Under Armour tumbles on growth concerns, CFO exits

January 31, 2017

Dive Brief:

  • Shares in sports apparel retailer Under Armour plunged some 23% Tuesday morning after the company reported slowing growth in North America and lowered its forecast amid Q4 sales that missed expectations.

  • Under Armour's Q4 North American net sales rose 5.9%, a shadow of the average quarterly growth of 24% the retailer has maintained since 2013. Revenue was up about 12% to $1.31 billion, driven by a 5% increase in wholesale revenues to $742 million and a 23% increase in direct-to-consumer revenues to $518 million. That was the narrowest increase in eight years, missing consensus analyst expectations for $1.41 billion, according to Reuters.

  • Under Armour also said that Chief Financial Officer Chip Molloy, who took that job about a year ago, has decided to leave the company “due to personal reasons.” Effective Feb. 3, SVP of Corporate Finance David Bergman, who joined the company 12 years ago, will serve as acting CFO, according to a press release.

Dive Insight:

 

Under Armour fell hard on Tuesday as investors fretted about its growth prospects. The retailer last fall ceded its number two spot in the sports gear space back to Adidas, according to NPD group sports retail analyst Matt Powell. 

Adidas has staked much of its comeback on more stylish streetwear in addition to its traditional sporty offerings, and retail analysts at Jane Hail & Associates said that UA should also consider that path. The firm said Under Armour's move to produce some lines in the U.S. is a good one, though its brick-and-mortar strategy is relying too heavily on outlet stores, according to a note emailed to Retail Dive.

“As we continue to see the athleisure trend evolve and elevate to a cleaner style, UA does lag in having trending athletic items that suit the current fashion cycle,” according to Jane Hail. “The launch of UAS we believe is a foot in the right direction; however, they need to ramp up on more fashion styles in their regular line. In addition the Under Armour brick-and-mortar business is mostly an outlet one, where business is generally off.” (“UAS” refers to the retailer’s new made in America line, designed and manufactured in Baltimore, which launched this week.)

Bottom line, though, North America will not likely be furnishing the company with its growth story without major changes, according to Håkon Helgesen, retail analyst at GlobalData (formerly Conlumino).

“Under Armour’s long run of stellar performance has come to an end this quarter. Although the company remains in growth, the pace has slackened considerably, with uplifts now a pale imitation of where they were a few quarters ago. Nowhere is this truer than in North America where revenues increased by just 5.9% - a reasonable progression by retail industry averages, but a weak outcome by Under Armour’s standards,” Helgesen said in a note emailed to Retail Dive. “The loss of sales momentum has been accompanied by a not inconsiderable decline in operating profit, which fell by 6.1% over the prior year. All of this dip came from North America, where operating profit was down by 15% — a worrying outcome since this segment of the business still accounts for 96% of the profit pool.”

But the slackening growth in North America isn’t UA’s only challenge, Helgesen said, noting that Lululemon has taken market share thanks to “more innovative collections and ranges” and that number one Nike, too, has not only a heavier emphasis on innovation but also higher priced footwear and apparel.

“None of this should be taken to mean that Under Armour is set to fail in North America, nor that it cannot continue to take share of some categories like sports apparel or footwear,” Helgesen said. “However, it does mean that the company’s cannot rely on North America as an engine of growth like it once did.”

Under Armour still has "plenty of potential to expand globally,” Helgesen added. “Indeed, this quarter international revenues grew by 55.2%. With investments in global e-commerce and in the development of physical stores in key international locations, we believe that this engine will continue to spin rapidly over the next fiscal year. However, the return on these investments will be somewhat lower than those made in Under Armour’s home market. This ultimately means that unless North American growth gets back on track, earnings will remain under pressure across the year ahead.”

Original Post Here

© 2020 JHA Jane Hali & Associates, Investment Research

561-288-0675   |   1001 Yamato Road, Suite 302 • Boca Raton • Florida 33487