BALTIMORE — Shares of Under Armour surged Thursday morning after the Baltimore-based brand beat Wall Street’s expectations for second-quarter earnings.
While the sports apparel and footwear maker lowered its outlook for the year because of a challenging retail environment, officials also unveiled new strategies Thursday designed to propel the company’s growth while maintaining the brand’s premium status.
Company executives, including founder Kevin Plank, said they intend to connect more deeply with team sport athletes in the 16-to-20 age range as the target audience that would then influence the broader market. The brand also expects to expand apparel offerings in a new “live” category designed to provide gear for a full day of a young athlete’s life.
“It’s a pivotal time for Under Armour,” Plank said during a call with analysts. “We will not miss the opportunity to reposition and establish our sector leadership wherever we choose to compete.”
Plank said the brand has made great strides in the past six months to “drive more love for the Under Armour brand. ... We believe UA is the brand most perfectly positioned to drive ‘thought leadership’ among young athletes.”
The company reported a quarterly profit of $87 million, or 19 cents per share, for the three months that ended Sept. 30, compared with $113 million, or 24 cents per share, in July-to-September period last year.
Net income was $92 million when adjusted for a $10 million legal expense for ongoing litigation and a $5 million benefit from a tax valuation allowance for restructuring. On an adjusted basis, Under Armour earned 20 cents a share, beating analysts’ expectations of 16 cents per share.
Under Armour’s stock jumped more than 12.5% in midday trading to $7.99 each.
Colin Browne, Under Armour’s interim president and CEO, said significant changes in market dynamics and consumer behavior over the past few years prompted the company to narrow its focus from the serious athletes it calls “targeted performers” to young athletes who play team sports from ages 16 to 20.
“This definitive group personifies our brand attitude and lives at the intersection of multi-generational influence, from pushing the boundaries of what’s possible in sports to seamlessly binding fitness, music and street culture,” Browne said during a call with analysts.
Reaching those athletes will “bring our product and storytelling into sharper intensity across the entire athlete experience, influencing the larger target market,” he said.
Under Armour said its research has shown that the 16- to- 20-year-old athletes tend to shop more often, buy more products on an annual basis and pay full price.
Browne also said the brand has an opportunity to nearly triple its exposure to a $300 billion consumer market by adding products that will cover a young athlete’s entire day, blending performance-based fabrics with “fresh” designs. The brand expects to roll out products in the new “live” category in the next fiscal year, he said.
Under Armour saw its sales edge up moderately in the second quarter, rising 2% to $1.6 billion, in line with analysts’ expectations.
Even though the quarter followed one that had a small decline in sales, “we see the modest expansion as a further sign that demand is waning, and that the consumer economy is becoming much more difficult to navigate,” said Neil Saunders, managing director of GlobalData, in a report Thursday. “The boom days of the pandemic — which fueled the fortunes of Under Armour and almost every other athletic and athleisure brand — are now firmly in the rear-view mirror.”
Sales to retailers were up 4% to $948 million, while sales through online channels and company-owned stores fell 4% to $577 million. The decrease was due to a 9% decline in owned and operated store revenue.
Sales in the key U.S market fell 2% to $1 billion compared with the previous second-quarter. International sales rose 7% to $547 million, with strength in Europe, Middle East and Africa regions.
Saunders noted that the decline in the U.S. may reflect the general state of the market.
“Our data show that over the past few months, overall volumes of apparel and sporting apparel have fallen as consumers cut back on spending,” he said.
Under Armour’s apparel sales decreased 2% to $1 billion, while sales of footwear jumped 14% to $376 million.
Saunders said new product launches helped Under Armour’s footwear sales, a trend that will likely continue over coming quarters as Under Armour pushes out a strong pipeline technical innovations.
“However, we are currently detecting a lot of softness in consumer sentiment across the foreign markets in which Under Armour trades,” he said in the report.
Under Armour began its new fiscal year 2023 on April 1 and is using April 2021 through March 31 as its comparable baseline period.
The brand lowered its outlook for the full year and now expects revenue to grow at a low single-digit percentage rate compared to the previous expectation of 5% to 7% growth because of a challenging retail environment.
Full-year earnings are expected to be 56 cents to 60 cents per share instead of 61 cents to 67 cents as previously announced.
