Under Armour Inc. continued to fight to a draw in North America for the first quarter, but scored solid overseas growth.
The company, still working to strengthen its competitive profile, saw net losses widen to $30.2 million, or 7 cents a diluted share, from $2.3 million, or 1 cent, a year earlier. Excluding the impact of the its restructuring, adjusted income totaled $1 million.
Revenues for the three months ended March 31 increased 5.9 percent to $1.19 billion from $1.12 billion. Wholesale sales rose 1 percent to $779 million, while the company’s direct-to-consumer business jumped 17 percent to $352 million, representing 30 percent of the company’s global revenues.
By geography, North American revenue was relatively flat while the international business jumped 24 percent.
Under Armour’s inventory was up 27 percent at the end of the quarter, growing 4.5-times quicker than sales on a year-over-year basis. The company’s been working to tighten operations, going to market with fewer stockkeeping units and turning goods more quickly. Operations are now in a state of flux, somewhere between the way the firm used to operate and its vision for the future.
Kevin Plank, chairman and chief executive officer, told analysts on a conference call: “As a company, there’s no question that 2017 and 2018 make up one of the most challenging yet opportunistic periods in our history. In the midst of this inflection point, we’re holistically transforming the company to ensure that the consumer is always first, simplifying our operations, increasing speed across our global ecosystem and prioritizing investments based on return.”
Capital expenditures this year are planned at $225 million, down from $275 million last year.
To move forward, the brand is obsessing on “the consumer athlete,” building product with them in mind and producing marketing meant to inspire them to be better.
Plank is doing much the same with his own company, which saw a considerable amount of executive turnover, but has stabilized. And Patrik Frisk, who joined the company in July as president and chief operating officer, is making his presence known.
“We’ve gone through a significant amount of change,” Frisk said on the call. “Change in business is constant, inevitable but necessary, especially when you grow in scale as quickly as we have. Our company and its culture choose to embrace change, [which] determines its ability to succeed. In this respect, our entrepreneurial roots and athletic DNA continue to serve us well in executing against our aspirational and operational goals….Fundamentally, this transformation starts and ends with athletes, and our ability to solve their needs through the innovative performance product we create.”
Jefferies analyst Randal Konik said the company’s sales were stronger than expected, but that inventories remain high and “will be an overhang until properly managed, but initiatives are in place to rightsize.”
Konik restated his “buy” rating on the stock.
“The brand is strong and still in the early innings of global growth,” the analyst said. “Top-line is recovering and margins are improving, which means upward EPS revisions ahead.”
Under Armour is looking for revenues to be up by a percentage in the low-single-digit range, while the North American business shrinks and international grows by better than 25 percent.