Under Armour’s plans to sell fitness app MyFitnessPal for $345 million are part of a turnaround strategy that executives said is paying off in strong online business and sales of new basketball shoe styles and women’s workout apparel.
The Baltimore-based brand announced the sale of the fitness app Friday to Francisco Partners as it released better-than-expected results for three months ended Sept. 30. The sports apparel maker also said it would shut down another of its fitness apps, Endomondo, at the end of the year.
The brand plans to continue operating both the MapMyRun and MapMyRide apps under the MapMyFitness platform, which Under Armour called a key part of its digital strategy along with connected footwear.
To return to profitability, the company is taking such steps along with investing more heavily in online commerce and company-owned retail outlets, said Patrik Frisk, Under Armour’s president and CEO. At the same time, the brand is making plans to reduce the number of stores where it sells its apparel and shoes, he said.
The company reported sales were flat at $1.4 billion, but that well exceeded the expectations of Wall Street analysts who projected sales of $1.13 billion.
During the third quarter, its wholesale revenue from sales to retailers fell 7 percent while sales from online and company stores jumped 17 percent, Under Armour reported.
“As the broader retail landscape continues to evolve, so must we," Frisk told analysts during a conference call. ”Our third quarter results are tangible results of the progress we’ve made with our business.”
The company reported income of $39 million, or 9 cents per share for the July-to-September period, 4 cents more than analysts' forecast. Adjusted for $70 million in restructuring charges and $4 million in asset impairments, earnings would have been $118 million, or 26 cents per share, Under Armour said.
Frisk said the “critical mass of our transformational challenges is behind us, and we remain sharply focused on operational improvements and financial discipline," to drive growth.
But he warned that the coronavirus pandemic still could change the course of the turnaround, especially if the virus surges and more business shutdowns occur.
The MyFitnessPal sale, expected to close by the end of the year, will give the brand investment flexibility and is in line with long-term digital strategy, the company said. Frisk said the company decided to sell the business after finding it was not heavily used by target customers, which it calls “focused performers.”
The company had reportedly been looking to shed that app earlier this year as it scaled back during a slowdown made worse by coronavirus-related revenue losses. Before the pandemic hit, the company already had been struggling for several years with faltering sales in its key North American market and was working through a turnaround. The company has been looking to cut costs as it reels from losses and store shutdowns this year.
But demand strengthened during the third quarter, the company said. Much of the improvement was the result of strong online sales, not just in the U.S. but globally, Frisk said.
Footwear was another bright spot, with sales gains of 19%, to $299 million, even as apparel sales fell 6%, to $927 million.
Analysts had mixed reactions to the quarter and news of the app sale, and shares of Under Armour closed up just 0.4% at $13.84 each.
Stifel analyst Jim Duffy kept a hold on the stock Friday. He noted in a report that results “well exceeded subdued expectations led by footwear ... international ... and eCommerce” despite weak store traffic, and that sufficient levels of inventory helped meet demand. Duffy said he was encouraged by the planned sale of MyFitnessPal and discontinuation of Endomondo.
But “the turnaround thesis is challenged by the current environment,” leading to a likely loss this year for Under Armour, while he said “channel partner bankruptcy risk could further delay a return to profitable growth.”
Under Armour will need stabilization from retailers, normal levels of inventory and “tangible evidence of consumer appetite for new styles,” Duffy said.
Camilla Yanushevsky, an equity analyst at CFRA Research, kept a sell rating on the stock.
“We believe [Under Armour’s] growth narrative is broken,” and the company will fail to meet growth targets, Yanushevsky said in a report Friday. Under Armour “has largely missed out on athleisure trend, which we see as the most resilient fashion categories amid Covid-19.”
And, she said, by selling MyFitnessPal, Under Armour could lose some deeper connections with its target customer.
Under Armour acquired San Francisco-based MyFitnessPal for $475 million in 2015, part of a series of purchases of digital fitness apps it hoped would boost its social media presence and help sell workout gear and shoes. That year, it also paid $85 million for fitness app Endomondo, based in Copenhagen, Denmark.
MyFitnessPal, a fitness and nutrition app and website, has more than 200 million users and will become a standalone company under Francisco, a global investment firm that partners with technology firms.
"We are excited to partner with the business for its next stage as a standalone company to continue a strong history of recurring revenue growth, organic user acquisition and a unique consumer proposition,” said Christine Wang, a Francisco principal, in the announcement.
The deal is valued at $345 million and is expected to close in the fourth quarter.
Last year, Under Armour reported between 40 million to 50 million monthly active Connected Fitness users, making up about 3% of annual revenue. The brand has looked to apps that track fitness and diet as a key growth area, both an advertising vehicle and a way to engage customers through digital subscriptions.