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Under Armour reports mixed results for the second quarter

Under Armour missed quarterly sales forecasts Tuesday and warned that weakness will continue in its key U.S. market, raising concerns among investors and sending its shares falling.

Sales had been expected to remain flat among U.S. consumers, Under Armour’s biggest market, but the Baltimore-based athletic apparel brand said Tuesday that it’s expecting a slight decline for the year instead,.

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Shares plunged more than 12 percent to $24.08 each.

However, Under Armour reported that its loss narrowed significantly in the second quarter. The company reported it lost $17.3 million for the three months ended June 30, down from $95.5 million a year earlier. The 4 cents per share loss was lower than expected and narrowed the gap from the 21 cents per share loss in the second quarter of 2018. Wall Street analysts had expected an adjusted loss of 5 cents per share.

But revenue rose just 1% to $1.192 billion, missing an expected $1.199 billion. When adjusted for fluctuations in currency, sales rose 3%.

“There is good news and bad news from Under Armour’s latest set of results,” wrote Neil Saunders, managing director of GlobalData Retail, in a report Tuesday. “Operational changes appear to be working and have allowed the company to reduce losses... The negative is that sales in the core North American division are still sliding as the company grapples to rebuild brand equity and to create resonance with consumers."

Saunders noted that sales in the U.S. division have been falling for a year, with the pace of decline accelerating.

Under Armour is three years into a turnaround plan designed to boost sales designed to stabilize business and reverse a slide in sales. The turnaround strategy has focused on the brand’s athletic performance roots and on innovation in its products. But it also has been forced to discount merchandise to slash excess inventory.

Company executives sought to assure investors that the brand is on track for the year. It’s focused on expanding geographically and “creating deep connections with our consumers," said Kevin Plank, Under Armour’s chairman and CEO, in an announcement.

“For roughly the last 30 months, this company has been in real transformation mode," improving leadership, internal systems and new product delivery, Plank told analysts during a conference call. “This is a great stabilization quarter for us. Again, nobody’s declaring victory, but we like the way that we look and we’re set up for the future.”

The brand continues to struggle in its biggest market, with U.S. sales falling 3% in the quarter to $816 million. The company has seen slower traffic in its outlet stores, which account for 90 percent of its branded stores in the U.S., Under Armour President Patrik Frisk said during the analyst call.

The overall sales slowdown is happening as the company shifts from relying on heavy promotions to move merchandise to selling more products at full price by refreshing items at stores and online more frequently, a strategy that’s working, Frisk said.

Improvements have come on several fronts, including more tightly managed inventories and stronger than expected international sales this year. International sales jumped 12%, to $339 million, and now make up more than a quarter of total revenue. Globally, sales rose the most in the Asia-Pacific region, by 23%, and increased as well in the Europe/Middle East/Africa areas. Sales fell 3% in Latin America, the company said.

“We remain confident that Under Armour is building a healthier revenue base in North America, upon which it can grow more meaningfully in future periods, and continue to believe North America revenue can accelerate into 2020 and beyond,” said Stifel analyst Jim Duffy.

Under Armour’s sales to retailers in the second quarter dipped 1% to $707 million, while sales through websites and company-run stores were up 2% to $423 million and made up more than a third of total revenue.

Under Armour saw gains in footwear, with sales up 5% to $284 million, while apparel sales fell 1%, to $740 million. The brand has seen strong sales in its HOVR footwear running line, Plank said.

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The company reported higher selling and administrative costs, up 2% to $566 million.

For the current fiscal year, revenue is expected to rise about 3% to 4%, due to a slight decline in U.S. sales and a low- to- mid-teen percentage rate increase in international business. The company said it expects earnings of 33 cents to 34 cents per share for the year.

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