Under Armour’s stock fell sharply Tuesday as investors expressed their jitters about continued struggles in North America.
The stock closed at $21.05, down 13.7 percent, despite the ath-leisure company’s release of second-quarter results that showed improvement on both top and bottom lines.
Total revenues for the three-month period ending June 30 rose to $1.19 billion, compared with $1.17 billion a year ago, with a particular bright spot in the international business. Net losses also narrowed to $17.3 million, compared with a loss of $95.5 million last year.
North American sales fell 3 percent during the quarter to $816 million and the situation isn’t expected to significantly improve in the second half. The region accounts for around two-thirds of the company’s overall business.
On an earnings call Tuesday morning, Patrik Frisk, president and chief operating officer, addressed the North American shortfall, saying the number reflected declines in both wholesale and direct-to-consumer channels. In wholesale, he said the company is intentionally cutting back as it seeks to reduce off-price sales in the region. He highlighted what he called a “positive note” for the balance of the year with the premier wholesale business in North America “trending slightly healthier than we had originally anticipated.”
Turning to direct-to-consumer, Frisk said, “we’re experiencing softer than anticipated demand as we work to reset the business toward full-priced selling. Within our stores, which, as a reminder are 90 percent outlet-based in North America, we are seeing higher conversion and slightly higher AUR, which strategically is encouraging. [But] it’s not enough volume to offset the store traffic that we’re seeing right now.”
Although the company continues to project sales growth of 3 percent to 4 percent for the year, it did say that both these challenges will lead to revenues that will be “down slightly” for the full year. The original projection had been for flat sales.
A bright spot is that international sales increased 12 percent to $339 million. In the Asia-Pacific region, Frisk said, sales rose 23 percent with strength in both wholesale and direct-to-consumer. He said he’s expecting sales to grow in the low-20-percent rate for the full year, higher than the mid-teen percentage growth it had been expecting.
But not everything in Asia was a highlight. Japan, which is a licensed business “was negatively impacted in the second quarter,” Frisk said, and are expected to show a loss for the balance of the year. “Accordingly, given our minority interest in their business and the requirement to record a portion of the results, we now anticipate a negative impact to our full-year earnings per share, which is considered in our unchanged full-year EPS expectation of 33 cents to 34 cents,” Friske said. Under Armour, which owns a 29.5 percent stake in the business, said the downturn there could results in another decline of 1 cent to 2 cents in the second half.
While Wall Street may not be convinced, Under Armour management did its best to present a positive spin on the figures.
“Our second-quarter results give us increasing conviction that our transformation continues to make solid progress across our business, unlocking efficiencies that are driving greater precision, consistency and repeatability,” Kevin Plank, chairman and chief executive officer, said in a statement. “By staying sharply focused on our long-term strategies — driving our premium athletic brand positioning through industry leading innovation, geographic expansion and creating deep connections with our consumers — we are on track to deliver against our expectations in 2019.”
Frisk said that moving forward, “it’s all about staying disciplined, focused and methodical, working smarter. There’s still a lot more work to do and while we’re not declaring victory, the stability across the business and the pace at which we’re realizing financial and operational improvements continues to validate that our strategy is working.”
Under Armour is in the midst of a multiyear turnaround plan and the stock is up more than 30 percent year-over-year.