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Under Armour: Q1 loss can’t obscure ‘solid progress’

Under Armour CEO Kevin Plank (File)

‘We are playing the long game, and we’re the best at getting better,’ says Under Armour CEO Kevin Plank. (File Photo)

Under Armour announced a $29 million operating loss for the first quarter of 2018, but executives Tuesday said they’re confident in their plan to make the Baltimore-based athletic apparel manufacturer a stronger company.

Operating income is expected to reach between $20 million and $30 million this year. That projection excludes the impact of restructuring efforts. The company reported a 6 percent increase in revenue at $1.2 billion.
“Our first-quarter results should be taken as a solid indicator that we’re making solid progress toward these goals,” Kevin Plank, Under Armour CEO and chairman, said during Tuesday’s earnings call.
Under Armour’s stock price was up and down throughout the day, ending up 1.52 percent at $18.03 a share.
Under Armour reported wholesale revenue is up 1 percent to $779 million and direct-to-consumer revenue is up 17 percent to $352 million. That portion of business represented 30 percent of Under Armour’s global revenue.
Revenue from North America was down by 1 percent, but international business increased 27 percent at the start of the year. Under Armour’s stock produced .07 cents diluted earnings per share in the first quarter.
Gross margin is expected to increase by 50 basis points to 45.5 percent due to product cost, lower promotional activity and changes in foreign currency.
Net revenue is expected to be up through 2018 by low single digits based on an anticipated single-digit decline in North America and a 25 percent boost from international sales. That’s in line with projections the company made during its last earnings call in February.
Mitch Kummetz, senior analyst at Pivotal Research Group, said the quarter was a mixed bag for the company.  If Under Armour can reach its 2018 numbers and show it’s stabilized, he said, that will be a win for the company.  But he said he was concerned the company is basing its expectations on strong sales in the second half that may not materialize.

Under Armour has a high amount of inventory, he said, and if anticipated sales fall short the company may end up making aggressive promotional offers to sell that stock, undercutting expectations.  While the company is bullish on new products such as its HOVR running shoes, struggling retail distributors looking to boost sales may not have as a top priority selling $100-plus running shoes.

“I don’t see that as something a lot of retailers will focus on,” Kummetz said.
The company’s first-quarter performance follows a year-end boost based on stronger-than-expected revenue growth, largely from international sales. The once high-flying company struggled in 2017 after it grappled with several facets of its business, including strategy and operations.
Last year Under Armour posted a net loss of $48 million for the year and an operating loss of $37 million in the final quarter of 2017.
The message from executives during Tuesday’s call was similar to the one they delivered at the close of 2017. Plank reiterated his vow to make the company a “loud brand and quiet company” as it streamlined operations to produce sustainable and profitable growth.
“We are playing the long game, and we’re the best at getting better,” he said.
Executives said the performance of new products, such as the HOVR running shoe and Rock Style sneakers, are reasons for optimism. Those products have proven to be strong sellers for the company after some signature products, like previous iterations of basketball star Stephen Curry’s signature shoe, failed to produce expected results.
“When we do have the right product, the right style, and we communicate it with the right style, the consumer is there for us,” Plank said.
Plank said the company is satisfied with its relationship with the struggling Dick’s Sporting Goods and isn’t looking to add new distributors. The company will continue to try and improve product flow that has previously bedeviled operations while providing “solutions they didn’t know they needed.”
The company’s focus, and where Plank feels Under Armour has an advantage over competitors such as Nike and Adidas, will be producing high-quality products targeted at athletes.
“Fundamentally the process starts and begins with athletes,” Plank said.

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