Under Armour rallies after global push helps ease slump at home

Tuesday , February 13, 2018 - 8:15 AM

Matt Townsend

(c) 2018, Bloomberg.

Under Armour Inc. has renewed faith that it can bounce back from the worst slump in its history as robust international growth cushions weakness on the home front.

The athletic-wear company reported fourth-quarter revenue that topped projections, led by a 47 percent increase in sales outside North America. That helped drive the stock up as much as 18 percent on Tuesday, the most in more than two years.

The results provide optimism that Baltimore-based Under Armour can restore its cachet as a trailblazing athletic brand. They also may help dispel broader concerns about a slowdown in the sportswear industry. Nike, the market leader, has seen sales slump in recent quarters, especially in North America.

“The dynamic landscape of 2017 was a catalyst for us to begin strategically transforming Under Armour,” Chief Executive Officer Kevin Plank said in a statement. “The tough decisions we’re making are generating the stability necessary” for long-term value.

Under Armour was an investor darling as recently as two years ago. At the time, NBA star Stephen Curry’s shoe line was pumping life into its sneaker business, helping boost 2015 revenue 29 percent. Since then, a comeback by Adidas has hurt the company. At the same time, consumers are opting for more stylish sportswear, rather than the performance features that are Under Armour’s specialty.

Plank embarked on a comeback plan, calling 2017 a “reset year.” He has made management changes, including a new chief operating officer and finance head, and admitted that - like many young companies - it grew too fast. A restructuring plan includes writing down inventory and other underperforming assets. The brand also hired designers to make its apparel more fashionable.

With the changes showing signs of paying off, Under Armour shares rose as high as $16.86 in New York, in their biggest intraday gain since January 2016. The stock had lost about a third of its value in the past 12 months, and was the worst-performing equity in the S&P 500 last year.

Apparel, footwear and accessories all saw gains last quarter, Under Armour said Tuesday. Sales reached $1.37 billion, compared with the average projection of $1.31 billion. Excluding some items, earnings per share were flat. Analysts had estimated a gain of less than 1 cent.

While sales from North America - where Under Armour gets about three-quarters of its revenue - fell 4.5 percent in the period, the decline slowed from a 12 percent drop the previous quarter. The company also reported a 56 percent increase in Asia-Pacific revenue, a 46 percent gain in the Europe, Middle East and Africa region and 36 percent growth in Latin America.

As part of a plan to scale back operations, the company will reduce how many products it makes by as much as 40 percent by the end of 2019. Under Armour continued to reduce expenses, by announcing another round of cost cutting and restructuring for this year that it said will result in as much as $130 million in charges.

“We want to be clear, there is a lot of work for us to do in 2018,” Plank said on a call with analysts. But “we feel very confident in the strategy and the plan that we have in place,” he said.

Under Armour’s gross margin, a measure of profitability, dropped in the quarter, though it topped analysts’ estimates, and the company forecast it will increase in 2018.

Under Armour also expects 2018 full-year revenue to increase at a low-single-digit rate from $5 billion last year. North American sales will drop by a mid-single-digit percentage while it sees international growth of at least 25 percent.

The company is seeking an amendment to its credit agreement because the hit to profitability has raised its leverage ratio. Chief Financial Officer Dave Bergman said it was a “short-term” issue.

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Bloomberg’s Brandon Kochkodin and Karishma Motwani contributed.

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