Under Armour Inc. reported its first quarterly loss as a public company with North American revenue declining slightly due to stores closed due to bankruptcies. Results still came ahead of Wall Street’s expectations and the company retained its guidance for the year.

“Our first quarter results were in line with our expectations and we’re off to a solid start in 2017,” said Under Armour Chairman and CEO Kevin Plank. “By proactively managing our growth to deliver superior innovative product, continuing to strengthen our connection with consumers and increasing our focus on operational excellence – we have great confidence in our ability to drive toward our full year targets.”

First Quarter Income Statement Highlights

  • Revenue was up 7 percent to $1.1 billion, driven by a 4 percent increase in wholesale revenue to $773 million and a 13 percent increase in direct-to-consumer revenue to $302 million.
  • North American revenue declined 1 percent as new distribution was more than offset by the absence of business lost to bankruptcies in 2016. International revenue, which is comprised of our EMEA, Asia-Pacific, and Latin America regions, represented 20 percent of total revenue in the quarter, and was up 52 percent (up 57 percent currency neutral). By region, revenue was up 55 percent in EMEA, 60 percent in Asia-Pacific and 30 percent in Latin America.
  • Apparel revenue increased 7 percent to $715 million including strength in training, golf, and team sports. Footwear revenue grew 2 percent to $270 million, against last year’s same period which was up 64 percent due to significant strength in basketball sales and the timing of liquidations. Accessories revenue increased 12 percent to $89 million with strength in men’s training, running, youth, and global football.
  • Gross margin was down 70 basis points to 45.2 percent as benefits from channel and product mix were offset by continued efforts to manage inventories appropriate to market demand.
  • Selling, general and administrative expenses increased 12 percent to $498 million, or 44.6 percent of revenue (up 210 basis points), due to continued investments in the direct-to-consumer, footwear and international businesses.
  • Operating income was $8 million. There was a net loss of $2 million in the first quarter and a $0.01 loss in diluted earnings per share.

Wall Street on average was looking for a loss of 4 cents a share.

First Quarter Balance Sheet Highlights

  • Cash and cash equivalents increased 10 percent to $172 million.
  • Inventory increased 8 percent to $902 million.
  • Total debt decreased 8 percent to $861 million.

Fiscal 2017 Outlook

There are no changes to the company’s full year 2017 outlook provided on January 31, 2017:

  • Net revenues expected to grow 11 to 12 percent to reach nearly $5.4 billion, up 12 to 13 percent currency neutral;
  • Gross margin expected to be slightly down compared to 46.4% in 2016 with benefits in product costs being offset by changes in foreign currency and shifts in overall sales mix, as the footwear and international businesses continue to outpace the growth of the higher margin apparel and North American businesses;
  • Operating income expected to reach approximately $320 million;
  • Interest expense of approximately $40 million; and,
  • An effective tax rate of 32 to 34 percent.

Photo courtesy Under Armour