Under Armour Q2 Earnings: Shares Fall On Gloomy Outlook

by Trefis Team
Under Armour
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Under Armour (NYSE:UA) managed to report a better-than-expected earnings this time around, beating both the revenue and earnings consensus estimates by a comfortable margin. That said, shares plummeted to their record low on a trimmed guidance for the remainder of the year. The company continues to struggle with a slowing U.S. apparel market, and changing consumer trends. This has significantly hurt the top and bottom lines over the last three quarters. In order to minimize the impact going forward, Under Armour has decided to initiate a restructuring strategy (“a pivot”) that will require the termination of about 2% of the company’s global workforce.

Key Highlights:

  • Probably the most important news coming out of the quarter though, is CEO Kevin Plank’s strategy to “pivot.” He has many ideas in this respect, which include, but are not limited to, increasing the product offerings for women and children, focusing more on international markets, offering more lifestyle than performance apparel, and concentrating on increasing its direct-to-consumer channels; basically the opposite of everything the company vied for in the past. We will highlight more on these strategies in a future article.
  • While the company’s domestic revenues continue to remain hurt, coming in flat this time around, international sales increased by a whopping 57%, driven by stellar performance in the Asia-Pacific region. Steph Curry was instrumental in driving this growth. Post winning the second NBA Championship, the NBA star spent a lot of time in China helping to spread the brand. International sales now make up about 22% of the company’s total revenues, up from about 15% only 5 months ago. China sales are expected to grow in the coming quarters, and could help offset the losses made domestically.
  • After years and years of campaigning for its connected fitness designs and apps, Under Armour has finally decided to cut its losses and move on. Since 2013, the company has hoped to infuse technology with apparel in order to improve athletic performance through data analysis. However, the initiative failed to garner any traction over the quarters since, despite CEO Kevin Plank’s insistence that connected fitness is the future. It’s safe to say that this entire initiative was a failure and it’s about time that the company pulled the plug.
  • Last but not least, the company reduced its guidance for the remainder of the year. Under Armour slashed its full year operating profit outlook down from $320 million to $280 – $300 million. Further, the company slowed down its growth expectations for FY 2017. The sportswear company now expects revenues to rise 9 – 11% this year, down from previous expectations of 11 – 12%.

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