Shares for Under Armour plummeted 22% on Friday after the athletic sports brand reported a net loss in the transitional quarter ended March 31, 2022, after hitting pandemic-related issues and supply chain headwinds.
Under Armour reported a net loss of $60 million in the quarter, with an adjusted loss of $3 million. But revenue was up 3% year-over-year to $1.3 billion. Wholesale was up 4% to $829 million, driven primarily by increases in its distributor and off-price business. Direct-to-consumer business was up 1%, with 2% growth in e-commerce sales and flat results in its owned and operated stores.
In its earnings call on Friday, Under Armour president and CEO Patrik Frisk admitted that results “came in lighter than we expected” due to ongoing supply chain challenges and emerging COVID-19 impact in its Asia Pacific business that have restricted store hours and resulted in store closures in China. “These trends, which we believe to be temporary, are also expected to impact how fiscal ’23 is shaping up,” Frisk said.
Pressed further on the call by investors, Frisk added that the team is “frustrated” with its current situation, as he believes there is demand for the brand in the marketplace across the world, but current supply chain and logistics issues – like the increasing cost of freight – have caused the company to cancel orders.
This has some analysts concerned going into the next few quarters. Neil Saunders, managing director of data analytics and consulting company GlobalData, said in a note on Friday, “We remain concerned about a tightening of margins over the next few quarters. Freight expenses and ongoing supply chain issues are causing a squeeze for the business, and we do not see these dissipating in the near-term.”
Jim Duffy, managing director of sports and lifestyle brands at investment banking firm Stifel, added this in a note on Friday, “While we expect the stub quarter will soon be yesterday’s news, revenue and gross margin were both below the guidance issued mid-February and the deceleration from the second half of 2021 stands out, particularly the modest 1% growth in DTC versus the +10% in the fourth quarter of 2021.
Regardless, though, Frisk remains optimistic. He added on the call that as the company builds back inventory in the back half of the year, he expects the company to “start to get healthier” from a revenue growth perspective.
Under Armour now expects revenue in fiscal 2023 to increase 5 to 7 percent versus the comparable baseline period of $5.7 billion, reflecting a mid-single-digit growth rate in North America and a low-teens growth rate in the international business. Under Armour said its fiscal year 2023 will run from April 1, 2022, through March 31, 2023. Consequently, there will be no fiscal year 2022.
As for growth opportunities, Fisk said that footwear will outpace apparel growth in fiscal 2023 but would not provide a specific breakdown by category. “We believe our direct-to-consumer, footwear, women’s and international businesses will drive this growth over the long term,” Frisk said.
Later on the call, Frisk highlighted some new releases in Under Armour’s footwear category. The brand’s first-ever women-specific running footwear, the UA Flow Synchronicity, is expected to drop this fall. And new updates to the UA HOVR Phantom 3 and UA HOVR Infinite 4 are also expected this fall.
Nevertheless, Frisk remains confident in the brand’s future despite the headwinds the company is currently facing. “It’s essential to look past near-term pressures and focus on the long-standing influxes,” he added. “The price of freight, supply chain challenges and COVID-19 are not as powerful as the global passion for sport. I’m confident that we are well positioned to deliver on our promise of growth as we work through 2023 and beyond.”