Under Armour Returns to Profitability, Updates Full-year Guidance
Under Armour’s comeback strategy is starting to take shape.
The Baltimore-based athletic apparel, accessories and footwear company revealed quarterly earnings Tuesday before the market opened, delivering on its promise to return to profitability this year, while raising the company’s full-year outlook.
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Shares of UAA rose nearly 4 percent during premarket hours as a result, only to close down 1.2 percent Tuesday to $23.88 a piece.
“Under Armour is off to an excellent start for the year,” Patrik Frisk, president and chief executive officer of the firm, said in a statement. “Our first-quarter results demonstrate that our improved operating model and investments we’re making to amplify our connection with consumers are enabling us to deliver against strong demand for our brand. Additionally, with a solid balance sheet and well-managed inventory, we’re confident in our ability to drive well through 2021 as we get back on offense and make measured progress to returning to sustainable, profitable growth over the long-term.”
The retailer has been under pressure the last few quarters in its wholesale and North American businesses, both of which were struggling as the international and e-commerce businesses continued to grow. In October, the company revealed plans to sell its MyFitnessPal platform for roughly $345 million to help free up its balance sheet.
Then, during February’s conference call with analysts, David Bergman, chief financial officer of Under Armour, said the company will close some 2,000 to 3,000 “undifferentiated” wholesale accounts in North America this year and end 2021 with closer to 10,000 doors as the wholesale industry lagged both during the pandemic and amid declining department store traffic.
But sales in both North America and abroad grew during the most recent quarter, up 32 percent and nearly 58 percent, respectively, year-over-year, with the biggest gains in Asia. (Revenues in the Asia Pacific region surged nearly 120 percent, year-over-year, during the quarter.) The wholesale division also increased, with revenues up 35 percent during the quarter to $800 million, while sales in the direct-to-consumer business increased 54 percent, driven by a 69 percent growth in e-commerce.
By category, the accessories business had the most gains, up 73 percent, driven by growth in sports masks. Revenues in apparel and footwear also increased during the quarter, up 35 percent and 47 percent, respectively.
“Make no mistake, Under Armour is returning to growth. We’re a growth brand. We have a growth mind-set,” Frisk told analysts on Tuesday morning’s conference call. “The growth that we see in the brand really is global. It really is across categories, it’s across gender and it’s really happening in both apparel and footwear.
“Certainly some stimulus going on, but we’ve also been very good at converting a lot better, both in our e-commerce business, as well as our retail business,” he continued. “And we’re seeing the consumer convert into higher-priced product as we’re being less promotional.”
Under Armour now expects revenues for the full 2021 fiscal year to be up by a high-teen percentage rate, compared with the previous expectation of a high-single-digit percentage rate increase.
More recently, for the three-month period ending March 31, revenues were $1.25 billion, compared with $930 million during 2020’s first quarter. The company logged nearly $78 million in profits, compared with a loss of $590 million a year earlier as a result.
“[Under Armour’s] demand should benefit from the current trifecta of stimulus, vaccines and light industry-wide inventory and although we wonder how large Under Armour’s long-term revenues should be [we learned last year, less can be more], we believe margin growth is very real and sustainable,” Simeon Siegel, managing director and senior retail analyst at BMO Capital Markets, wrote in a note.
The company ended the quarter with $1.3 billion in cash and cash equivalents, more than $1 billion in long-term debt and 426 stores.
Frisk said on the conference call that Under Armour plans to continue to invest in awareness and increased conversion in North America and other “critical countries,” such as China and Germany. “Where we are still significantly underpenetrated from a brand awareness perspective,” he said.
The CEO added that the company plans on opening additional doors in China this year, in addition to continued efforts in the e-commerce business.
Headwinds, meanwhile, include the European business, where some stores are still closed thanks to locale lockdown orders.
“We expect Europe to gradually open up in this quarter,” Frisk said. “And it might be a little balance opening up, closing down. So we’ll see how that plays out in the back half of the year.”
The results come just a day after Under Armour agreed to pay $9 million to settle 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 original notice was handed down to the company, along with two of its top executives — one of them founder Kevin Plank, along with Bergman — last July.
The Wells Notices — which are not formal charges or determinations by the SEC — stemmed from disclosures Under Armour made between the third quarter in 2015 and Dec. 31, 2016.
Plank and Bergman received the Wells Notices for allegedly pulling forward sales, or using customer sales earlier than anticipated, in the amount of some $408 million that were meant to be shipped later in an effort to boost revenues during the quarter.
“We are happy to put this behind us,” Lance Allega, senior vice president of investor relations and corporate development, said on the call.
Shares of Under Armour are up more than 154 percent, year-over-year.