Under Armour’s upbeat Q3 has Plank warning the competition

Under Armour’s revenue was up 2 percent, or $1.4 billion, in the third quarter of 2018, and the brand projects operating losses for the year to be less than expected.

During the company’s earnings call on Tuesday analysts praised the company’s results, particularly in terms of profitability and inventory reduction.

“We’re right where we thought we would be,” Under Armor CEO and Chairman Kevin Plank said.

The company’s adjusted gross margin, used to determine profitability, increased 20 basis points to 46.5 percent compared to the previous year. Inventory decreased by 1 percent to $1.2 billion.

Investors on Tuesday took note of Under Armour’s upbeat earnings report. At closing, the Baltimore-based company’s stock was trading at 23.23, up almost 28 percent from the day’s opening price.

Under Armour executives attributed the relatively successful quarter to progress made implementing the company’s restructuring plan. Once the darling of Wall Street, Under Armour struggled in recent years trying to come to grips with its rapid growth.

The company has focused on improving facets of its business, such as narrowing product offerings, improving supply chains and polishing marketing efforts in order to produce better results for shareholders.

Part of that restructuring involved reducing the firm’s workforce. The company has slashed its workforce by about 680 employees, or nearly 5 percent of its global workforce.

Efforts to improve what Plank calls Under Armour’s storytelling resulted in the firm enduring a series of shake-ups atop its marketing department.

Andrew Donkin left his position as Under Armour’s chief marketing officer in late 2017 after just over a year at the company.

Donkin, who previously worked for Amazon, left the company following a dismal third quarter last year. Following Donkin’s departure Under Armour President Patrick Frisk took over as the interim head of marketing.

Adrienne Lofton, the company’s highly regarded former senior vice president for global brand management, also left Under Armour this summer for competitor Nike. Attica Jaques, who started with the company as vice president of global brand marketing and in 2015 was named an AdAge Woman to Watch, currently leads global brand management.

In September the company named Alessandro de Pestel its chief marketing officer. Previously he served as executive vice president of marketing, communications and consumer insights for Tommy Hilfilger Global/PVH Europe.

“Our playbook is working,” Patrick Frisk said. “Becoming more disciplined does not mean we’re on the defensive.”

Operating losses for the year are now anticipated to decrease to as low as $50 million compared to the previously expected $60 million.

The revenue increase last quarter was driven by a 4 percent boost in wholesale income to $914 million. Direct-to-consumer revenue remained flat and represented 32 percent of total earnings, according to the footwear and apparel maker’s third-quarter earnings report.

North American revenue, however, dropped 2 percent to 1.1 billion. But revenue increased internationally by 15 percent to $351 million.

Apparel revenue grew 4 percent to $978 million with surges in training, golf and team sports products. Footwear revenue remained flat at $285 million, and accessories dropped 6 percent to $116 million. That decline was driven by slowed demand for outdoor and training products in that sector.

For the year revenue is expected to increase by about 3 to 4 percent. Apparel is expected to grow at midsingle-digit rate, footwear by a low single-digit rates and accessories are expected to continue to decline at a midsingle-digit rate.

Karyl B. Leggio, a professor of finance at Loyola University Maryland’s Sellinger School of Business, said the company’s ability to control costs, reflected in its margins, represents a “huge” win for the company. She called the earnings report “great news,” especially in the context of similar firms tempering expectations.

“Other companies are reporting good third-quarter earnings but they’re modulating for the fourth quarter and beyond, and Under Armour is not,” Leggio said.

Another positive for the company, she argued, is the growth in the international sales. Overseas markets represent the greatest opportunity for Under Armour to expand business. But one negative to watch is the firm’s drop in North American business. If that continues through the all-important fourth quarter, the biggest of the year for retailers, it’s a sign the brand’s messaging is falling flat.

“If they see a decline in sales domestically they need to worry about their marketing,” she said.

The firm, which has a roster of endorsees including NBA star Steph Curry, former wrestler/actor Dwayne “The Rock” Johnson, and ballerina Misty Copeland, has slowed its pursuit of major endorsement deals. But the firm did tout its recent signing of Philadelphia 76ers star Joel Embiid.

“The decision for him, it wasn’t just money … we didn’t have to be the biggest check out there,” Plank said.

Executives teased more announcements regarding the firm’s future during investors day slated for December. The next iteration of one of the company’s highest-profile products, the sixth iteration of Curry’s signature sneakers, are expected to be released in a “few weeks.”

Plank, however, reiterated in the call that Under Armour wasn’t “declaring victory” and described the company’s performance as “just fine.” Better days for the brand, he said, are ahead.

“I think we’re going to really be something to deal with in about 12 months,” Plank said.