Under Armour Posts In Line Q2, Kohl’s Deal & Mega Retail Expansion Steal The Show

Under Armour Curry 2.5 White Black
Under Armour Curry 2.5 in white and black.
Courtesy of Under Armour

Under Armour Inc.’s Q2 results and conference call left investors and market watchers with a lot to digest Tuesday.

The Baltimore-based brand posted an in-line second quarter and reiterated its full-year guidance in a release before the market open. But it was UA’s conference call that had the industry buzzing.

Chairman and CEO Kevin Plank unveiled several key measures to drive the brand forward and expand its reach.

Among the buzziest was Plank’s announcement that his brand would take over the former FAO Schwarz building — a 53,000-sq.-ft. space — on Fifth Avenue in New York to create “the most breathtaking and exciting consumer experience ever conceived at retail.” The space is in a high-traffic area and is in one of Manhattan’s most famous neighborhoods. Plank said he expects UA to land in the space by 2019.

Under Armour’s chief also said the brand had inked a new deal with Kohl’s. UA will now be distributed in 1,100 Kohl’s stores globally. Plank said he views the partnership as an opportunity to further tap into the female customer base.

We think Kohl’s is a great evolution for us — we think that the female consumer that she’s there, she’s shopping and she’s buying … this is a consumer decision, not really a channel decision,” Plank said. “We believe that there’s a massive opportunity with the consumer that’s walking into those stores and looking for the Under Armour brand and, frankly, they haven’t been able to find it.”

Plank also attempted to quell concerns that the move would take the label down market, ensuring investors that the brand would “continue to have elevated product there.”

Plank also noted the brand’s effort to bring a “young, fresh and modern voice to sportswear” via its new Under Armour Sportswear collection.

UAS is built for the mobile native consumer,” Plank said. “While we’re partnering with high-end partners to showcase a best-in-class expression of the collection, the launch of UAS is predominantly a [direct-to-consumer] offering. This initiative represents an ambitious step for our brand and provides a great amount of daylight between it and our existing product range.”

The first product from the line will be available this September. (Under Armour announced in June the hiring of fashion designer Tim Coppens as creative director of UAS.)

Despite a challenged retail environment and a marked hit to the brand’s earnings from Sports Authority’s collapse, Under Armour reported that its sales for the second quarter grew 28 percent, to $1 billion, marking its third consecutive billion-dollar quarter. Footwear remained a primary growth driver, advancing 58 percent in the quarter, to $243 million. Apparel, the brand’s largest category, grew 19 percent, to $613 million.

The brand’s income took a $23 million impairment related to the liquidation of Sports Authority. Net earnings decreased 58 percent, to $6 million, compared with $15 million in the prior year’s period.  The company posted diluted loss per share of 12 cents for Class A and B shares and diluted earnings per share of 15 cents for Class C shares, reflecting the impact of a $59 million stock dividend paid to Class C shareholders during the quarter. Adjusted earnings per share for all classes, inclusive of 3 cents impact from the impairment related to the Sports Authority liquidation, were 1 cent and in line with analysts’ forecasts.

The company reiterated its full-year guidance, announced in May on the heels of Sports Authority’s announcement of a complete liquidation.

Digital growth — most notably via its Connected Fitness platform — and aggressive expansion into China remain major priorities for the brand looking ahead, Plank noted.

As of 11:25 a.m. ET, Under Armour’s stock had slipped 3.1 percent to $42.18.