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Under Armour stock surges after it posts stronger-than-expected end-of-year results

Under Armour’s stock surged Wednesday as the athletic apparel maker reported a stronger-than-expected financial performance for the final months of 2020, delivering a profitable quarter after boosting online sales of apparel and footwear and reining in costs.

Shares of the Baltimore-based brand rose 8.2% to close at $22.45 each, the highest level in more than a year. Shares have gained 28% in value in the past month.

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The company improved despite challenges of the coronavirus pandemic and is likely seeing the results of ongoing business restructuring and a push to return the struggling brand to a more premium status in the eyes of consumers, Under Armour said.

“Improving brand strength and consistent operational execution delivered better than expected results in quarter,” said Patrik Frisk, Under Armour president and CEO, in a statement. “Our global team was exceptionally resilient and disciplined amid a highly challenging year.”

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Under Armour reported net income for the quarter that ended Dec. 31 of $184 million, or 40 cents a share, compared with a loss of $15 million, or 3 cents per share, in the fourth quarter of 2019. Adjusted for restructuring costs, the company earned $55 million, or 12 cents per share. Wall Street analysts expected a loss of 7 cents per share on sales of $1.27 billion.

But Under Armour topped analysts’ revenue estimates, even though sales did slide 3% to $1.4 billion. That included a 12% drop, to $662 million, in sales to retailers, but an 11% jump, to $655 million, in sales through online and company-owned stores, driven by a 25% jump in online sales.

Jim Duffy, an analyst with Stifel, retained a buy rating on the stock.

The fourth quarter results “show encouraging evidence of brand vitality and operating excellence,” Duffy said in a report. “We are particularly encouraged by focus on improved quality of revenue,” through improved profit margins and restructuring.

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Sales for 2020 slid 15% to $4.5 billion compared with the previous year, with U.S. sales down 19%.

During the fourth quarter, sales in the U.S., Under Armour’s biggest market where it has struggled, fell 6% to $924 million. But international revenue grew 7% to $448 million, with the biggest increase — 26% — in the Asia-Pacific region.

Overall sales of apparel were down 4% to $931 million and footwear revenue slipped by 7% to $241 million, in part because of the loss of sales related to canceled team sports during the health crisis.

However, Frisk said the brand is seeing strong sales in women’s sports bras and bottoms and in the recently launched Curry8 basketball shoes, the signature shoe of basketball star Stephen Curry. The Curry8 technology will soon be used in running shoes, Frisk said.

And he noted that the COVID-19 shift to home workouts has led to a resurgence in personal fitness and the kind of performance attire that is Under Armour’s mainstay.

“As you think about Under Armour, that’s the whole point,” Frisk said during a conference call with analysts.

Frisk also said during the call that the brand has made strides in getting the right product to the right place at the right time. As consumers buy workout gear increasingly online — especially during the pandemic — that will mean cutting back on the number of retail partner store locations.

Starting later this year, the brand will start a two- to three-year effort to pull out of 2,000 to 3,000 U.S. retail stores, leaving it selling its gear at about 10,000 non-company-owned retail sites by the end of the year, said David Bergman, its chief financial officer. That will allow for improved shelf space at the stronger locations, Frisk said.

Under Armour sells wholesale to sporting goods stores, mass discounters, department stores and others.

Improvements to the company’s supply chain and to its mix of sales channels helped boost its profit margin compared with the fourth quarter of 2019. Meanwhile, selling and administrative costs decreased 4% to just over 41% of revenue.

The company reported restructuring and impairment charges of $52 million, including $50 million in costs relate to restructuring.

“As we continue to navigate uncertainty around the pandemic, we remain focused on execution and the efforts necessary to stabilize our business further and improve our ability to deliver sustainable shareholder value over the long-term,” Frisk said.

Under Armour had announced previously a $550 million to $600 million restructuring plan to improve profitability and control costs. The company reported $473 million of pretax charges for the plan for the full year.

Executives said they expect revenue to grow this year at a high single-digit percentage rate. Gross profit margins are expected to be up slightly compared with 2020.

As of Jan. 31, most Under Armour stores were open but not all were operating at full capacity because of pandemic restrictions. Customer traffic at company-owned stores remained slower than normal, but the brand saw significant online growth around the world during the fourth quarter and full year.

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