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Under Armour beats first-quarter sales and profit estimates, expects stronger demand this year

Under Armour beat first-quarter sales and profit estimates and expects stronger demand for its athletic apparel and footwear this year, driven by a rebound in its key U.S. market and a focus on fitness amid the pandemic.

The Baltimore-based brand reported that sales during the three months that ended March 31 surged 35% to $1.3 billion, compared with $930 million in the first quarter of 2020, when many stores closed in March due to COVID-19. Analysts expected sales of $1.13 billion.

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It swung to a profit with income of $78 million, or 17 cents per share, for the January-to-March period, compared with a loss of $589 million, or a loss of $1.30 per share, a year earlier.

On an adjusted basis, earnings were 16 cents per share, beating Wall Street estimates of 3 cents per share.

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“Under Armour is returning to growth,” said Patrik Frisk, Under Armour’s president and CEO, during a Tuesday morning call with analysts. “We’re a growth brand. We have a growth mindset.”

Sales to retailers in Under Armour’s wholesale business grew 35%, while online and company-branded stores saw a 54% boost in sales.

In the U.S., Under Armour’s biggest market and the source of its struggles over the past few years, revenue was up 32%, signaling that a strategy to return the brand to a premium status is working, the company said.

Frisk noted that the brand’s growth has been “holistic.”

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“The growth we see in the brand is global, across categories and across genders, and is happening in both apparel and footwear,” Frisk said during the call.

Apparel sales rose 35% to $810 million, while footwear revenue increased 47% to $309 million.

The company raised its sales estimates for the year. It now expects sales to grow at a high-teen percentage rate, compared with the previous expectation of a high-single-digit percentage rate increase.

Some analysts applauded the company’s strong performance and steps such as being more selective about the types and number of stores where it sells merchandise.

Neil Saunders, managing director of GlobalData, argued that it’s more meaningful to compare the current performance with that in the first quarter of 2019. In that period before the pandemic, Under Armour grew by 4.4%. By contrast, in the first quarter of 2020 when the pandemic started, sales plunged almost 23%.

“That the company has made up ground on lost pandemic sales, and then some, is a positive indication that momentum has started to come back,” Saunders said.

But other analysts remained unconvinced that the brand has turned a corner.

Camilla Yanushevsky, an equity analyst at CFRA Research, said Tuesday that she is keeping a “sell” rating on Under Armour shares because she believes Under Armour’s sales and profits got a short-lived boost from consumers’ federal stimulus checks.

That has “made [Under Armour’s] transformation narrative appear more robust than reality,” Yanushevsky said in a report. “We believe [Under Armour] will be unable to meet long-range targets.”

She criticized the brand for missing out on the athleisure trend, which the company has said it purposefully avoided to instead focus on its roots in performance sports apparel. That approach has led to years of U.S. sales declines, Yanushevsky said, and will keep Under Armour out of what she called the most resilient fashion category amid COVID-19.

Under Armour also may have a more difficult time connecting with its target consumers since it sold off its MyFitnessPal fitness app in October, she said.

Saunders too, noted some weaknesses, especially in the U.S. numbers where sales growth still lags behind markets in Europe and Asia and revenue is down 4.4% compared with pre-pandemic levels in 2019′s first quarter.

“We still believe that Under Armour has more rebuilding to do within North America,” Saunders said. “The company had a much choppier 2020 than many rivals, with revenue declining more sharply.”

Even before the pandemic, Under Armour was a brand that many consumers would stumble across during browsing rather than make a beeline for as they do with Nike or Lululemon,” he said, partly because Under Armour name is spread across so many categories and selling channels.

Frisk acknowledged as much, saying Under Armour is reducing its store count by 2,000 to 3,000 locations over the next few years and instead focusing on core retailers and direct-to-consumer sales online and at branded stores.

“These changes and adjustments are important because the market for athletic and performance apparel has become much more crowded over the past year,” Saunders said.

Under Armour announced earnings a day after it settled an investigation by the U.S. Securities and Exchange Commission into its accounting practices by agreeing to pay $9 million, but neither admitting to or denying the agency’s charges.

The company’s stock closed down 29 cents a share Tuesday at $23.88 each.

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