Under Armour’s stock plunged on Friday’s news that the company posted a quarterly loss and missed revenue projections amid continuing supply chain and pandemic-related challenges.
Despite the short-term difficulties, expected to linger into the upcoming fiscal year, Under Armour President and CEO Patrik Frisk said the Baltimore-based athletic apparel maker has succeeded with a now completed multi-year turnaround plan designed to restore the brand’s luster. The company’s growth strategy and brand strength put it on track “to deliver sustainable, profitable returns to shareholders over the long-term,” he said.
“There’s certainly a bit of frustration,” over challenging conditions, Frisk said during a conference call Friday announcing financial results for what he called a “transition” quarter. “But at the same time, it’s temporary. The underlying demand for the brand is there. The brand is getting stronger. The work we’ve done around transformation is working.”
Still, the company’s stock dropped almost 24% Friday, closing at $10.87 a share.
Under Armour missed analysts’ revenue expectations of $1.33 billion, posting $1.3 billion in sales, a 3% gain, for the three months that ended March 31 compared with revenue of $1.25 billion during the same period in 2021.
And the company posted a quarterly loss of $60 million, or 13 cents per share, compared with a profit of $77.8 million, or 17 cents per share in 2021′s first three months.
On an adjusted basis, Under Armour lost $3 million, or a penny a share. Wall Street analysts were expecting adjusted earnings of 4 cents per share, according to Zacks Consensus Estimate.
The company saw selling, general and administrative expenses increase 16% to $594 million during the quarter. And it reported restructuring and impairment charges of $57 million.
Neil Saunders, managing director of GlobalData, said he is “pleased” with Under Armour’s progress, noting that the sales gain, compared with much higher revenue increases during last year’s first quarter, show that Under Armour has managed to retain gains it made during the pandemic.
“The company has executed its restructuring plan well and appears to have a lot more focus than it did a couple of years ago,” Saunders said in comments released Friday morning. “There are still plenty of things that need to be refined including the overall brand image, the direct-to-consumer strategy, international operations, and the pipeline of product innovations. However, the company is now on a much more stable footing to be able to address these areas.”
Saunders said the quarterly loss, while “not an auspicious start to the year,” is more a consequence of restructuring and impairment charges rather than serious operational problems.
Others were more critical, including Zachary Warring, an equity analyst at CFRA Research, who maintained a “sell” rating on Under Armour stock.
“Apparel was the only category that grew in the quarter,” said Warring in a report that raised concerns about management’s ability to execute.
Jim Duffy, a Stifel analyst with a “hold” rating on the stock, noted mixed results. The company missed sales and profit projections, and its outlook for fiscal 2023 earnings per share fell shy of Stifel’s estimate. But Under Armour was able to complete its 2020 restructuring plan and saw a strong revenue boost in the Europe, Middle East and Africa market, a Stifel report said.
The Evening Sun
The reporting period is considered a transition quarter as Under Armour shifts its fiscal year end from Dec. 31 to March 31. After the three month transition period, fiscal year 2023 will run from April 1 through March 31, 2023. Consequently, there will be no fiscal year 2022.
The brand’s wholesale revenue, or sales to retail customers, rose 4% to $829 million. Direct-to-consumer sales were up 1% to $441 million, driven by 2% growth in e-commerce, which represented nearly half the total direct-to-consumer business. Sales at company owned stores were flat.
Revenue in Under Armour’s biggest market, North America, jumped 4% to $841 million, while international sales edged up 1% to $456 million. Sales rose substantially in the European market but plunged in the Asia Pacific market, hurting sales overall for the quarter because of inbound shipping delays related to the pandemic and reductions in retail traffic because or store closures and restrictive store hours in China.
Apparel sales rose 8% to $877 million, while footwear revenue fell 4% to $297 million.
Higher freight expenses cut into profit margins, which were down to 46.5% compared to the first three months of last year.
For the next fiscal year, the company expects revenue to grow in a range of 5% to 7%, as it deals with ongoing supply challenges and COVID-related impacts in China.
Long-term, Under Armour is counting on its women’s business, footwear, international and direct-to-consumer sales to drive growth, Frisk said.