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Under Armour Surges After Posting Smaller Than Expected Loss

The company posted a smaller loss than expected, renewing optimism that the athletic brand can pull out of its current slump.
Misty Copeland for Under Armour | Source: Under Armour
By
  • Bloomberg

NEW YORK, United States — Under Armour Inc. investors breathed a sigh of relief on Thursday after the company posted a smaller loss than expected, renewing optimism that the athletic brand can pull out of its current slump.

The first-quarter loss was 1 cent a share, better than the 4-cent deficit predicted by analysts. Revenue growth also was slightly better than projected, helping send the shares up as much as 12 percent.

The results suggest that Under Armour is regaining its footing in the athletic-apparel market after a tumultuous year. Mounting competition from Nike Inc. and Adidas AG, coupled with sluggish demand for footwear, has hampered growth at the once highflying company. But chief executive officer Kevin Plank said on Thursday that product innovation and improved operations would help get Under Armour back on track.

“We have great confidence in our ability to drive toward our full-year targets,” the 44-year-old said in a statement.

Under Armour shares rose as high as $20.28 in early trading after the earnings were released. They had fallen 28 percent to $18.14 this year before the rally.

Revenue climbed 6.6 percent to $1.12 billion in the first quarter, exceeding the $1.11 billion predicted by analysts. The company also reaffirmed its forecast, saying it expects revenue to grow 11 percent to 12 percent to almost $5.4 billion this year.

Though the loss in the latest period was just a penny, it represents a grim milestone for the company: its first red ink since going public in 2005. The tepid revenue growth also marked Under Armour’s first failure to reach double-digit gains since the depths of the recession in 2009.

Still, investors were bracing for worse — especially after a year of missteps and pessimism. In January, the company lowered its annual forecast to the current level from the low-20 percent range. That sent the stock plunging 23 percent in a single day.

Soon after, Plank made favourable comments about President Donald Trump that sparked a backlash from his own endorsers, including star basketball player Steph Curry.

The controversy stemmed from a Plank interview on CNBC in February, when he said the president’s support of US business was a “real asset” for the country. The outcry generated by the remarks led Susquehanna International Group analyst Sam Poser to question whether Under Armour could build a cool urban lifestyle brand.

Damage Control

The company worked to defuse the backlash by taking out a full-page newspaper ad laying out the company’s positions on issues such as immigration  — stances that were opposed to those of the Republican president.

Plank, who founded the company, raised eyebrows again this month when a filing showed that Under Armour paid $73 million to businesses he controls. And the executive has drawn criticism for limiting the power of his investors. The Baltimore-based company issued Class C shares that have no voting rights.

At the same time, Under Armour is confronting broader retail weakness and a rash of store closings, including the liquidation of key customer Sports Authority. That’s led to a glut of merchandise and tighter profit margins.

But gross margins were better last quarter than Wall Street predicted. They amounted to 45.2 percent, ahead of the 44.8 estimate.

Overseas revenue growth also helped offset a slowdown in North America, where revenue declined 1 percent.

By Nick Turner; editor: Eric Pfanner.

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