After years of rapid growth, Under Armour’s quarterly sales fell for the first time since it went public in the third quarter, the company announced Tuesday.
Struggling with intense competition, shifting fashion preferences and growing pains, Under Armour reported that sales dropped 4 percent in the quarter to just over $1.4 billion in the quarter ended Sept. 30.
The Baltimore athletic apparel brand also slashed its projections for sales and earnings for the year, sending the company’s stock into a tail spin. Under Armour shares plunged Tuesday, losing almost a quarter of their value and closing at $12.52 each — a four-year low.
Under Armour CEO Kevin Plank acknowledged feeling disappointed with the brand’s financial performance.
“In 2017, our equilibrium has been out of sync with our long-term expectations,” Plank said during a conference call with analysts. “We have not performed to the level we originally aspired to.”
Struggling with difficulties in its core U.S. market, the company cut its sales growth projections for 2017 in half to the low single digits. It expects earnings of 18 cents to 20 cents per share for the year and continued pressure on profit margins as the company manages inventory in an environment of deep discounts on merchandise.
Under Armour did record a profit for the third quarter after two consecutive quarters of losses, but its income was still sharply lower than a year ago.
Its income slid 58 percent to $54 million, or 12 cents per share, for the three months that ended Sept. 30. Earnings, which would have been 22 cents per share when adjusted for restructuring costs, did top Wall Street analysts’ expectations of 19 cents per share on an adjusted basis.
But the decline in sales meant it missed the $1.49 billion revenue target expected by analysts, according to Zacks Consensus Estimate.
D.A. Davidson & Co. downgraded Under Armour stock to neutral, citing a prolonged recovery time frame.
“While the brand remains relevant to consumers, we now believe it could be several seasons before [Under Armour] fully adjusts to the new wholesale landscape and offers a compelling product assortment across all categories,” said Andrew Burns, a senior research analyst with Davidson.
Under Armour has made progress launching products such as the latest version of NBA superstar Stephen Curry’s signature basketball shoe, the Curry 4, and the men’s and women’s Unstoppable collection, as well as expanding distribution to additional retailers, according to a Davidson report. Yet areas that once spurred growth — women’s training and youth categories — have been weak, the report said.
Sales to wholesale customers, retailers such as Dick’s Sporting Goods, declined 13 percent to $880 million during the quarter, while sales through the company’s stores and websites rose 15 percent to $468 million, Under Armour said.
Sales of apparel fell 8 percent to $939 million, hurt by weak demand for outdoor and women’s training clothing and youth products, the company said. Sales increased in golf and sport-style categories.
Conditions in the retail environment are not likely to improve this year, Plank said during the conference call.
“We are assessing our distribution model and identifying opportunities to optimize our wholesale partnerships,” Plank said.
Under Armour has been criticized for expanding to discount and moderately priced retail chains this year, such as Kohl’s, Designer Shoe Warehouse and Famous Footwear, which analysts have said could dilute its brand at sports-oriented retailers.
The brand did see momentum in its international markets, where sales jumped 35 percent. International sales made up 22 percent of total sales.
The company’s third-quarter results included pre-tax costs of $89 million to pay for a restructuring announced in August to cut about 280 jobs or 2 percent of its global workforce.
“We view restructuring as appropriate, but question whether cuts go deep enough,” Stifel analyst Jim Duffy said in a report Tuesday. “While we remain enthused about global brand potential, we see a reset in growth expectations as a foundation” for improved profit margins.
Operational problems can be overcome, Duffy said, but demand woes and inventory imbalances are more worrisome.
Another analyst, Victor Ahluwalia, of CFRA Research, kept a sell recommendation on Under Armour’ stock.
“We anticipate over-reliance on U.S. revenues and excessive distribution to further hurt margins through 2018,” Ahluwalia said.
Under Armour president Patrik Frisk, a former executive for the parent company of Timberland and The North Face who was hired in July, said the company is finding ways to better connect to consumers and expects to distinguish itself by focusing on its roots — performance-based apparel and footwear.
New product launches include a limited release in November of the UA Charged Patriot, men’s and women’s running shoes made at Baltimore manufacturing facility The Lighthouse, and the Hovr running shoe planned for a 2018 spring launch, which uses Under Armour’s cushioning platform and is designed to give runner a “zero gravity feel,” Frisk said.