of 2017, at $285 million.

Tariffs on China imports could hurt Under Armour in the short term, an analyst said Tuesday.

Under Armour has struggled since the end of 2016 amid intense competition, closures of key retailers and changing consumer tastes in sports apparel.

In a research note Tuesday, Stifel analyst Jim Duffy noted that Under Armour reined in selling and administrative expenses and made strides in reducing excess inventory, boosting profit margins sooner than expected.

“We are encouraged by evidence of progress in Under Armour’s turnaround and our thesis for margin improvement is emboldened,” Duffy said in the report. “We see shares offering a favorable risk/reward [and] believe consensus views are decidedly too bearish.”

Other analysts had offered mixed reviews on the company’s efforts to restructure, raising concerns that a lack of innovative products, along with heavy discounting, could erode the brand’s appeal.

During Tuesday’s call, Plank said the company is working on new product launches for the spring, backed up with improved “storytelling” to engage consumers.

He said the brand has had success with its Project Rock collection, a collaboration with Dwayne “The Rock” Johnson, its HOVR running and training shoes and its Curry 5 basketball shoes, the latest in the signature line from NBA star Stephen Curry.


But in the past couple of years, “we haven’t done the best job of telling that story,” he said. “We have work to do.”

That includes making more progress in reducing the number of product choices within categories and reviving sales in the U.S., Camilla Yanushevsky, a CFRA Research equity analyst, said in a report Tuesday.

On the positive side, she said, the company succeeded in showing “impressive” international sales growth and in tightening inventory. But Yanushevsky also downgraded Under Armour’s stock Tuesday from a hold to a sell, while raising a 12-month price target by $2 to $20.

“With shares up more than 20 percent this morning, we find [Under Armour] overvalued at current levels,” Yanushevsky said.

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