Under Armour Beat Expectations in Q3 — And Footwear Was a Major Growth Driver

Under Armour reported better-than-expected results for the third quarter on Wednesday.

The Baltimore-based brand reported revenues of $1.6 billion, up 3% over last year. Net income was $122 million and adjusted diluted earnings per share was $0.16. Both earnings and revenues exceeded the expectations of analysts surveyed by Yahoo Finance.

In footwear, a standout category for the brand, sales were up 25% to $354 million. In a call with analysts, executives highlighted the strength of the running, basketball and American football, which continue to drive momentum for the brand. Apparel revenue decreased 2% to $1 billion and accessories revenue declined 2% to $105 million.

Footwear was also a standout category for Under Armour in Q2 as well.

For fiscal year 2023, Under Armour expects revenues to grow at a low single-digit percentage rate. Adjusted earnings per share is expected to be between $0.52 to $0.56, up from its previous guidance of between $0.44 and $.048.

Alongside these results, Under Armour ended the quarter with inventories up 50% to $1.2 billion. Like other retailers, Under Armour has experienced inventory excesses as a result of delayed product shipments and a sudden drop off in consumer demand due to inflation.

“When the industry sneezes, we catch a cold somewhat, as does everyone else,” Under Armour’s interim president and CEO Colin Browne said in a call with analysts, describing the sports industry as “bloated” with product.

Despite the large inventory bump, CFO David Bergman said the company has been proactive in managing the excesses without relying too heavily on promotions or off-price channels. For example, Under Armour is utilizing a “pack and hold” strategy to keep seasonal merchandise stored until it can be sold again next year.

“We are in a fairly healthy place,” Bergman said. “We do not have a lot of aged inventory.”

Executives also noted that they are seeing improvements across supply chain and ocean and delivery times.

By channel, wholesale revenue was up 7% to $820 million, and DTC revenue dropped 1% to $715 million. In North America, revenue was down 2%.

According to GlobalData managing director Neil Saunders, Under Armour needs to work on its brand identity and desirability factor in order to compete with other athletic-wear giants. This is something Stephanie Linnartz will need to focus on when she joins the company later this month as CEO.

“While Under Armour’s brand is certainly not terrible, it still lacks the clarity and desirability of stronger brands like Lululemon,” Saunders said in a note. “During difficult times, this makes it easier for consumers to avoid buying it or to switch to cheaper alternatives.”

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