After two consecutive quarters of losses, the Baltimore-based athletic apparel, accessories and footwear maker logged a $39 million quarterly profit and revealed plans to sell the MyFitnessPal platform for roughly $345 million. Company shares rose 1.58 percent to close at $12.23 on Friday as a result.
“Our third-quarter results reflect considerably better-than-expected performance due to higher demand and our strong execution, especially in North America,” Patrik Frisk, Under Armour’s president and chief executive officer, said in a statement. “We believe that the critical mass of our transformational challenges is behind us and we remain sharply focused on operational improvements and financial discipline to accelerate strategies to create sustainable, long-term growth for the Under Armour brand and our shareholders.”
He went on to say that the sale of MyFitnessPal “reduces the complexity of our consumer’s brand journey by empowering sharper alignment with our long-term digital strategy as we work toward a singular, cohesive [Under Armour] ecosystem. Additionally, it affords us investment flexibility to drive greater return and value to our shareholders over the long-run.”
That’s good news for a company that lost a combined $773 million in the last two quarters. The stock, which closed up 3.61 percent to $13.79 Thursday, is also down more than 33 percent year-over-year.
In the most recent quarter ending Sept. 30, total company revenues were flat at $1.4 billion, the same as last year, while quarterly profits were $38.9 million, down from $102 million during 2019’s third quarter.
Revenues in Under Armour’s largest market, North America, fell 5 percent to $963 million, down from more than $1 billion last year, while international revenues increased 18 percent to $433 million.
In the wholesale division, revenues fell 7 percent to $830 million for the quarter, while the company’s direct-to-consumer business surged 18 percent to $540 million, driven by strong growth in e-commerce, which grew by more than 50 percent globally.
Executives told analysts during Friday morning’s conference call that, starting next year, the company plans to exit between 2,000 and 3,000 wholesale distribution channels in North America.
“So, heading toward about 10,000 doors by the end of 2022 in our largest region,” David Bergman, chief financial officer of Under Armour, said on the call.
By category, apparel revenues decreased 6 percent to $927 million, down from $985 million a year ago, while footwear revenues increased 19 percent to $299 million, up from $250 million the same time last year. Revenues in accessories also rose, up 23 percent to $145 million, compared with $118 million last year.
“What we’ve seen this year that we’re very excited about is the energy in our women’s business,” Frisk said on the call. “It’s really nice to see how our brand is resonating across both genders.”
Under Armour ended the quarter with $866 million of cash and equivalents and $997 million in long-term debt. The retailer also had $74 million in restructuring and impairment fees during the last three months.
The MyFitnessPal transaction is expected to close during the current quarter, subject to customary closing conditions and regulatory approvals. Moving forward, Under Armour anticipates revenues to be down in the high-teen percentage for the rest of the year, compared with 2019’s results, and is expecting an operating loss of between $800 million to $860 million.
Other headwinds include delays in the supply chain, declines in licensing revenues and an increased promotional environment.
Most of Under Armour’s physical stores have reopened since lockdowns earlier this year, although the company said in-store traffic continues to lag.
But even pre-COVID-19, Under Armour was struggling with its turnaround efforts. Under Armour founder Kevin Plank relinquished operational control of the company he founded to Frisk last fall and the retailer said earlier this year that it was ditching plans to open the 53,000-square-foot flagship along Manhattan’s Fifth Avenue to help to curb expenses.
Then in July, the company, along with two of its top executives — one of them Plank — were served with a Wells Notice from the U.S. Securities and Exchange Commission, recommending legal actions be taken against them for violating certain federal securities laws.
The news left some analysts skeptical about Under Armour’s transformation efforts.
“Prior to the global pandemic, [Under Armour] was already in a vise caught between contracting North American sales and an elevated expense structure, but with no ability to invest in the business as the need to brand build via marketing is greater than ever,” Camilo Lyon, an analyst at BTIG, wrote in a note. “Now with the COVID-19 crisis wreaking havoc on global consumption, glimmers of hope for stabilization this year have all but faded. We caution investors on getting too excited about a potential inflection in the brand as we believe large-scale brand issues still remain.”