Yahoo Lifestyle Under Armour Sees Some Green Shoots in Q3, Raises Projections
Updated 4:34 p.m. ET Feb. 6
Improving demand in North America and Asia as well as a decline in promotions led Under Armour to beat analyst expectations in the third quarter, and prompted the Baltimore-based sports brand to raise its outlook for the fiscal year.
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On Thursday morning, Under Armour reported operating income for the quarter ended Dec. 31, 2024, of $14 million. Excluding impairment charges, transformation expenses and restructuring charges, adjusted operating income was $60 million. Net income was $1 million and adjusted net income was $35 million. Quarterly adjusted earnings per share were 8 cents, beating estimates of 3 cents a share, according to FactSet.
Revenue in the period fell 6 percent to $1.4 billion and North America sales decreased 8 percent to $844 million. International revenue decreased 1 percent to $558 million with sales in the EMEA up 5 percent, down 5 percent in Asia-Pacific, and down 16 percent in Latin America.
Wholesale revenue decreased 1 percent to $705 million, and direct-to-consumer revenue was down 9 percent to $673 million. Revenue from owned and operated stores declined 1 percent, while e-commerce sales were down 20 percent, a drop the company attributed to planned decreases in promotional activities. Overall, e-commerce accounted for 39 percent of the total direct-to-consumer business in the quarter.
By category, apparel revenue decreased 5 percent to $966 million, footwear revenue was down 9 percent to $301 million and accessories revenue was up 6 percent to $110 million.
While the figures indicate a company still struggling to return to its former glory, they also beat analyst expectations and the company’s stock was up in premarket trading. FactSet had been expecting revenues of $1.3 billion in the period.
On the earnings call Thursday morning, Kevin Plank, Under Armour’s president and chief executive officer, attributed the higher-than-expected results “to our actions of reducing promotions and discounts in our e-commerce business, which has contributed nicely to improved gross margin this year.” He said the company will continue on this path as it works to “improve the quality of our revenue from mostly ‘good’ level product to more ‘better’ and ‘best’ level.”
He reiterated what was said at the company’s investor day in December: Because it can take 18 months for products to hit the selling floors, it will “take time, but our strategy is sound and beginning to take root.” He added it will be the fall of this year before the improved product lineup, enhanced by storytelling, will show up on the bottom line.
“Additionally, we will enter a pivotal new chapter in our marketing strategy by launching a dynamic, multiyear initiative of storytelling that showcases our incredible products, talented athletes and influential creators,” he added. “This will greatly enhance our visibility and empower our authentic connection with athletes to elevate our brand like never before.”
Plank said that instead of focusing on “performance marketing, which has led to the promotions that have plagued our recent history,” Under Armour will now shout out the attributes of specific products and the brand itself.
In the third quarter, he said, the company launched the Fox 1, the first signature shoe under its Curry brand for De’Aaron Fox as well as Echo footwear, updates of its SlipSpeed franchise. In apparel, higher-priced products have been performing over the past several quarters, Plank said, providing the company with confidence to continue down that path. He pointed in particular to the $120 UA Icon heavyweight hoodie which has “seen terrific sell-through” among young athletes.
As a result of the stronger third-quarter results, Under Armour is now expecting revenue to decline by approximately 10 percent in fiscal 2025, compared to the prior expectation of a low-double-digit percentage decline. This includes an expected 12 to 13 percent decline in North America versus the previous expectation of a 14 to 16 percent decline, and a midsingle-digit decrease in international sales compared to the prior expectation of a low-single-digit decline. In the international business, the company is still expecting flat results in EMEA and a low-teen percent drop in the Asia-Pacific region compared to the prior expectation of a high-single-digit decline.
The operating loss is now expected to be $179 million to $189 million, compared to the previous expectation of $176 million to $196 million. Excluding anticipated restructuring charges and transformation expenses, litigation settlement expenses and related insurance recoveries and impairment charges, adjusted operating income is expected to be $185 million to $195 million, compared to the prior expectation of $165 million to $185 million.
Under Armour is in the midst of a restructuring plan to improve its financial position. Plank, who founded Under Armour 28 years ago, returned to the helm last spring and mapped out a plan to return the company to growth. That included the closing of a distribution center in Rialto, Calif., announced in the fall, that brought the company’s pretax and restructuring charges to between $140 million and $160 million for this fiscal year.
On the earnings call, chief financial officer David Bergman addressed the tariff issue, noting that Under Armour “sources approximately 3 percent of its goods imported into the U.S. from China and even less from Mexico, and we have no manufacturing relationships in Canada. Given these facts, the current tariffs proposals are not expected to impact our business significantly. However, we will stay vigilant, and if these parameters change or additional countries are included in this tariff program, we will promptly reassess accordingly.”
Analysts were still on the fence about Under Armour’s future prospects on Thursday despite the improvement in earnings. Laurent Vasilescu of BNP Paribas Securities wrote: “While the brand is still in decline, the turnaround appears to be trending in the right direction.” CFRA analyst Zachary Warring maintained his “sell” recommendation on the stock, noting that the company “has not seen any significant growth in over 10 years.” On Thursday, Under Armour’s stock closed down 7.8 percent to $7.60.
Neil Saunders, managing director of GlobalData, said that cutting back on discounting “is helpful for rebuilding brand equity [and] margin enhancing. However, it also “sapped demand. There are still issues with the Under Armour brand that are deleterious to revenue. The truth here is that Under Armour was not one of the hot ‘must-have’ brands over the holidays. While gift lists noted sneakers from names like Hoka and On, Under Armour was much further down the pecking order.”
To succeed in the “increasingly crowded and competitive” athletic market, Saunders said, the company will need to tell an “overarching story or narrative that helps consumers understand Under Armour’s place in the market.”
He doesn’t expect much change this fiscal year but stressed that it is important for the company “to show some momentum and progress.”
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