Kevin Plank


After months of speculation and criticism, Under Armour Inc. pleased its finicky Wall Street followers Thursday with first-quarter results that cleared a low bar.   

The company’s stock rose 10 percent to $21.67 after its revenues for the quarter grew 7 percent, to $1.1 billion, and net losses totaled of $2 million and were less than feared.

In the fourth quarterUnder Armour posted its weakest sales growth in nearly a decade and said 2017 would see subtle growth, leading analysts to downgrade the company.

Analysts had Under Armour pegged for losses of 4 cents a share, but instead its results amounted to a loss of about 1 cent, leaving investors something to be bullish about. There were also indications of international growth and claims from chief executive officer Kevin Plank that a new deal with Kohl’s Corp. is exceeding the brand’s expectations.

Still, Credit Suisse analyst Christian Buss reiterated his “underperform” rating on the brand.

Buss noted that Under Armour’s “commitment to accelerate low [return on invested capital] investments, such as Connected Fitness, owned retail, entering family-value distribution channels, and additional sponsorship commitments, look to have halted the potential for near- and mid-term earnings power.”

While the company attributed its relatively modest revenue growth to a 4 percent bump in wholesale revenue, to $773 million, and a 13 percent increase in direct-to-consumer revenue, to $302 million, its income was impacted by interest expenses and an increased effective tax rate.

David Bergman, Under Armour’s senior vice president of corporate finance, said during a call with analysts that the company’s effective tax rate “approached 200 percent from 42 percent due to discrete items taken in certain foreign markets” as well as the use of new accounting rules “related to the tax treatment of equity compensation.”

Beyond that, little was said of the loss for the quarter outside of brief allusions to wholesale increases not being enough to cover effects from recent retail bankruptcies, such as Sports Authority and MC Sports, and ongoing revenue challenges in North America, where revenue was down 1 percent.

Bergman did note that the first half of this year will likely result in a total operating loss of $15 million, due to selling, general and administrative expenses combined with “ongoing investments” in direct-to-consumer, international and footwear, a category that grew only 2 percent during the quarter.

International was a bright spot for Under Armour, as Cowan & Co. analyst John Kernan pointed out growth outside North America hit 52 percent, exceeding expectations of a 45 percent gain.

This boost did much to “offset persistently sluggish North American trends” and delivered “a modest upside surprise in a small quarter,” Kernan said.

Moody’s analyst Michael Zuccaro also applauded the company’s “very strong” international performance, but said he still expects 2017 to be a “very challenging year” for Under Armour.

“It continues to make what we think are sensible investments, but it’s going to take time for initiatives to take hold,” Zuccaro added. “The good news is it sounds as though they’re on track and it’s still a solid brand.”

As for the company’s financial expectations over the rest of 2017, its outlook is unchanged from earlier this year, with net revenues expected to grow 11 to 12 percent over the full year to reach nearly $5.4 billion and operating income expected to hit $320 million.

Even with the loss and relatively weak revenue growth for the quarter, ceo Kevin Plank said the company is “off to a solid start” and that “2017 is the year we’re empowering Under Armour to become a single, more agile, strong and smarter company.”

“Our first quarter marks a good start to this journey,” Plank told analysts.

“Our strategy is about more than this quarter or the next, and while parts of the broader environment remain uneven, we feel very good about the evolution of our brand strength, relationships with consumers around the world and our ability to gain share in key markets and categories,” Plank added. “Whether analyzing the next three, five or 10 years by product type, gender, category, channel or geography, we are underpenetrated comparatively by any measure, market share, mind share and potential.”

Plank went on characterize Under Armour’s position as the world’s third-largest athleticwear brand — $15 billion behind Adidas and $30 billion behind Nike, according to his calculations — as one that holds “significant and scalable opportunities.”

He pointed to the brand’s fledgling sportswear category as possibly Under Armour’s largest long-term growth opportunity, despite currently standing as its smallest section. A collection dubbed “Unstoppable Lifestyle” is due out later this year, which will mark the brand’s first full fashion-centric line.

Plank also mentioned the recent completion of what he called the “single view of the consumer,” an internal data analytics platform that combines transactional information with Under Armour’s “connected fitness” business that is set to give the company real-time information on over 200 million customers.  

“This highly sophisticated engine represents a critical asset and competitive advantage as we work toward becoming a $10 billion business,” Plank said. “We know we’ve got hard work ahead of us, and while we are certainly used to that, we respect the challenge and are pursuing it full force.…Our team is hungry and humble with our heads down, engaging, empowering, editing and executing.”

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