“During the first quarter, our results in January and February were tracking well to our plan,” Patrik Frisk, Under Armour president and chief executive officer, said in a statement. “Since mid-March, as the pandemic accelerated dramatically in North America and EMEA and retail store closures ensued, we’ve experienced a significant decline in revenue across all markets.”
More precisely, for the three-month period ending March 31, revenues were $930 million, down from $1.2 billion during 2019’s first quarter. Meanwhile, the company’s loss widened to $590 million, compared with $63 million the same time last year.
Wall Street remains skeptical of the company as well. Shares, which are down nearly 55 percent year-over-year, closed down 9.72 percent to $9.01 a piece Monday.
“With minimal available information, we expect most [earnings per share] reports will flag revenue reductions, store closures (some open but underperforming [international] stores), better e-commerce unable to offset store declines, expense reductions, including marketing, employees, capex,” Simeon Siegel, managing director and senior retail analyst at BMO Capital Markets, wrote in a note.
Like many retailers, Under Armour temporarily closed stores in North America in mid-March to prevent the spread of the coronavirus. At the time it said the store closures would be closed for about two weeks, or until March 28. As of Monday, all stores in North America and Europe remain closed, while roughly 80 percent of company-owned and partner stores in China have reopened since mid March. (The Asian Pacific region was just 12 percent of global revenue in 2019.)
“Wrapping all of this together means that since mid-March about 80 percent of our global business has been at a standstill,” Frisk said on Monday morning’s conference call with analysts.
It’s no surprise then that sales across all three categories — apparel, footwear and accessories — fell during the quarter. Apparel revenue decreased 23 percent to $598 million, footwear fell 28 percent to $210 million and accessories declined 17 percent to $68 million.
Losses continued in the wholesale channel, where revenues fell 28 percent to $592 million. The North American business — where the company does the majority of its business — also fell, 28 percent to $609 million in revenues.
The company is not providing guidance for 2020. But executives on the conference call did say that the company’s e-commerce business began to noticeably trend upwards in April and May. One bright spot was the women’s business, including the footwear, train and run categories.
In addition, new users on the Under Armour digital app increased 275 percent since mid March and the company will roll out its new e-commerce platform sometime in June or July.
“Although this is still a fairly small part of our business, [digital] validates some of the pre-COVID work coming together with recent strategic adjustments to drive brand consideration,” Frisk said on the conference call.
“2020 is going to be a year of rebalancing and not just for us” he continued. “I think our larger retail partners, as well as our smaller retail partners [are readjusting], and that this both goes for [retailers in] North America, as well as Europe, are in the same situation that we’re in. They’re trying to figure out how fast they can open and how fast the consumer is going to come back.”
Frisk pointed out that when stores finally do reopen, Under Armour’s store base has the advantage of being a largely stand-alone fleet, rather than concentrated in malls, something that might help make consumers feel more comfortable about shopping in real life.
Either way, there’s no denying that the company will have further losses in the second quarter, which includes April and May.
“As a result, like so many businesses, we’ve had to make very difficult decisions, including temporarily laying off teammates in our U.S. retail stores and distribution centers along with other actions to ensure we protect Under Armour’s financial stability,” Frisk said in a statement.
Under Armour also said it would reduce employee incentive compensation, decrease employee travel, new hires and other discretionary spending, and postpone other capital expenditures, thereby saving about $325 million.
On the conference call, Frisk added that the company is cutting inventory receipts to help maintain inventory levels, extending payment terms to customers and vendors and is in the process of negotiating rent abatements during the store closures. The company also said it has made an amendment to its revolving credit facility, which it plans to close as early as Tuesday.
In addition, in February, Under Armour executives said the brand was considering ditching its plans for a long-awaited New York City flagship.
The planned store — a 53,000-square-foot unit set to open in the former FAO Schwarz space at 59th Street and Fifth Avenue in Manhattan — has been in the works since 2016. But by scrapping the store, the company could save millions, and instead focus on smaller, more profitable stores.
Under Armour would still be liable for the terms of the Fifth Avenue lease. But David Bergman, Under Armour’s chief financial officer, said the company would consider subletting the space. If the company did abandon the store, it would lead to pretax restructuring changes of between $225 million and $250 million, which would be part of a larger restructuring program that could lead to charges of up to $425 million. If implemented, the restructuring initiatives could drive between $30 million and $50 million in pre-tax benefits for fiscal year 2020.
Under Armour did not comment on its plans for the store Monday. Nor did it comment on the roughly 1,500 to 1,700 stores it previously said it would open around the world in the next three to four years.
“I would say the next 24 to 36 months will be, I think, what you could perhaps call a forcing mechanism for many retailers, especially in the U.S., where there’s still a lot of stores, and there’s still a lot of square footage, so there’s certainly going to be winners and losers in this environment going forward,” Frisk said. “And I think that’s not just in our sector. I think that’s in general in retail. And there will also be of course as everybody is predicting right now a distortion to digital.”
But he added, “We need to incentivize the customer to come in and buy new stuff for sure. Coming out of this, this pandemic, we believe that health and fitness is going to continue, especially [the] staying fit aspect is going to be incredibly important going forward, maybe more so than going into the crisis. So I think we’re positioned really well to be able to capitalize on that.”