Under Armour Inc.’s shares surged by 7% in early trading on Thursday, driven by the company’s third-quarter financial performance, which exceeded profit expectations but fell short on revenue.
During the quarter, the Baltimore-based sportswear firm reported net income of $114.1 million, or 26 cents per share, compared to $121.6 million, or 27 cents per share, in the same period last year.
Adjusted earnings per share were 19 cents, surpassing the 11-cent FactSet consensus. However, quarterly revenue decreased to $1.486 billion from $1.582 billion a year earlier, missing the $1.503 billion FactSet consensus.
CEO Stephanie Linnartz addressed the results, noting a challenging retail landscape during the holiday season while expressing contentment with the third-quarter revenue meeting projections.
Despite obstacles, the company achieved better-than-expected profitability, remaining on course to fulfill its full-year forecast.
Regarding revenue breakdown, wholesale revenue declined by 13% to $712 million, whereas direct-to-consumer revenue rose by 4% to $741 million.
In the fiscal second quarter, factors such as inflation, subdued consumer confidence, elevated inventory levels, and widespread promotions affected the wholesale business and influenced the company’s future order book.
Geographically, North American revenue dropped by 12% to $915 million in the quarter, while international revenue experienced a 7% increase, reaching $566 million.
The international expansion was driven by a 7% rise in EMEA, a 7% increase in Asia-Pacific, and a 9% growth in Latin America.
Breaking down revenue by category, apparel revenue decreased by 6% to $1 billion, footwear revenue declined by 7% to $331 million, and accessories revenue remained unchanged at $105 million.
The company noted a gross margin expansion of 100 basis points to 45.2%, attributed to supply chain efficiencies resulting from reduced freight costs.
However, these gains were partly offset by inventory management strategies, including a higher proportion of sales from the off-price channel and increased promotions in the direct-to-consumer segment.
Under Armour adjusted its guidance for 2024, now expecting a revenue decline of 3% to 4%, narrowing the previous range of down 2% to 4%.
The projected earnings per share (EPS) range is 57 cents to 59 cents, with adjusted EPS forecasted at 50 cents to 52 cents. The FactSet consensus anticipates an EPS of 49 cents and a revenue decline of 2.9%.
The company anticipates a gross margin increase of 120 basis points to 130 basis points, revised from the previous guidance of 100 basis points to 125 basis points.
Over the past 12 months, Under Armour’s stock has experienced a 24% decline, contrasting with the S&P 500’s 21% gain.
Despite revenue challenges, the company’s robust profitability underscores the intricacies of the market landscape and the ongoing influence of global economic dynamics on the sportswear industry.
