Under Armour Mired in Decade-Long Earnings Rut

Under Armour’s sales are declining at home and abroad. Sales are slowing in apparel, footwear and accessories. Wholesale revenues are declining, and direct-to-consumer revenues are, too.

The Baltimore-based sportswear company has been in the doldrums for some time, and results from the most recent quarter yield few highlights. Across the board, Under Armour is trying to become a smaller, more nimble company, having announced plans to cut a combined 50% of the products it sells this decade.

On Friday, the company reported a loss of $400,000 on revenues of $1.2 billion for the three months ended in September, roughly in line with Wall Street consensus. In August, Under Armour lowered its outlook for the rest of its fiscal year, saying it expects revenues to decline in the mid-single digits. Now it expects gross margins to be pinched by higher fuel and shipping costs, broadly due to ongoing conflict in the Middle East.

Shares of Under Armour opened sharply lower before leveling off in early trading on Friday to $5.35.

Once regarded as a potential challenger to industry titan Nike, Under Armour has stalled. Its annual revenues have hovered around $5 billion for close to a decade. It was once a sponsor of A-list sports stars like Stephen Curry and Tom Brady and celebrities like The Rock, and it used to outfit NCAA Division I schools from coast to coast. Now, Under Armour has pared back its marketing spending as it attempts to focus on selling fewer products at higher prices.

“Our focus is not simply on spending less, but on making our marketing dollars work harder, reducing waste and duplicated content production, and deploying resources more efficiently,” Reza Taleghani, Under Armour’s chief financial officer, said on the earnings call.

Kevin Plank, the company’s founder and chief executive, said the company’s issue isn’t developing good product, it’s communicating it to consumers.

“The good news is that we have [an] almost embarrassment of riches when it comes to product,” Plank said. “I feel like the biggest place we’ve fallen out has just been in our competent storytelling.”

The footwear industry has been suffering in North America this year, leading to lowered outlooks at Dick’s Sporting Goods and Foot Locker, as current lifestyle shoes aren’t selling well. Unlike competitors Nike and Adidas, however, Under Armour remains overwhelmingly concentrated in North America, with more than half its sales ($737 million) originating domestically. Sales for the region fell 7% for the current quarter, while sales in EMEA and Asia-Pacific both fell by more than 8%.

Dylan Carden, an equity analyst for William Blair, wrote in a note published Friday that Under Armour’s results give few hints as to when a recovery could be expected for the company.

“We continue to see the greatest risk as a recovery taking longer than initially anticipated, exacerbated by an unfavorable macro and athletic backdrop, and uncertain endpoint as it relates to the ultimate scale and profitability of the business,” he wrote.

Source: www.sportico.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.