Under Armour Cuts Forecast as Headwinds Continue to Impact Sales
The macroeconomic challenges continue to take their toll on Under Armour.
On Thursday, prior to the opening of the stock market, the Baltimore, Maryland-based sports brand said that although its revenue of $1.6 billion in the second quarter beat analyst estimates, it is also lowering its forecast for the year as a result of a “more challenging retail environment and additional negative impacts from changes in foreign currency,” the company said.
More from WWD
The company also cited higher promotions as well as elevated freight and product costs as other “headwinds” that it is facing, although the expectation is that these issues will stabilize next year.
The company is now forecasting fiscal 2023 sales to rise in the low-single digits, down from the 5 to 7 percent it had projected earlier. Operating income is now seen reaching $270 million to $290 million, down from the previous range of $300 million to $325 million.
As a result, several analysts that follow the company lowered their expectations as well. Zachary Warring, equity analyst at CFRA Research, retained his “sell” rating on the stock and lowered the 12-month price target to $2 to $5 a share. “Although UAA has done better than most peers managing inventory, we still see the company using significant promotions moving forward due to excess inventory across footwear and apparel retailers and a weakening consumer,” he said. “We lower our multiple on UAA due to continued margin underperformance compared to peers and a fading [direct-to-consumer] business.”
Sharon Zackfia of William Blair lowered her outlook by roughly 8 percent in light of the third straight quarterly decline in domestic sales that were worse than expected, and the 29 percent rise in inventory. Even so, she said: “We remain optimistic that the repositioning of Under Armour’s brand has set the stage for meaningful and consistent revenue growth alongside ongoing margin expansion once the macro situation normalizes, and reiterate our ‘outperform’ rating.”
Investors breathed a sigh of relief and sent shares of Under Armour up 10.6 percent to $6.91.
During an earnings call Thursday morning, Colin Browne, interim chief executive officer, was also upbeat about the future as he reiterated the company’s commitment to “keep athletics at the center of everything we do.”
Although Under Armour is expecting to reach $6 billion in revenue this year, he said the company will continue to “fine-tune our strategy — there are areas we are good at and areas where we must be more effective to realize our full potential.”
The includes shifting its focus to target the 16- to 20-year-old teen sport athlete, he said, and blending street culture and athletics in its messaging to appeal to this younger consumer.
In addition, the product offering will be expanded to outfit this customer “beyond fields, course and gyms so we cover a young athlete’s entire day.” He referred to this as a focus on “train, compete, recover” — 70 percent of which is not related to competing. “They want to feel comfortable wearing our product as they travel to the field or pitch,” he said, calling this area “an open door for us.”
This thrust will accelerate in fiscal 2023, Browne said “with expanded product offerings and experiences.” He pointed to the recently launched SlipSpeed, a shoe that doubles as a performance and lifestyle sneaker as an example. The model is now sold out on the Under Armour website, he said, although it was launched on a limited basis.
Also in the distance is more segmentation within the mix. “While we’ve done a solid job of building good- and better-level products, we have to do more with our best-level offerings,” he said. “As we look to fiscal 2024 and beyond, we are working to elevate the premium aspects of our brand and product portfolio for a greater focus on better and best products to drive growth in key areas such as footwear, women’s and international. This should also contribute to our ability to drive more significant gross margin expansion over time.”
And expect more exclusives and collaborations as well, he said, which the company sees as an opportunity to “drive improved consideration and loyalty.” An Under Armour rewards program is also being tested in North America and “will roll out more broadly in 2023,” he said.
In the second quarter, the company said operating income was $119 million, or 19 cents a diluted share, and revenue rose 2 percent to $1.6 billion compared to the prior-year period. Wholesale revenue was up 4 percent to $948 million while direct-to-consumer sales fell 4 percent to $577 million due to a 9 percent drop in sales at its retail stores that offset the 4 percent increase in e-commerce sales, which represented 36 percent of total d-to-c sales in the period. The company attributed the physical store sales decline in part to late-arriving inventory and a challenging retail environment.
In North America, sales were down 2 percent to $1 billion while international revenue rose 7 percent, driven by a 9 percent gain in EMEA, 7 percent in Asia Pacific and 3 percent in Latin America.
Apparel revenue in the quarter was down 2 percent overall to $1 billion with strength in team sports and softness in training products. Women’s product, led by the Infiniti bras and Meridian leggings, were strong in the period along with men’s Unstoppable pants.
Accessories sales fell 12 percent to $111 million as sales of sports masks dropped, while footwear sales increased 14 percent to $376 million.
And although challenges continue, leading to a reduction in projections of sales and earnings for fiscal 2023, the company is expecting North American revenue to be flat and international sales to rise in the mid-single digits. Apparel sales are projected to be flat as well although footwear sales are expected to grow in the low- to mid-teens.
Despite the challenges, the company remains focused on its mission of offering performance product to athletes, a strategy it hopes will pay off in the future.
“We’re pleased to have delivered second-quarter results that were in line with our expectations,” Browne said. “While we anticipate the immediate macroeconomic backdrop to stay uncertain — we are taking a balanced approach to mitigate near-term pressures while continuing to focus on the long-term strength of our brand.
“By leaning into these strengths — performance product innovation, deep consumer connections and empowering athletes — our team is working tirelessly across multiple growth opportunities. From refining our target consumer to young athletes and creating the space necessary to broaden our product aperture — we’re taking action to pivot to the growth we know the Under Armour brand is capable of over the long term.”
The company continues to search for a CEO, said Kevin Plank, executive chairman and founder, during the call, and will announce a decision by the end of the year. He added that Browne remains “a serious candidate.”
