Under Armour Swings To Fiscal Q4 Profit On Footwear Growth; Inventory Up 44 Percent

Under Armour reported that revenue for the fiscal fourth quarter was up 7.5 percent to $1.40 billion (+10 percent currency-neutral) in the period ended March 31.

• Apparel revenues rose 1.4 percent to $889.2 million in the fourth quarter;
• Footwear revenues jumped 27.3 percent to $377.7 million for the period;
• Accessories sales dipped 1.1 percent to $95.7 million in the quarter; and
• Licensing revenues declined 3.2 percent to $25.8 million.

Overall Wholesale revenues increased 9.6 percent in the fourth quarter and DTC sales rose 3.0 percent to $454.2 million.

Gross margin declined 310 basis points to 43.4 percent of sales in the period, driven primarily by higher promotions, mix impacts related to higher footwear revenue, and adverse effects from changes in foreign currency. SG&A expenses decreased 4 percent to $572 million. The resulting operating income was $35 million.

Net income was $170.5 million for the quarter, compared to a loss of $59.6 million in the prior-year quarter. Excluding an $87 million benefit primarily from a tax valuation allowance release related to prior-period restructuring, adjusted net income was $84 million.

Diluted earnings per share was 38 cents a share in fiscal Q4, compared to a 13 cents loss per share in the prior-year quarter. Adjusted diluted earnings per share was 18 cents in the fourth quarter.

Fourth-quarter earnings and revenue beat analyst expectations, but guidance for the next fiscal year fell short of Wall Street’s consensus. Wall Street in the fiscal fourth quarter was looking for adjusted EPS of 15 cents a share on revenue of $1.36 billion on average. For fiscal 2024, earnings projected between 47 cents and 51 cents compared was below consensus of 61 cents. Revenue is expected to be flat to up slightly. Analysts’ consensus was $6.09 billion, up 3.2 percent from $5.9 million in 2022.

Inventory at the quarter’s close was up 44 percent to $1.2 billion at quarter-end.

Cash and Cash Equivalents were $712 million at the end of the quarter, and no borrowings were outstanding under the company’s $1.1 billion revolving credit facility.

For the full fiscal year, revenue was up 3 percent to $5.9 billion (up 6 percent currency neutral).

• Apparel sales slipped 0.9 percent to $3.87 billion for the year;
• Footwear revenues increased 16.3 percent to $1.46 billion;
• Accessories sales declined 7.4 percent for the year to $404.5 million; and
• Licensing revenues dipped 0.7 percent to $116.7 million for the fourth year.

Full-year Wholesale revenues increased 5.9 percent to $3.47 billion, while DTC sales declined 2.5 percent to $2.27 billion for the fiscal year ended March 31.

Gross margin declined 470 basis points to 44.9 percent compared to the prior year, driven primarily by higher promotions, supply chain impacts including higher freight and product costs, mix impacts related to higher distributor and footwear revenue, and adverse impacts from changes in foreign currency.

SG&A expenses decreased 2 percent to $2.4 billion. Operating income was $284 million. Excluding the company’s litigation reserve, adjusted operating income was $304 million. Net income was $387 million. Excluding a $45 million earn-out benefit in connection with the sale of the MyFitnessPal platform, a $96 million benefit from a tax valuation allowance release related to prior-period restructuring, and a $20 million litigation reserve expense, adjusted net income was $266 million.

Diluted earnings per share were 84 cents for the year. Adjusted diluted earnings per share was 58 cents a share.

During the fourth quarter, Under Armour repurchased one million shares of its Class C common stock, consistent with the final settlement of accelerated share repurchase transactions entered into during the prior quarter. Under the company’s two-year, $500 million program, which the Board of Directors approved in February 2022, 35 million Class C common stock shares were repurchased for $425 million.

“I’m honored to lead this iconic brand, and I’m pleased that Under Armour delivered fiscal 2023 revenue and earnings results that were in line with our previous outlook,” said Under Armour President and CEO Stephanie Linnartz. “Fiscal 2024 will be a year of building for the brand. I am prioritizing significantly amplifying global brand heat; delivering elevated design and products, with a focus on Sportstyle, footwear, and women; and positioning us to drive better sales growth in the United States.”

Linnartz continued, “We will leverage our strong portfolio of franchises, including Heat Gear, Cold Gear and compression apparel, to drive innovation across new products and markets. We must deliver better for athletes and our customers and meaningfully increase returns for shareholders in the years ahead. My job is to make that vision a reality.”

Fiscal 2024 Outlook

• Revenue is expected to be flat to up slightly.
• Gross margin is expected to be up 25 to 75 basis points compared to the prior year’s rate of 44.9 percent of sales, driven by supply chain tailwinds related to lower freight costs, partially offset by mix impacts related to higher off-price revenue and higher promotions expected in the company’s direct-to-consumer business.
• SG&A expenses are expected to be flat to up slightly for the year.
• Operating income is expected to reach $310 to $330 million. The effective tax rate is expected to be in the low twenties percentage range.
• Diluted earnings per share are expected to range between 47 cents and 51 cents for the full year. Capital expenditures are expected to be between $250 million and $270 million for fiscal 2024.

Photo courtesy Under Armour