Under Armor looks set to be a tough year, rattled by global supply chain challenges and another round of Covid lockdowns in China hurting demand.
The sneaker and apparel maker on Friday issued a disappointing outlook for its fiscal 2023 after reporting an unexpected loss for the three months ended March 31 and sales below Wall Street estimates.
The news sent investors fleeing, with Under Armor shares ending Friday down 24% to hit a 52-week low of $10.39 at one point.
Also on Friday, rival Adidas said its growth in 2022 will be at the lower end of a forecast range due to the “severe impact” of coronavirus-related lockdowns in China. Adidas now sees its sales in the Greater China region falling significantly this year.
Under Armor chief executive officer Patrik Frisk called the headwinds temporary and said underlying demand for the brand remains strong. The retailer remains disciplined to ensure it doesn’t order too much inventory, Frisk told analysts. The risk is that Under Armor could later be forced to discount excess merchandise that doesn’t sell, hurting its profitability.
Here’s how Under Armor performed for the three months ended March 31, compared to Wall Street expectations, based on a Refinitiv poll of analysts:
- Loss per share: 1 cent adjusted vs. 6 cents expected profit
- Revenue: $1.3 billion versus $1.32 billion expected
Under Armor reported a net loss of $59.6 million, or 13 cents a share, for the quarter, compared to net income of $77.8 million, or 17 cents a share, a year ago.
Excluding one-time items, it lost a penny a share. Analysts had expected adjusted earnings per share of 6 cents.
Chief Financial Officer David Bergman said margins were squeezed by increased freight costs, particularly ocean freight, which were higher than the company had anticipated. Under Armor also used more air freight to bring in goods from overseas, he said.
Revenue increased to $1.3 billion from $1.26 billion last year. That missed estimates for $1.32 billion.
In North America, sales increased 4% to $841 million. However, its international business grew just 1% to $456 million, dragged down by a 14% decline in the Asia-Pacific region, which includes China.
Not only is China a growing market for Under Armor to attract new customers, it is also a key manufacturing center for much of the sportswear industry. A number of international companies including Apple and Estee Lauder have warned in recent days that a strain from China’s Covid controls will hit their businesses.
For the 12 months ended December 31, Under Armor manufactured approximately 67% of its apparel and accessories in China, Vietnam, Jordan, Malaysia and Cambodia. And essentially all of its shoes were made in China, Vietnam and Indonesia, according to an annual filing.
In the first quarter of fiscal year 2023, which runs from April 1 to March 31 of next year, Under Armor sees flat to slightly declining sales compared to the same period last year.
Bergman said the first half of the year will be hit the hardest by order cancellations and supply chain delays. Under Armor also expects the impact of Covid-19 in China to ease over the year, he said.
For the full year, Under Armor is forecasting earnings of between 63 cents and 68 cents per share on an adjusted basis, down from analysts’ expectations of 86 cents.
Compared to the previous year, sales growth of 5 to 7% is expected. Analysts expected an increase of 5.4%.
Under Armor said the outlook included three percentage points of headwind from its decision to cancel some orders to vendors due to capacity issues and supply chain delays.
CEO Frisk said the brand should return to delivering “sustainable, profitable returns” as global supply chain challenges and coronavirus-related complications in China normalize.
He also teased future projects to drive demand, including a resale platform and loyalty program that Under Armor plans to pilot in North America by the end of 2022.
Under Armor’s full financial statement can be found here.
https://www.cnbc.com/2022/05/06/under-armour-uaa-reports-sales-below-wall-street-estimates.html Under Armor (UAA) reports selling below Wall Street estimates