Shares of Under Armour jumped Thursday after the company beat fourth quarter sales and profit expectations amid growth in shoe sales and overseas, signs, executives said, that the brand is re-connecting with consumers.
The Baltimore-based athletic apparel and footwear maker reported income of $22 million, or 5 cents per share, for the first quarter that ended March 31. Sales rose 2% to $1.2 billion.
Wall Street analysts had expected earnings to break even and sales to dip 0.3% to $1.18 billion.
Under Armour shares closed up more than 3.5% at $22.82 each on the New York Stock Exchange.
The company is in its third year of a restructuring aimed at stabilizing business and reversing a slide in sales.
"As we execute against our long-term plan, Under Armour will emerge from 2019 and our 'Protect This House' chapter as an even stronger brand and company," said Kevin Plank, Under Armour’s founder, chairman and CEO, in an announcement
Plank said first quarter results show the success of a strategy focusing on the brand’s athletic performance roots and on innovation in its products. Even as athleisure and sports fashion trends have grown, Under Armour has sought to differentiate itself as making products that help athletes perform and are stylish as well.
During a conference call with analysts, executives touted the success of a turnaround plan that is allowing the brand to operate more efficiently, increase the speed with which it brings new products to consumers and organize around categories such as running, basketball and women’s training.
The company said it’s making progress tackling excess inventory, a move that is expected to lead to more product sold at full price and protect the brand’s premium status by making new products available.
“Inventory progress in the quarter was particularly encouraging,” with a 24 percent reduction, said Jim Duffy, an analyst with Stifel who has a buy rating on the stock, in a report. “We expect tight inventories helped manage markdown exposure.”
But concerns about the company’s progress have persisted.
Results showed the brand continues to struggle in its biggest geographic market, North America, where sales fell 3% to $843 million. International sales, where the brand has a longer runway for growth, were up 12% to $328 million.
Camilla Yanushevsky, an analyst with CFRA, maintained a hold rating on the company’s stock Thursday, with a 12-month target of $17 per share. She noted that profit margins improved, thanks to some lower expenses.
“In our view, [Under Armour’s] heavy reliance on international is a risky strategy amid global growth slowdown and strong dollar,” Yanushevsky said in a report Thursday.
Despite weak results in North America, the company said it has stabilized that business.
“It’s a much healthier marketplace, and we clearly see that when we’re providing newness into the channels, it really works really well for us,” Under Armour President Patrik Frisk said during the conference call. “We’re going to continue that work with our retail partners. … Earning it back takes a little time and that’s really what your seeing from the brand now.”
Sales to retailers, the brand’s biggest sales channel, jumped 5% to $818 million, while sales through websites and company branded stores fell 6% to $331 million. That “direct-to-consumer” revenue accounts for nearly 30% of sales.
Apparel sales inched up 1% to $775 million, while running shoes helped boost the footwear business by 8% to $293 million in sales.
New products that are selling well include the HOVR line of footwear, which is being expanded from running into other categories, and the recently introduced UA Rush line of apparel, described as using mineral-infused fabric designed to recycle energy during workouts, executives said Thursday.
As Under Armour has added new styles of shoes to the HOVR line it introduced last year, “we’re seeing the same kind of encouraging results in terms of sell throughs this year that we did last year, now with more product in the marketplace,” Frisk said.
The company raised its outlook for earnings this year to 33 cents per share to 34 cents per share from the previously expected 31 cents per share to 33 cents per share.