Under Armour, Inc. reduced its revenue forecast for its fiscal year due to continued softness in the North American marketplace while raising its margin targets. The adjustments came as UA sales and earnings in its fiscal second quarter, which ended September 30, arrived ahead of analyst expectations.
“Our second quarter results, particularly profitability, exceeded our expectations,” said Under Armour President and CEO Stephanie Linnartz. “Consequently, we are maintaining our fiscal 2024 operating income and EPS outlook even as we lower our revenue expectations primarily in response to challenges in North America during the back half of the year.”
Linnartz continued, “As we execute against our strategic priorities, we will continue to take a balanced approach to driving profitability in the near term while taking the necessary steps to invest in the talent, systems, and processes to drive the top line growth that Under Armour is capable of over the long term.”
Sales of $1.6 billion topped analysts’ consensus target of $1.57 billion, and EPS of 24 cents a share exceeded analysts’ consensus estimate of 21 cents.
Second Quarter Fiscal 2024 Review
- Revenue was flat versus the prior year at $1.6 billion, down 1 percent currency-neutral.
- Wholesale revenue decreased 1 percent to $940 million, and DTC revenue increased 3 percent to $596 million due to a 2 percent increase in eCommerce revenue, which represented 35 percent of its total DTC business in the quarter, and a 4 percent increase in owned and operated store revenue.
- North America revenue decreased 2 percent to $991 million, and International revenue increased 5 percent to $573 million, up 3 percent currency-neutral. In International business, revenue increased 9 percent in the EMEA, up 4 percent currency-neutral and 3 percent in Asia-Pacific, up 7 percent currency-neutral. Revenue declined 8 percent in Latin America, down 19 percent currency-neutral.
- Apparel revenue increased 3 percent to $1.1 billion. Footwear revenue was down 7 percent to $351 million. Accessories revenue increased 3 percent to $114 million.
- Gross margin increased 260 basis points to 48.0 percent, driven primarily by supply chain benefits related to lower freight expenses, partially offset by a channel mix impact related to a normalization of off-price sales.
- SG&A expenses increased 2 percent to $606 million.
- Operating Income was $146 million.
- Net Income was $110 million, up 26.4 percent from reported income of $87 million and ahead 19.6 percent from adjusted income of $92 million a year ago.
- Diluted earnings per share was 24 cents against reported EPS of 19 cents and adjusted EPS of 20 cents a year ago.
- Inventory was up 6 percent to $1.1 billion.
- Cash and cash equivalents were $656 million at the end of the quarter, and no borrowings were outstanding under the company’s $1.1 billion revolving credit facility.
Share Buyback Update
Under Armour repurchased $50 million of its Class C common stock during the second quarter, reflecting 7.6 million shares retired. As of September 30, 2023, Under Armour repurchased 42.5 million shares for $475 million under its two-year, $500 million program, which the Board of Directors approved in February 2022.
Fiscal 2024 Outlook
Key points related to Under Armour’s fiscal year 2024 outlook include:
- Revenue is expected to be down 2 percent to 4 percent versus the previous expectation of “flat to up slightly”;
- Gross margin is expected to be up 100 to 125 basis points versus the previous expectation of up 25 to 75 basis points;
- SG&A expenses are expected to be “flat to down slightly” versus the previous expectation of “flat to up slightly”;
- Operating income remains unchanged from the previous expectation of $310 million to $330 million;
- Effective tax rate remains unchanged from the previous expectation of a low twenties percentage range;
- Diluted earnings per share remain unchanged from the previous expectation of between $0.47 and $0.51; and
- Capital expenditures are expected to reach between $230 million and $250 million.
Photo courtesy Under Armour