Under Armour turned in better-than-expected financial results for the second quarter amid store closures during the coronavirus, but still posted a steep loss as sales of sports apparel and footwear plummeted both in the U.S. and elsewhere.
Shares of the Baltimore-based sports apparel seller fell 8.2% Friday to close at $10.51 each.
Most stores selling Under Armour products, including company-owned outlets and other retailers, were closed for most of the second quarter, causing sharp drops in revenue. Stronger than expected online sales helped only somewhat to soften the blow.
”We continue to anticipate significant impact to our business in the near term due to the pandemic based on a high level of uncertainty around consumer sentiment and shopping behaviors,” Patrik Frisk, president and CEO, said during a conference call Friday.
Under Armour posted a net loss of $183 million, or 40 cents per share. On an adjusted basis, the company reported a $141 million net loss, or 31 cents per share, beating analysts’ estimates of 39 cents per share.
Sales fell 41% to $708 million during the three months that ended June 30 because of impacts of COVID-19, with sales to wholesale customers such as sporting goods and department stores taking a 58% dive. Wall Street analysts were expecting lower revenues, of $549.9 million.
The company had announced Monday that federal officials have escalated an investigation into the brand’s accounting practices.
Under Armour and two top executives, including founder Kevin A. Plank, have been alerted that the U.S. Securities and Exchange Commission could file a civil or administrative case alleging unlawful accounting methods, according to a company filing with the SEC.
An analyst with CFRA Research said Friday she was keeping a “sell” rating on Under Armour’s stock.
“We believe that [Under Armour’s] growth narrative is broken,” said Camilla Yanushevsky, a CFRA equity analyst.
She said she believes the company will be unable to meet five-year targets, including re-elevating the brand to a premium status by moving away from discounting.
Through mid-May, about 80% of locations where the brand could be purchased globally were closed.
Frisk said most stores have reopened and momentum in June and July has been encouraging. But the rest of the year will be challenging, he said, because of uncertainty over shopping patterns, a highly promotional environment and the need to cut back on inventory to meet an expected lower demand for products.
Sales in the U.S., the brand’s biggest market, fell 45% to $450 million in the second quarter, while international business was off 34% to $224 million. Sales decreased in all markets outside the U.S.
Sales of apparel fell 42% to $426 million, while footwear revenue was off 35% to $185 million. Some of the best-selling categories were HOVR footwear and running shoes and men’s and women’s training apparel.
The brand was able to boost profit margins by selling less merchandise to off-price retailers, typically at lower price points, and more to consumers at full price through branded stores and online. The company saw “significant” growth in online channels during the quarter.
And the sports apparel maker cut expenses by 15% as it pulled back on marketing and took other cost-cutting steps. The brand announced last month that it is suspending its record $280 million contract to outfit UCLA athletes over 15 years. . In May, Under Armour said it has been renegotiating athlete endorsers’ contracts.
Asked about long-term marketing plans Friday, Frisk said the company plans to commit to the majority of its contractual agreements. But the company also is looking to make “smarter” investments to build the brand, he said.
Under Armour said its in-store traffic is well below last year’s second quarter and should remain lower for the rest of the year. Revenue could be down by 20% to 25% in the second half of the year, officials said.