Under Armour recently reported a decline in sales across its business, but the athletic apparel retailer managed to exceed expectations for its fiscal first quarter results. The company’s stock surged by 17% in early trading after beating Wall Street’s estimates on both the top and bottom lines. Despite this positive performance, Under Armour reported a loss of $305.4 million, or 70 cents per share, compared to a profit of $10 million, or 2 cents per share, a year earlier. This significant drop in earnings raises concerns about the company’s financial stability.
In late June, Under Armour agreed to settle a long-standing securities lawsuit for $434 million, just before the trial was scheduled to begin. The lawsuit, filed in 2017, accused Under Armour of misleading shareholders about its revenue growth to meet Wall Street’s expectations. While the company denied any wrongdoing, the settlement highlights the potential risks associated with its business practices, which could impact its reputation and financial performance in the long run.
Under Armour is currently undergoing a broad restructuring plan aimed at revitalizing its brand, increasing sales, and improving profitability. The company plans to cut costs by laying off employees, reducing promotions and discounts, and streamlining its product offerings to enhance competitiveness. Additionally, Under Armour aims to position itself as a premium brand, similar to Nike, to attract a more affluent customer base. However, these strategic changes may take time to yield positive results and could face challenges in a highly competitive market.
Sales Performance
Despite overall sales declining by 10% to $1.18 billion in the first quarter, Under Armour’s sales in North America, its largest market, performed relatively better than expected. Wholesale revenue dropped by 8% to $681 million, while direct-to-consumer sales decreased by 12% to $480 million. The company’s gross margin improved to 47.5%, higher than analysts’ expectations of 46.1%, thanks to reduced discounting. However, apparel revenue fell by 8%, footwear sales dropped by 15%, and accessories revenue declined by 5%, indicating ongoing challenges in key product categories.
Future Outlook
Looking ahead, Under Armour expects to incur losses in fiscal 2025, projecting losses per share to be between 53 cents and 56 cents and adjusted earnings per share to be between 19 cents and 22 cents. This revised forecast is lower than previous expectations of earnings between 2 cents and 5 cents per share. The company’s focus on restructuring, expanding into sustainable fashion, and acquiring new talent, such as Eric Liedtke from Unless Collective, underscores its commitment to long-term growth and innovation. However, the brand’s transformation may take time to resonate with consumers and generate sustainable revenue streams.
Under Armour’s recent financial performance, legal challenges, restructuring efforts, sales performance, and future outlook reflect a company at a critical juncture. While there are glimpses of optimism in its improved first-quarter results and strategic initiatives, there are also risks and uncertainties that could impede its recovery and growth trajectory. As Under Armour navigates these challenges, the company must remain vigilant, adaptive, and customer-focused to emerge stronger in a competitive and evolving market landscape. Only time will tell whether Under Armour can regain its footing and position itself as a leading player in the athletic apparel industry.
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