Just days after the Baltimore-based athletic apparel, accessories and footwear maker, along with two of its top executives — one of them founder Kevin Plank — were served with a Wells Notice from the U.S. Securities and Exchange Commission, recommending legal actions be taken against them for violating certain federal securities laws, the retailer reported a $183 million quarterly loss. That’s on top of the $590 million loss reported just a few months ago.
“With the majority of our own stores and wholesale locations closed for most of the second quarter due to the COVID-19 pandemic, while we performed better than expected, we still experienced a significant decline in revenue across all markets,” Under Armour president and chief executive officer Patrik Frisk said in a statement. “In navigating this environment, our team continues to respond strategically and methodically — amplifying Under Armour’s connection with our consumers through innovative digital activations, proactively managing our cost structure and working to harness our brand strength amid shifts in consumer behavior to emerge as a stronger company.
“Now, with most of these doors reopened, we are encouraged by some of the momentum we’ve experienced in June and July,” Frisk continued. “We remain appropriately cautious with respect to the balance of 2020 due to continued uncertainty related to consumer shopping dynamics, the potential for a highly promotional environment and proactive decisions to reduce inventory purchases to be more aligned with anticipated demand related to ongoing COVID-19 impacts.”
Under Armour’s revenues for the quarter ending June 30 were $707 million, compared with $1.2 billion a year earlier, while the company widened its loss to $183 million, up from losses of $17.3 million last year. The company also ended the quarter with cash and equivalents of $1.1 billion.
Despite the loss, the results were better than expected, causing shares of Under Armour, which closed down 1.38 percent to $11.45 a share, to shoot up nearly 20 percent during pre-market hours. But the stock quickly reversed after the market opened Friday, closing down 8.12 percent to $10.52 a share. The stock is down more than 51 percent year-over-year.
The company is expecting even more headwinds in the back half of the year, such as a highly promotional retail environment and a continued decline in foot traffic, even with stores open.
“Traffic hasn’t returned to the pre-COVID-19 levels anywhere in the world yet and it continues to be inconsistent,” Frisk said on Friday morning’s conference call with analysts. “For us, that means it’s appropriate to take a conservative view going forward, because I don’t believe anyone can read the tea leaves right now.”
“We’re focused on elevating our digital connection with our consumers, utilizing our ‘Through This Together’ platform, we’ve been able to drive increases in brand engagement and consideration through targeted content, social events and key influencer workouts,” Frisk said Friday. “As a result of connecting these dots, we’ve seen a significant increase in usage in our digital lab community, as well as steady meaningful increases in new users throughout the quarter. After six months of activating our reengineered marketing and brand platform, we believe that consumers are gaining more consistent clarity about who we are and what we stand for: a human performance company with products designed to make you better.
“We’re going to continue to spend on marketing,” Frisk added. “And we’re going to continue to spend smarter going forward.”
That includes the updated web site, customer relationship management technology, new store concepts and 3-D digital product design and development.
“We’re transitioning to fully digital sampling and now have completely digital selling capabilities across all of Under Armour,” Frisk said. “Ultimately it’s an omnichannel fulfillment model that we’re building toward that is going to enable us to better engage and meet the consumer expectations.”
Under Armour, like most retailers, was forced to temporarily close stores in Europe, the Middle East and North and South America mid-March to prevent the spread of the coronavirus. About 80 percent of those stores remained closed for two months. As of Friday, the company said most locations have reopened.
But even pre-COVID-19, Under Armour was struggling with its turnaround efforts. Plank relinquished operational control of the company he founded to Frisk last fall and the retailer said earlier this year that it was ditching plans to open the 53,000-square-foot flagship along Manhattan’s Fifth Avenue to help to curb expenses.
Some analysts deemed the recent Wells Notices a distraction to a company that was already struggling to get back on track.