Under Armor (UAA) announces sales below Wall Street estimates
Under Armor sees a tough year ahead, troubled by global supply chain challenges and another round of Covid lockdowns in China that are reducing demand.
The sneaker and apparel maker released a disappointing outlook for its 2023 fiscal year on Friday, after reporting an unexpected loss for the three months ended March 31 and sales below Wall Street estimates.
The news sent investors fleeing, with Under Armor shares falling more than 25% on Friday morning to hit a 52-week low at $10.39.
Also on Friday, rival Adidas said its growth in 2022 would be at the low end of an expected range due to a “severe impact” from coronavirus-related lockdowns in China. Adidas is now seeing sales in the Greater China region drop significantly this year.
Under Armor CEO Patrik Frisk called the headwinds temporary and said underlying demand for the brand remains strong, however. The retailer remains disciplined to ensure it doesn’t order too much inventory, Frisk told analysts. The risk is that Under Armor will later be forced to cut back on surplus products that don’t sell, hurting its profitability.
Here’s how Under Armor fared in the three months ended March 31, relative to what Wall Street expected, based on a Refinitiv analyst survey:
- Loss per share: 1 cent adjusted against a profit of 6 cents expected
- Revenue: $1.3 billion vs $1.32 billion expected
Under Armor posted a net loss for the quarter of $59.6 million, or 13 cents per share, compared with net income of $77.8 million, or 17 cents per share, a year earlier.
Excluding one-off items, he lost a penny per share. Analysts were looking for adjusted earnings per share of 6 cents.
Chief Financial Officer David Bergman said profit margins were under pressure due to high freight costs, particularly ocean freight, which were higher than the company expected. Under Armor also used more air freight to pick up goods overseas, he said.
Sales reached $1.3 billion from $1.26 billion a year earlier. This missed estimates of $1.32 billion.
In North America, sales increased 4% to $841 million. Its international business, however, rose just 1% to $456 million, driven by a 14% decline in the Asia-Pacific region, which includes China.
Not only is China a growing market for Under Armor to try to win new customers, but it’s also a major manufacturing hub for much of the activewear industry. A number of international companies, including Apple and Estee Lauder, have warned in recent days that a slowdown in Chinese Covid controls will affect their businesses.
In the 12 months ended December 31, Under Armor produced approximately 67% of its apparel and accessories in China, Vietnam, Jordan, Malaysia and Cambodia. And nearly all of its shoes were made in China, Vietnam and Indonesia, according to an annual filing.
In the first quarter of fiscal 2023, which runs from April 1 to March 31 next year, Under Armor is seeing sales stagnate slightly down from the prior year period.
Bergman said the first half of the year will be hit hardest by order cancellations and supply chain delays. Under Armor also expects the impacts of Covid-19 in China to diminish as the year drags on, it said.
For the full year, Under Armor expects to earn between 63 and 68 cents per share on an adjusted basis, which is below analysts’ expectations for 86 cents.
He sees sales increasing by 5% to 7% compared to the previous year. Analysts had expected an increase of 5.4%.
Under Armor said the outlook factors in three percentage points of headwinds due to its decision to cancel some orders to suppliers due to capacity issues and supply chain delays.
CEO Frisk said the brand should get back to delivering “sustainable, profitable returns” as global supply chain challenges and coronavirus complications in China normalize.
He also discussed future plans to drive demand, including a resale platform and loyalty program that Under Armor plans to test in North America by the end of 2022.
Find the complete financial press release of Under Armor here.