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The Armoury What's new with Baltimore sports apparel maker Under Armour

Under Armour sees first-quarter loss, but sales beat estimates

Under Armour posted its second quarterly loss in a row Tuesday, initially sending shares down nearly 7 percent in morning trading.

By Tuesday afternoon, Under Armour’s stock had ticked into positive territory, up 27 cents at $18.03 a share.

The Baltimore athletic apparel maker did beat sales estimates, as strong growth in international and online business pushed revenue up 6 percent.

The brand is plowing through the most challenging period in its history, Under Armour CEO and founder Kevin Plank said during a morning conference call. But he assured investors that internal changes to simplify operations and increase the speed with which the company brings innovative products to market are proving successful, allowing the company to better anticipate and drive consumer demand for its athletic apparel and footwear.

“We are amplifying our investments in innovation to ensure our product pipeline is in a better position to constantly delight our consumers moving forward,” Plank said. “Over time, we have every confidence that the work we are doing to reposition and engineer our company will deliver an even stronger brand for our consumers and retail partners.”

Under Armour reported a loss of $30 million, or 7 cents per share, in the January-to-March quarter. But backing out the cost of a restructuring plan announced in February, the company said it would have essentially broken even for the first quarter. That’s better than the 5-cents-per-share loss on those adjusted earnings expected by Wall Street analysts.

Under Armour reported quarterly revenue of nearly $1.19 billion, up from $1.12 billion a year earlier. Analysts expected sales to be essentially flat, in the range of $1.12 billion to $1.17 billion. The first quarter is typically Under Armour’s weakest period.

The first quarter’s sales growth came mainly from international business, which makes up about a quarter of total sales and grew 27 percent, and from online and branded store business, which accounts for 30 percent of total sales and grew 17 percent.

But sales to retailers grew just 1 percent, while overall North American sales were down 1 percent.

Under Armour’s first-quarter results show progress toward stabilizing its sales in the weak North American market and operating more efficiently, said Jim Duffy, an analyst with Stifel Nicolaus, who has a buy rating on the stock.

“We are encouraged by [online and branded store] acceleration, expense discipline and inventories in line with management guidance,” Duffy said in a report Tuesday.

After years of rapid growth, Under Armour stumbled in 2017, as sales growth slowed amid store closings by key retailers, intense competition and changing demand for athletic apparel. The brand has been hurt by weak demand in the United States, its biggest market, and from competition from better-positioned rivals Nike and Adidas, which cut into Under Armour’s profit and growth.

To right itself, Under Armour announced a restructuring plan in February expected to cost about $110 million to $130 million. Restructuring costs totaled $45 million in the first quarter, the company said.

Under Armour plans to simplify its operations by reducing the variety of products its sells. It aims to shorten the lead time between product development and sale, to keep offerings fresh, and make better decisions about where products are sold to better differentiate its merchandise and target specific consumer groups.

Sam Poser, an analyst with Susquehanna Financial Group, raised concerns Tuesday about continued high levels of inventory, which he said in a report “appear out of control” and “looks like a ticking time bomb to us.”

In addition, Poser said, “we remain skeptical as to the health of the international business,” citing declining profit margins.

Those concerns followed others raised Monday by an analyst who questioned what he called a lack of innovation in Under Armour’s product pipeline that could help stem declines in U.S. sales.

On Tuesday, Plank addressed such innovation concerns in his comments to analysts, stressing that “innovation is the core of this company.”

Patrik Frisk, Under Armour’s president and chief operating officer, said the brand plans to capitalize on the success of its latest shoe cushioning invention, HOVR, which it launched this year in two new running shoe styles, the Sonic and the Phantom. The brand plans to use the technology, which it says offers cushioning, shock absorption and energy, in footwear for other sports.

The HOVR marketing campaign was launched digitally without a tie to a specific Under Armour athlete and sold out when it became available, Frisk said.

“When we have the right product, the right style and when we communicate it with the right story,” Frisk said, “the consumer is there for us.”

lorraine.mirabella@baltsun.com

twitter.com/lmirabella

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