Under Armour, Inc. reported first-quarter results that matched profit expectations and topped on revenue. The company maintained its full-year revenue outlook but reduced its earnings outlook amid continued gross margin pressures.
“We delivered our quarter, are holding our full-year revenue outlook, and remain bullish on our brand strength while we navigate the current environment,” said Under Armour Interim President and CEO Colin Browne. “Our relentless approach of delivering groundbreaking innovation will continue to manifest through 2022 and beyond as we work to unleash the full potential of the Under Armour brand.”
Browne continued, “Moving forward, we are digging in to amplify the strengths of our core strategy while creating additional opportunities for athletes to wear UA throughout their day. I have full confidence in the exceptional capabilities of our global team to deliver more pronounced growth and profitability over the long term.”
First Quarter 2023 Review
- Revenue was flat at $1.3 billion (up 2 percent currency neutral) compared to the prior year;
- Gross margin declined 280 basis points to 46.7 percent compared to the prior year, driven primarily by elevated freight expenses related to COVIDsupply chain impacts, higher than planned promotions and the negative impact of changes in foreign currency;
- SG&A expenses increased 9 percent to $596 million, including $10 million in legal expenses related to ongoing litigation matters;
- Operating income was $34 million, adjusted operating income was $44 million;
- Net Income was $8 million, adjusted net income was $15 million;
- Diluted earnings per share were $0.02, adjusted diluted earnings per share was $0.03;
- Inventory was up 8 percent to $954 million;
- Cash and Cash Equivalents were $1.0 billion at the end of the quarter, and no borrowings were outstanding under the company’s $1.1 billion revolving credit facility.
Earnings of 3 cents a share were in line with Wall Street’s consensus estimate. Sales of $1.35 billion were just above Wall Street’s consensus estimate of $1.34 billion.
Segment Performance
- Wholesale revenue increased 3 percent to $792 million, and direct-to-consumer revenue decreased 7 percent to $521 million, driven by an 8 percent decline in owned and operated store revenue. eCommerce revenue declined 6 percent and represented 39 percent of the total direct-to-consumer business during the quarter.
- North America revenue was flat (up 1 percent currency neutral) compared to the prior year at $909 million, and international revenue decreased 3 percent to $431 million (up 2 percent currency neutral). Within the international business, revenue decreased 1 percent in EMEA (up 6 percent currency neutral), decreased 8 percent in Asia-Pacific (down 4 percent currency neutral), and increased 6 percent in Latin America (up 6 percent currency neutral).
- Apparel revenue decreased 1 percent to $868 million. Footwear revenue increased 1 percent to $347 million. Accessories revenue decreased 13 percent to $97 million.
Updated Fiscal 2023 Outlook
Under Armour began its new fiscal year 2023 on April 1, 2022. The comparable baseline period is April 1, 2021, through March 31, 2022. Key points related to UA’s fiscal year 2023 outlook include:
- No change to the previous expectation of 5-to-7 percent revenue growth. Excluding approximately 200 basis points of anticipated foreign currency headwinds, currency-neutral revenue is expected to be up 7-to-9 percent;
- Gross margin is expected to be down 375-to-425 basis points compared to the previous expectation of a 150-to-200 basis point decline compared to the baseline period’s gross margin of 49.6 percent. Versus the last outlook, this decline is primarily driven by expected higher promotional activities, channel mix and additional negative impacts from anticipated changes in foreign currency;
- SG&A expenses are expected to be flat to the prior year as the company prioritizes investments and implements mitigation measures in response to anticipated gross margin pressure;
- Operating income is expected to reach $300-to-$325 million compared to the previous range of $375-to-$400 million. Excluding an expense related to ongoing litigation matters, adjusted operating income is expected to reach $310-to- $335 million.
- Diluted earnings per share are expected to be $0.61-to-$0.67 compared to the previous expectation of $0.79-to-$0.84; this includes a $0.28 benefit related to a tax valuation allowance release expected to be realized during the fiscal year. Of this $0.28 benefit, $0.16 of this amount is related to prior restructuring. There is a $0.02 negative impact from legal expenses related to ongoing litigation matters. Excluding these net positive impacts of $0.14, adjusted diluted earnings per share are expected to be $0.47 to $0.53, compared to the previous expectation of $0.63 to $0.68; and
- Capital expenditures are expected to be approximately $225 million, consistent with the previously provided range of 3 percent to 5 percent of revenue.
Share Buyback Update
In February 2022, Under Armour announced that its Board of Directors authorized the repurchase of up to $500 million of its outstanding Class C common stock over two years. The company repurchased $25 million during the first quarter, leaving approximately $175 million remaining under this authorization.
Photo courtesy Under Armour