Under Armour no longer expects revenue to grow this year

By Ciara Linnane

Company says it's seeing softness in its wholesale future-orders book

Under Armour Inc.'s stock rose 3.4% Wednesday after the Baltimore-based sporting goods and footwear maker posted better-than-expected earnings for its fiscal second quarter, offsetting the lowering of its full-year revenue guidance.

The company (UA) posted net income of $109.6 million, or 24 cents a share, for the quarter to Sept. 30, up from $86.9 million, or 19 cents a share, in the same period a year earlier. Revenue fell to $1.567 billion from $1.574 billion a year ago. The FactSet consensus was for EPS of 20 cents and revenue of $1.566 billion.

Chief Executive Stephanie Linnartz said results, and profitability in particular, exceeded the company's own expectations.

"Consequently, we are maintaining our fiscal 2024 operating income and EPS outlook even as we lower our revenue expectations primarily in response to challenges in North America during the back half of the year," she said in a statement.

On a call with analysts, Linnartz explained that inflation and subdued consumer confidence, still-high inventory levels and broad promotions were creating pressure in the wholesale business and softness in the company's future-orders book.

The company is now expecting fiscal 2024 revenue to be down 2% to 4%, compared with prior guidance of flat to up slightly -- guidance that it was still backing when it posted first-quarter earnings. But it's sticking with its EPS guidance of 47 cents to 51 cents.

"Amid these conditions, we are, however, making progress on our premium wholesale distribution strategy in North America," Linnartz told analysts, according to a FactSet transcript. "Leveraging the strength of key footwear franchises including Curry, our mall penetration is expected to be up more than 40% by the end of fiscal 2024. This is an early win and I'm confident that we will continue to gain premium shelf space."

Management is laser-focused on balancing growth and profitability and on looking for opportunities to boost margins, she said. The company is diving deep into its product line as it seeks to drive average-sales-price expansion and figure out how to prioritize investment.

Footwear remains Under Armour's key category, and the company is aware that it needs to resonate with a younger audience and understand its demands and shopping behavior. That means greatly expanding the company's social-media presence and upgrading its e-commerce experience.

"We're not going to be able to grow footwear if we don't also invest in that," Linnartz said.

The company has plans for its Curry business, the line developed with basketball star Steph Curry, that include sports-style apparel and footwear. The company's product lead time is 15 to 18 months. It has recently hired designer John Varvatos as its chief design officer to elevate its approach to its athletes' lives outside the gym, she said.

Read now: Less than 25% of Under Armour sales are women's wear. Here's how its new CEO plans to double that.

For the third quarter, the company expects revenue to fall at a mid-single-digit rate, driven by lower wholesale orders in North America. That will be partially offset by growth in the direct-to-consumer channel.

That guidance implies that fourth-quarter revenue will be down about 3% to 5% from a year ago, said Chief Financial Officer David E. Bergman on the call.

Jefferies analyst Randal Konik said the numbers were roughly in line with expectations and noted a better-than-expected gross margin boost to profit.

"We think shares have bottomed and wait for sustained improvement across top and bottom lines to get more constructive from here," said the analyst. He reiterated his hold rating on the stock and $8 price target, which is 16% above its current price.

The stock has fallen 22% in the year to date, while the S&P 500 has gained 14%.

-Ciara Linnane

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

11-08-23 1242ET

Copyright (c) 2023 Dow Jones & Company, Inc.