Under Armour posted a wider than expected loss in the first quarter as the brand temporarily shut stores and saw unprecedented drops in demand during the spread of the coronavirus in the United States and internationally.
The Baltimore-based athletic apparel maker reported a net loss of $590 million, or $1.30 per share. When adjusted for the impact of a 2020 restructuring plan and related charges, Under Armour’s net loss was $152 million, or 34 cents per share.
The brand fell short of sales estimates as well, with revenue down 23%, to $930 million, with about 15 percentage points of the decline related to the effects of COVID-19.
Wall Street analysts were expecting a loss of 17 cents per share and sales of $975.5 million. Shares fell 10.5% Monday to $8 each.
“As extraordinary human and economic disruptions related to COVID-19 continue to unfold globally, we are prioritizing the health and welfare of our teammates and consumers,” Patrik Frisk, Under Armour’s president and CEO, said in a statement Monday.
The brand had been on track with a planned turnaround in January and February, Frisk said, even as stores in China began closing in late January. The virus first emerged in China, which makes up slightly more than half of the brand’s Asia-Pacific region revenue.
But since mid-March, as the pandemic spread across North America and international markets and stores were closed, “we’ve experienced a significant decline in revenue across all markets," Frisk said. “As a result, like so many businesses, we’ve had to make very difficult decisions."
Last month, Under Armour laid off 6,700 employees temporarily because of a significant drop in sales during the pandemic. Layoffs began April 12 at the athletic apparel maker’s full-price and outlet stores and its U.S. distribution centers, including warehouse and distribution centers in Sparrows Point and Curtis Bay. The layoffs included about 600 people who work at distribution centers.
Under Armour owns and operates 188 stores in North America, which remain closed until further notice. The pace and timing of store openings and traffic patterns when stores reopen remains uncertain, the company said.
Revenue could be down as much as 50% to 60% in the second quarter, Under Armour CFO David Bergman said during a Monday call with analysts.
“Although we do anticipate that our business will gradually reopen in the coming weeks and months, we believe there will be a number of challenges ahead for us in the greater global retail space, including a slow and progressive return to normalization, a highly promotional environment and significant uncertainty in brick and mortar traffic," he said.
Frisk told analysts the brand will weather the crisis, in part because people have turned to running and in-home training, areas of focus for Under Armour.
“Coming out of this pandemic, we believe that health and fitness is going to continue, especially the staying fit aspect is going to be incredibly important going forward, maybe more so than going into the crisis,” Frisk said. “We’re positioned well to be to be able to capitalize on that.”
Camilla Yanushevsky, an equity analyst at CFRA Research, called Under Armour’s growth narrative “broken.”
The brand “has largely missed out on athleisure trend, which we see as one of most resilient fashion categories amid COVID-19 as consumers turn to comfort while at home,” Yanushevsky said.
She maintained a sell rating on Under Armour’s shares and cut her 12-month price target from $15 to $7.
Another disadvantage is the company’s dependence on its business selling to retailers, which accounted for 60% of sales last year, she said. That could give the company less control over a recovery timeline than it would have with a bigger online and branded store presence, she said in a report.
Under Armour said its sales to its retail stores plummeted 28% to $592 million in the first three months of the year, while sales to consumers through websites and branded stores fell 14% to $284 million, making up about 31% of total revenue.
Sales in the U.S., Under Armour’s biggest market, slid 28% to $609 million and international sales decreased 12% to $287 million, making up 31% of total revenue. International sales fell the most in the Asia/Pacific region, with a 34% decline.
Sales of apparel decreased 23% to $598 million. Footwear sales fell even more, 28%, to $210 million.
Frisk said the balance sheet is well managed, and leaders are taking steps to follow a turnaround plan that had been in place.
“We remain focused on driving greater efficiencies across the core elements of our business by working to identify additional opportunities to emerge with stronger and greater capabilities over the long term,” Frisk said.
The brand improved its profit margins, thanks to changes in its selling channel mix that resulted in lower off-price sales.
The company’s board on March 31 approved a restructuring plan to improve future profitability and cash flow. The company expects total estimated pretax restructuring and related charges in the range of $475 million to $525 million this year, including up to about $350 million of noncash charges and $175 million of cash-related restructuring charges.
By the end of March, Under Armour said more than 80% of its stores in China had reopened and mostly all have reopened since then. But traffic has been slow to improve and remains down compared with a year ago. Trends in South Korea have been similar.