Under Armour reported sales grew 3 percent in its transition quarter ended March 31 and forecasted sales for the current fiscal year would expand in the range of 5 percent to 7 percent. Sales and the adjusted loss in the period were slightly below Wall Street’s expectations.

“Having successfully executed a multi-year transformation and after delivering a record year in 2021, we are continuing to serve the needs of athletes amid an increasingly more uncertain marketplace,” said Under Armour President and CEO Patrik Frisk. “As global supply challenges and emergent COVID-19 impacts in China eventually normalize, we are confident that the strength of the Under Armour brand, coupled with our powerful growth strategy, positions us well to deliver sustainable, profitable returns to shareholders over the long-term.”

Transition Quarter Review

  • Revenue was up 3 percent to $1.3 billion (up 4 percent currency neutral) compared to the prior year;
  • Wholesale revenue increased 4 percent to $829 million and direct-to-consumer revenue increased 1 percent to $441 million, driven by 2 percent growth in eCommerce, which represented 45 percent of the total direct-to-consumer business during the quarter. Owned and operated store revenue growth was flat during the quarter;
  • North America revenue increased 4 percent to $841 million and international revenue increased 1 percent to $456 million (up 3 percent currency neutral). Within the international business, revenue increased 18 percent in EMEA (up 22 percent currency neutral), decreased 14 percent in Asia-Pacific (down 13 percent currency neutral), and decreased 6 percent in Latin America (down 5 percent currency neutral);
  • Apparel revenue increased 8 percent to $877 million. Footwear revenue decreased 4 percent to $297 million. Accessories revenue decreased 18 percent to $97 million;
  • Gross margin decreased 350 basis points to 46.5 percent compared to the prior year, driven primarily by elevated freight expenses;
  • Selling, general & administrative (SG&A) expenses increased 16 percent to $594 million;
  • Restructuring and impairment charges were $57 million;
  • Operating loss was $46 million. Adjusted operating income was $11 million. In the year-ago quarter, operating income was $107 million and adjusted operating income was $114 million;
  • Net loss was $60 million. Adjusted net loss was $3 million. In the year-ago quarter, net income was $78 million and adjusted net income was $75 million;
  • Diluted loss per share was $0.13. Adjusted diluted loss per share was $0.01. In the year-ago quarter, diluted EPS was 17 cents and adjusted EPS 16 cents;
  • Inventory was down 3 percent to $824 million; and
  • 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.

Sales of $3 billion were just below Wall Street’s consensus estimate of $3.2 billion. The adjusted loss in the quarter was below Wall Street’s consensus target of 5 cents.

Fiscal Year End Change
As announced in February 2021, Under Armour changed its fiscal year from December 31 to March 31. Following a three-month transition period (January 1 – March 31, 2022). Under Armour’s fiscal year 2023 will run from April 1, 2022 through March 31, 2023. Consequently, there will be no fiscal year 2022.

Fiscal 2023 Outlook
Due to Under Armour’s fiscal year change, the comparable baseline period is April 1, 2021 through March 31, 2022. Based on current visibility, including ongoing supply chain challenges, COVID-19 uncertainty and inflationary trends, key points related to Under Armour’s fiscal year 2023 outlook include:

  • Revenue is expected to increase 5 percent to 7 percent versus the comparable baseline period of $5.7 billion, reflecting a mid-single-digit growth rate in North America and a low-teens growth rate in the international business. This expectation includes approximately three percentage points of headwinds related to the company’s decision to work with its vendors and customers to cancel orders affected by capacity issues, supply chain delays and emergent COVID-19-related impacts in Greater China.
  • Gross margin is expected to be down 150-to-200 basis points compared to the baseline period’s adjusted gross margin of 49.6 percent due to expected inflationary pressures on freight and product costs, an unfavorable channel mix and changes in foreign currency.
  • Operating income is expected to reach $375 million to $400 million versus the comparable baseline period adjusted operating income of $424 million.
  • Diluted earnings per share is expected to be between $0.79 and $0.84 versus the comparable baseline period of $0.47. This includes a $0.28 benefit related to a tax valuation allowance release expected to be realized in the fourth quarter. Of this $0.28 benefit, $0.16 of this amount is related to prior restructuring charges and, therefore, adjusted diluted earnings per share is expected to be between $0.63 and $0.68. This is comparable to the adjusted baseline period of $0.68.

2020 Restructuring Plan
Under Armour also announced that it had concluded its 2020 restructuring plan with the recognition of $57 million during its transition quarter that ended March 31, 2022. Under the $600 million plan authorization, $571 million of total charges were recognized, including $197 million of cash-related charges and $374 million of non-cash-related charges.

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 to be made over the following two years through various methods, including open market, privately negotiated and accelerated share repurchase transactions. An initial $300 million of repurchases was completed in early May through an accelerated share repurchase plan. The company currently has approximately $200 million remaining under its repurchase authorization.