Under Armour Tops Q3 Forecasts, But Investors Aren’t Pleased with Outlook

It’s going to take more than a third-quarter sales and profit beat to keep Under Armour’s investors happy.

Before the market open on Tuesday, the Baltimore-based brand reported Q3 results that topped market watchers’ estimates, but also a lower-than-expected Q4 outlook, which led investors to unload the stock. Under Armour’s shares fell more than 16 percent in early-morning trading and remained down 13 percent, to $33, as of 10:30 a.m. ET.

While the firm reiterated its full-year guidance, announced in May on the heels of Sports Authority’s completed liquidation, UA CFO Chip Molloy provided a more tepid Q4 outlook on the company’s conference call. Molloy called for 20 percent revenue growth in the fourth quarter, below Wall Street’s predictions of 22 percent growth.

We believe the strength of our brands and an increased breadth of head-to-toe product offerings position us for another quarter of strong growth in what has been a challenging North American retail environment,” Molloy added.

Under Armour said its Q3 net income advanced 28 percent in the third quarter of 2016, to $128 million, or 29 cents per diluted share, topping forecasts for diluted earnings per share of 25 cents.

Net revenues increased 22 percent year-over-year, to $1.47 billion, compared with net revenues of $1.20 billion in the prior year’s period, and also topped predictions for revenues of $1.45 billion. On a currency-neutral basis, Under Armour said its net revenues increased 23 percent compared with the prior year’s period.

UA Chairman and CEO Kevin Plank — who inked a deal with Kohl’s Corp. earlier this year — said he’ll continue to look to footwear and international markets as the key drivers for the brand’s long-term growth.

We are improving our ability to leverage our global assets and help drive business in local markets,” Plank said during the conference call, noting that he believes China represents the brand’s biggest international opportunity. “We continue to focus on being a premium brand in footwear, with the goal of having more than 50 percent of our volume, [including] running footwear, [priced above] $100 by the spring of next year.”

Plank credited Under Armour’s presence at New York Fashion Week and the Olympic Games in Rio with helping the brand to reach a new and larger customer base.

Once again, growth was led by footwear revenue, which gained 42 percent, to $279 million, driven by the running and basketball categories. International net revenues, which represented 15 percent of total net revenues for the third quarter, grew 74 percent year-over-year, or 80 percent on a currency-neutral basis.

Wholesale net revenues grew 19 percent, to $1.01 billion, while sales in the direct-to-consumer channel increased 29 percent, to $408 million.

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