Under Armour reported a net loss of $183 million in the second quarter ended June 30, including $39 million in restructuring charges. Revenues were down 41 percent. Sales topped Wall Street’s target but losses were significantly below.

“With the majority of our own stores and wholesale locations closed for most of the second quarter due to the COVID-19 pandemic, while we performed better than expected, we still experienced a significant decline in revenue across all markets,” said Under Armour President and CEO Patrik Frisk. “In navigating this environment, our team continues to respond strategically and methodically amplifying Under Armour’s connection with our consumers through innovative digital activations, proactively managing our cost structure and working to harness our brand strength amid shifts in consumer behavior to emerge as a stronger company.”

Frisk continued, “Now, with most of these doors reopened, we are encouraged by some of the momentum we’ve experienced in June and July. However, we remain appropriately cautious with respect to the balance of 2020 due to continued uncertainty related to consumer shopping dynamics, the potential for a highly promotional environment and proactive decisions to reduce inventory purchases to be more aligned with anticipated demand related to ongoing COVID-19 impacts.”

Second Quarter 2020 Review

  • Revenue was down 41 percent to $708 million (down 40 percent currency neutral) predominantly related to the COVID-19 pandemic impacts in the quarter.
  • Gross margin increased 280 basis points to 49.3 percent compared to the prior year driven by channel mix which benefitted from significantly lower sales to the off-price channel, as well as a higher mix of direct-to-consumer sales, partially offset by the negative impacts from COVID-19 related discounting.
  • Selling, general & administrative expenses decreased 15 percent to $480 million driven primarily by reduced marketing spend in addition to other cost-cutting initiatives to mitigate top-line impacts from COVID-19 including lower incentive compensation and reduced variable expenses tied to revenue.
  • Restructuring and impairment charges were $39 million consisting of $28 million in non-cash and $11 million in cash related charges. For the full year, the company has recognized $475 million of restructuring and impairment charges consisting of $340 million in restructuring and related impairment charges ($326 million in non-cash and $14 million in cash related charges) and $135 million from impairments of long-lived assets and goodwill.
  • Operating loss was $170 million. Excluding the impact of restructuring and impairment charges, adjusted operating loss was $131 million.
  • Net loss was $183 million. Adjusted net loss was $141 million.
  • Diluted loss per share was $0.40. Adjusted diluted loss per share was $0.31.
  • Inventory was up 24 percent to $1.2 billion.

Wall Street on average was expecting an adjusted loss of 40 cents a share on revenues of $544 million.

References to adjusted financial measures exclude the impact of the company’s 2020 restructuring plan and related impairment charges, impairments associated with certain long-lived assets and goodwill and related tax effects, and with respect to a certain measure, the non-cash amortization of debt discount on the company’s convertible debt and related tax effects.

By product category, Apparel was down 42.4 percent to $425.9 million; Footwear declined 34.8 percent to $185.1 million; and Accessories slumped 47.2 percent to $56.1 million. Licensing revenues plunged 75.5 percent to $6.2 million. Connected Fitness revenues grew 3.1 percent to $32.9 million.

By region, sales declined 44.9 percent (44.8 percent currency-neutral) to $449.8 million in North America, 38.7 percent (37.2 percent currency-neutral) to $89.1 million in EMEA, 20.0 percent (16.8 currency-neutral) in Asia-Pacific, and 71.9 percent ((68.4 percent currency-neutral) to $11.1 million in Latin America.

From a profitability standpoint, North America’s operating profits fell 77.9 percent to $30.8 million from $139.2 million a year ago, EMEA showed an operating loss of $698,000 against an operating profit of $10.5 million, Asia-Pacific posted an operating loss of $12.4 million against earnings of $19.6 million, and operating losses in Latin America widened to $4.4 million from a loss of $3.9 million a year ago. The Connected Fitness’ operating profits reached $3.7 million against $11,000 a year earlier.

COVID-19 Update
Due to ongoing uncertainty related to COVID-19 and its potential effect on global markets, the company continues to anticipate material impacts on its business results for the remainder of 2020. The following provides additional information on channels and the company’s cash and liquidity position.

  • Channel Status and Trends
    • Through mid-May, the company estimated that approximately 80 percent of locations where the brand could be purchased globally were closed. As of today, with most of these doors having reopened, traffic trends continue to be considerably lower than the prior-year period, however, the overall rate of conversion is higher. The company expects traffic trends to remain lower for the remainder of 2020.
    • Additionally, the company experienced significant eCommerce growth around the world during the quarter.
  • Cash and Liquidity
    • The company ended the second quarter with cash and cash equivalents of $1.1 billion.
    • During the quarter, the company amended its credit agreement, in order to provide improved access to liquidity during this period. Under the amended $1.1 billion revolving credit facility, there was $250 million outstanding at the end of the second quarter.
    • Additionally, the company issued $500 million of convertible senior notes, utilizing $440 million of the net proceeds to reduce the amount outstanding under its revolving credit facility.

Photo courtesy Under Armour