Under Armour Inc. reported a loss of $17 million in the second quarter on modest revenue growth. The loss came in just ahead of Wall Street’s targets while sales were slightly below. Under Armour maintained its guidance for EPS and top-line growth for the year but raised expectations for operating profit growth and reduced growth targets in North America.

“Our second quarter results give us increasing conviction that our transformation continues to make solid progress across our business, unlocking efficiencies that are driving greater precision, consistency and repeatability,” said Under Armour Chairman and CEO Kevin Plank. “By staying sharply focused on our long-term strategies – driving our premium athletic brand positioning through industry leading innovation, geographic expansion and creating deep connections with our consumers – we are on track to deliver against our expectations in 2019.”

Second Quarter 2019 Review

  • Revenue was up 1 percent to $1.192 billion (up 3 percent currency neutral). Wall Street’s consensus estimate had been $1.197 billion.
  • Gross margin increased 170 basis points to 46.5 percent compared to the prior year driven by supply chain initiatives, regional mix and restructuring charges in the prior period offset by foreign currency impacts.
  • Selling, general & administrative expenses increased 2 percent to $566 million, or 47.5 percent of revenue.
  • Operating loss was $11 million.
  • Net loss was $17 million or $0.04 loss per share, inclusive of a negative $0.01 impact from the company’s minority interest in its Japanese licensee. Wall Street’s consensus estimate had been a loss of 5 cents a share.,
  • Inventory decreased 26 percent to $966 million.
  • Total debt was down 24 percent to $591 million.
  • Cash and cash equivalents increased 131 percent to $456 million.

Among segments, apparel sales reached $739.7 million, down 1.1 percent. Footwear rose 4.7 percent to $284.1 million. Accessories inched up 0.3 percent to $106.3 million.

Connected Fitness’ revenues were $31.9 million, up 9.7 percent.

By region, North America sales were $816.2 million, down 3.2 percent. EMEA sales were up 6.1 percent to $145.3 million. Asia-Pacific revenues jumped 22.6 percent to $154.1 million. Latin America sales were down 2.5 percent to $39.7 million.

Fiscal 2019 Outlook

  • Revenue is expected to be up approximately 3 to 4 percent reflecting a slight decline in North America and a low to mid-teen percentage rate increase in the international business. Under Armour had previously said it expected relatively flat results for North America and a low double-digit percentage rate increase in the international business.
  • Gross margin is still expected to increase approximately 110 to 130 basis points compared to 2018. Excluding restructuring charges from the comparable prior period, we expect an increase of approximately 70 to 90 basis points compared to 2018 adjusted gross margin due to ongoing supply chain initiatives and channel mix benefits.
  • Operating income is now expected to reach approximately $230 million to $235 million versus the previously expected range of $220 million to $230 million.
  • Interest and other expense, net is now expected to be approximately $30 million versus the previous expectation of approximately $35 million.
  • Effective tax rate is now expected to be approximately 22 percent versus the previous expectation at the high end of a 19 percent to 22 percent range.
  • Earnings per share is still expected to be $0.33 to $0.34 inclusive of a negative impact from the company’s minority interest in its Japanese licensee.
  • Capital expenditures are expected to be approximately $210 million.

Photo courtesy Under Armour