Under Armour Shares Soar as Earnings Beat Prompts Retailer to Hike Annual Outlook

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  • Under Armour's fiscal third-quarter earnings and sales topped analysts' estimates.
  • CEO Patrik Frisk credited strong marketing efforts that are boosting affinity for the athletic apparel maker's brand for the improvement.
  • The company raised its outlook for fiscal 2021. It now predicts sales will rise 25% from 2020.

Under Armour shares soared Tuesday, as strong fiscal third-quarter earnings revealed the athletic apparel maker is seeing progress in improving its brand image under Chief Executive Officer Patrik Frisk.

With heightened demand for its sneakers and sweat-wicking clothing, Under Armour said it now anticipates sales will rise 25% from 2020, topping its prior outlook.

Frisk has been trying to improve Under Armour's image by increasing marketing spending and pulling inventory out of discount channels to sell more products at full price. During a call with analysts, the CEO added that the retailer has been leaning into team sports and marketing around the importance of mental strength, not just physical abilities.

The company's Class A shares closed the day up 16.5%.

Here's how Under Armour did compared with what analysts polled by Refinitiv were expecting:

  • Earnings per share: 31 cents adjusted vs. 15 cents expected
  • Revenue: $1.55 billion vs. $1.48 billion expected

Net income for the three-month period ended Sept. 30 rose to $113.4 million, or 24 cents per share, compared with $38.9 million, or 9 cents a share, a year earlier.

Excluding restructuring charges of $17 million, Under Armour earned 31 cents per share. That's more than double the 15 cents per share that analysts expected.

In April 2020, Frisk announced a $550 million to $600 million restructuring plan. The company now expects it will tally $525 million to $575 million in charges, as it looks to cut costs by the end of its fiscal first quarter.

Revenue rose 8% to $1.55 billion from $1.43 billion a year earlier. Analysts had anticipated sales of $1.48 billion.

Wholesale revenue rose 10% while direct-to-consumer sales were up 12%. Under Armour still derives more sales from wholesale partners, like department stores, but the company has been investing in its own stores and website to in a bid to bypass middlemen and sell more directly to customers.

Online sales were down 4% from the prior year, as pandemic-fueled e-commerce activity slowed. The company said digital sales made up 33% of total sales, down from 39% in the prior period.

Sales in North America, its biggest market, were up 8% while international revenue was up 18%. Within Under Armour's international segment, sales were up 19% in Asia-Pacific, up 15% in its Europe, Middle East and Africa division. Latin America sales jumped 27%.

The company said traffic remains soft in China, where parts of the country are tightening Covid restrictions again.

'Healthier rather than bigger'

The results are the latest sign that the company's pursuit of more profitable sales is on track. Frisk has been at the helm since Jan. 1 2020, when he was tasked with reversing a sales slump. In a competitive landscape, Under Armour was losing share to rivals like Nike and Lululemon.

"They've spent the pandemic focusing on getting healthier rather than bigger, and the margins are speaking for themselves," BMO Capital Markets analyst Simeon Siegel said.

Under Armour has now completed the bulk of its turnaround efforts, according to Frisk, and has a new operating model.

"We've also gone through, at the same time, a reset for our product engines and our marketing engines," he said. "What you see now in our numbers is a lot of balance. ... You see balance between wholesale and direct-to-consumer."

Frisk added that Under Armour is "doubling down" on relationships with its biggest wholesale partners that are most supportive of the brand, but he didn't name who those partners are.

Amid these efforts, Under Armour is also working through months-long factory shutdowns in Vietnam due to coronavirus outbreaks. Disruption in the key apparel manufacturing hub has caused supply chain difficulties for much of the athletic clothing industry. About one-third of Under Armour's apparel and accessories are made in Vietnam.

Chief financial officer David Bergman said the company is "appropriately cautious" about its ability to meet consumer demand in the near term. As of this week, nearly all factories that Under Armour does business with, including those in Vietnam, are up and running, he said.

For fiscal 2021, Under Armour said earnings per share will reach about 74 cents, on an adjusted basis, compared with its prior estimate of 50 cents to 52 cents. Revenue is estimated to rise about 25%, compared with its previous forecast for an increase in the low twenties.

The improved outlook assumes no additional shutdowns of manufacturing partners or other disruptions to the retail industry.

Analysts had been forecasting Under Armour to earn 55 cents per share, on an adjusted basis, on sales of $5.5 billion.

Under Armour shares are up about 50% year to date, including Tuesday's gains. The company has a market cap of nearly $12 billion.

Find the full earnings press release from Under Armour here.

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