Company shares shot up almost 25 percent in trading on Tuesday after the Baltimore-based company reported international revenue increased 15 percent to $351 million for the period ending Sept. 30. Meanwhile, revenue fell 2 percent in North America to $1.1 billion.
Earnings per share were also better than expected at 25 cents, compared with the 12 cents analysts had expected, and total revenue increased 2 percent to $1.4 billion.
“Our third-quarter results demonstrate that our multiyear transformation is on track,” Under Armour chairman and chief executive officer Kevin Plank said in a statement. “Coupled with increasingly greater business discipline and resulting efficiencies, we continue to gain confidence in our long-term path and ability to deliver to our consumers, customers and shareholders.”
More than 70 percent of the company’s sales are in North America, according to Cristina Fernández, senior research analyst at the Telsey Advisory Group. Faced with growing competition and soft sales in the U.S. sports apparel market, the American ath-leisure company has been trying to expand its global footprint. The international business in the third quarter was led by revenues in Latin America, followed by Asia.
Under Armour, founded in the Nineties, reached its peak in the summer of 2015, but with competitors such as Lululemon, Nike and Adidas taking market share, Under Armour over anticipated the demand for its products and was saddled with extra inventory, Fernandez said.
In addition, the large number of promotions have hurt the company’s bottom line. In its updated 2018 outlook, the company said it plans to lower the amount of promotions offered, compared with the previous year. But it’s a move that is getting “tougher and tougher” for the retailer to execute with so much competition, said Susan Anderson, managing director at B. Riley FBR.
“It just seems like that athletic space is still pretty promotional out there, particularly within the mass channels, like at a Kohl’s,” Anderson said.
While international sales might be a lucrative growth engine, for Under Armour to continue growing the apparel-maker will have to do more than just expand overseas, Fernandez said. The brand will need to introduce new products, such as shoes.
“Footwear tends to be where the brands differentiate their products a little bit more,” Fernandez said, who pointed out that Adidas and Nike have a loyal customer base because of their sneakers, while Lululemon resonates particularly well with females.
Under Armour, Fernandez said, is “known as a little bit more of a technical brand, catering more to athletes and less of a fashion or leisure brand. They resonate better with men and young athletes. With women, I still think they have more work to do.”