8-K: Under Armour Reports Mixed Q3 Results, Tightens Full-Year Outlook

Under Armour's third quarter fiscal 2024 results show a revenue decrease but improved profitability, leading to a tightened full-year outlook.

Summary

• Under Armour's revenue for the third quarter of fiscal year 2024 decreased by 6% to $1.5 billion, or 7% on a currency-neutral basis.
• Wholesale revenue declined by 13% to $712 million, while direct-to-consumer revenue increased by 4% to $741 million.
• North America revenue decreased by 12% to $915 million, but international revenue increased by 7% to $566 million.
• Gross margin improved by 100 basis points to 45.2%, driven by supply chain benefits.
• The company's operating income was $70 million, with an adjusted operating income of $92 million.
• Net income was $114 million, and adjusted net income was $84 million, excluding a $50 million earn-out benefit and litigation reserve.
• Diluted earnings per share were $0.26, and adjusted diluted earnings per share were $0.19.
• Inventory decreased by 9% to $1.1 billion, and the company had $1 billion in cash and cash equivalents.
• Under Armour repurchased $25 million of its Class C common stock during the quarter, completing its two-year $500 million share buyback program.
• The company has tightened its full-year revenue outlook to a decline of 3 to 4 percent, and expects gross margin to increase by 120 to 130 basis points.
• Operating income is expected to be between $287 million and $297 million, or $310 million to $320 million adjusted.
• Diluted earnings per share are expected to be $0.57 to $0.59, or $0.50 to $0.52 adjusted.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to improved profitability and a tightened outlook, but the revenue decline and other challenges temper the overall outlook.

Positives

• Gross margin improved by 100 basis points to 45.2%, driven by lower freight expenses.
• Direct-to-consumer revenue increased by 4%, indicating strength in this channel.
• Inventory decreased by 9% to $1.1 billion, showing improved inventory management.
• The company completed its $500 million share buyback program.
• The full-year gross margin outlook has been increased.
• Capital expenditure expectations have been reduced.

Negatives

• Overall revenue decreased by 6% to $1.5 billion.
• Wholesale revenue declined significantly by 13% to $712 million.
• North America revenue decreased by 12% to $915 million.
• Apparel and footwear revenue decreased by 6% and 7% respectively.
• The company incurred a $23 million litigation reserve expense.

Risks

• The company faces a mixed retail environment, which could impact future sales.
• There is a risk of continued decline in wholesale revenue.
• The company is exposed to fluctuations in foreign currency exchange rates.
• The company is exposed to risks related to supply chain disruptions and increased competition.
• The company is exposed to risks related to litigation and other proceedings.

Future Outlook

Under Armour has tightened its full-year revenue outlook to a decline of 3 to 4 percent, and expects gross margin to increase by 120 to 130 basis points. Operating income is expected to be between $287 million and $297 million, or $310 million to $320 million adjusted. Diluted earnings per share are expected to be $0.57 to $0.59, or $0.50 to $0.52 adjusted.

Management Comments

• Under Armour President and CEO Stephanie Linnartz stated that third quarter revenue results were in line with expectations, and the company delivered better than anticipated profitability.
• She also mentioned that the company is working to reset Under Armour toward a path of improved revenue growth and enhanced value creation in the future.

Industry Context

The results reflect a mixed retail environment during the holiday season, which has impacted many companies in the apparel and footwear industry. Under Armour's focus on direct-to-consumer sales and supply chain improvements aligns with broader industry trends.

Comparison to Industry Standards

• Nike, a major competitor, has also faced challenges in wholesale channels, but has shown stronger growth in direct-to-consumer sales.
• Adidas has been focusing on inventory management and supply chain improvements, similar to Under Armour.
• Lululemon has demonstrated strong growth in both direct-to-consumer and international markets, setting a high benchmark for Under Armour.
• The 100 basis point increase in gross margin is a positive sign, but it is important to compare this to the performance of other companies in the sector to assess its relative strength.
• The 6% revenue decline is concerning, and it is important to see how this compares to the performance of other companies in the sector.

Stakeholder Impact

• Shareholders may be concerned about the revenue decline but encouraged by the improved profitability and tightened outlook.
• Employees may be impacted by the company's restructuring efforts.
• Customers may see changes in product availability and promotional activities.
• Suppliers may be affected by changes in the company's supply chain strategy.
• Creditors may be reassured by the company's strong cash position and reduced inventory.

Next Steps

• Under Armour will hold a conference call to discuss the financial results.
• The company will continue to focus on resetting the business for improved revenue growth and value creation.
• The company will continue to execute its long-term strategies.

Key Dates

Keywords

Under Armour, Financial Results, Revenue, Gross Margin, Operating Income, Net Income, Direct-to-Consumer, Wholesale, Share Buyback, Outlook, Apparel, Footwear, Athletic Wear