Under Armour's Headway in North America Spurs Sales Beat

(Bloomberg) -- Under Armour Inc. is rebuilding momentum in its home market.

North American sales grew for the first time in a year, helping drive revenue at the athleticwear maker that topped analysts’ estimates last quarter. That sent the shares up the most in more than two months on Thursday.

The rebound in North America, which accounts for about three-quarters of revenue, signals that Under Armour’s recent transition is starting to pay off. In the past year, which Chief Executive Officer Kevin Plank has called one of the most challenging for Under Armour, the company dramatically reduced its product offerings and invested in getting goods to the market faster.

Gains in footwear and apparel spurred sales in the second quarter, along with 28 percent growth in its international business.

Though Under Armour’s stock remains well below its all-time high of $53.78 in 2015, it has regained some ground. The shares climbed as much as 7.7 percent to $22.70 in New York Thursday, the biggest intraday gain since mid-May. They had soared 46 percent this year through Wednesday’s close.

‘Short-Term Pain’

The company is still working to reduce a glut of inventory, which has weighed on profitability. Inventory was up 11 percent last quarter, and will gain at a high-single digit percentage this quarter.

“It’s short-term pain for long-term gain,” Patrik Frisk, Under Armour’s chief operating officer, said on a call with analysts.

The company said it expects profitability to increase as excess inventory comes off the books. Still, it forecast gross margin for the full year as flat or slightly down from the prior year’s 45 percent.

The Baltimore-based company’s results continue a general upswing in the U.S. shoe and sports apparel world. Nike Inc. jumped after its most recent earnings, largely a result of the company getting its domestic business back on track.
Under Armour relies more heavily on its North American sales than most of its rivals. Nike Inc., by comparison, gets about 44 percent of revenue from the region, and Adidas AG gets about 21 percent.

Revenue rose to $1.17 billion in the second quarter, compared with the $1.15 billion average of analysts’ estimates. Excluding some items, the loss per share amounted to 8 cents. Analysts had projected a loss of 8.5 cents.

Under Armour’s transformation has seen reduced spending in areas like million-dollar endorsement deals and licensing agreements, and an elimination of about 40 percent of products to focus on its highest-selling lines. The goal is to reverse a two-year slump that has come amid stiffening domestic competition from companies like Adidas, and changing consumer preferences toward casual looks and away from performance gear.

Executives see the second half of the year as a critical period for evaluating the company’s new direction. As inventory overhead shrinks and new products and production come online, investors will get a clearer picture of whether the restructuring is working.

--With assistance from Karen Lin.

To contact the reporters on this story: Eben Novy-Williams in New York at enovywilliam@bloomberg.net;Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editors responsible for this story: Janet Paskin at jpaskin@bloomberg.net, Lisa Wolfson, Janet Freund

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