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Under Armour Turnaround Taking Hold Despite Industry Challenges

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Under Armour shares soared more than 16.3 percent yesterday, or $3.59, after the company reported Q3 results where revenues and EPS exceeded projections. North American revenue was 8 percent higher to $1 billion due to improving brand health and stronger-than-expected Back-to-School and DTC sales. Overall DTC revenues were 12 percent higher in the period ended Sep. 30. Wholesale revenues increased 10 percent, driven by higher-than-forecast demand for full-price products, particularly in the North American wholesale segment, and lower sales into the off-price channel. Quarterly apparel sales were 14 percent higher, bolstered by golf and training. Footwear sales rose 10 percent and were driven by running.

“We’re in it to win it,” CEO Patrik Frisk told analysts about the running category that has experienced marked product improvements over the last three years. “We’re going to stay in running and do a better job there as we go forward. I am so very excited about that.”

In the near-term, Under Armour, which is changing its fiscal calendar year start to April 1 in 2022, has raised its outlook guidance despite persistent supply chain challenges. FY21 revenues is forecast to rise 25 percent, fueled by a high 20s percentage increase in North America and mid-30s internationally. Annual wholesale revenues should jump at a mid-30s percentage rate with DTC up mid-20s and ecommerce increasing at a low-single digit rate compared to 2020. Full-year operating income on adjusted basis is now pegged at $475 million, or slightly under 8 percent.

Despite the solid results and strong outlook, Under Armour senior executives said the company remains “appropriately cautious” over the near-term due to supply chain challenges that are likely to have “material impacts” for H1/22. Q1/22 revenues are forecast to rise at a low single-digit percentage rate.

Actions already taken by Under Armour to alleviate projected market volatility and business disruptions have included adjusting orders and shipping with factory partners and logistics suppliers, working with wholesale partners to narrow and edit their Spring/Summer 2022 order books with the brand, and evaluating mitigation efforts to offset inflationary pressures such as higher logistics and wage costs. Some purchase orders for Spring/Summer 2022 have been cancelled to alleviate pressure on Asian factories.

“To date, we’ve seen some timing changes in inbound product and how we can get that out to our partners,” said David Bergman, Under Armour CFO. “But we haven’t seen any cancellations, and so, the forecast and the outlook we’ve given for the rest of the year in Q4. We feel good about it, but it’s definitely a very fluid situation.”

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