Patrik Frisk still has something to prove to investors.
Shares of Under Armour Inc., which Frisk leads as chief executive officer, dropped 26 percent to $9.84 on Friday, after the company posted a small loss in the most recent quarter and projected annual earnings that fell short of analysts estimates.
Like many other fashion companies, Under Armour has been retooling in recent years and Frisk argued that the company has grown much stronger and healthier and is ready to take off — when the world gets back to normal.
But normal still seems a ways off.
Frisk acknowledged on a conference call with analysts on Friday that results for the most recent quarter “came in lighter than we had expected due to ongoing supply challenges and emerging COVID-19 impact on our Asia Pacific business.”
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And the dynamic isn’t going anywhere soon.
“These trends, which we believe to be temporary, are also expected to impact how fiscal ’23 is shaping up,” the CEO said.
During the “transitional” quarter, which ended March 31 and sets the company’s new fiscal calendar, net losses tallied $59.6 million, or 13 cents a diluted share, and compared with earnings of $77.8 million, or 17 cents, a year earlier.
Gross margins decreased 350 basis points to 46.5 percent of sales, driven mostly by higher freight expenses amid the global supply chain back up, while higher expenses and restructuring and impairment charges also weighed on the quarter.
On an adjusted basis, the company said losses were $3 million, or 1 cent a share.
Revenues inched up 3.5 percent to $1.3 billion from $1.26 billion a year ago. Wholesale sales grew 4 percent to $829 million as the brand’s direct-to-consumer revenues increased to $441 million. Apparel revenues increased 8 percent to $877 million while footwear slipped 4 percent to $297 million and accessories fell 18 percent to $97 million.
Frisk reaffirmed confidence in the company’s long-term growth potential despite the “near-term headwinds.”
“The engine that makes this model work most efficiently is profitable top-line growth,” he said “This is my number-one priority as CEO. We believe our direct-to-consumer, footwear, women’s and international businesses will drive this growth over the long term.
“Under Armour is a growth company with an incredible opportunity ahead of us,” he said. “Our fundamentals are strong. Our underlying brand strength is improving, and our confidence remains unchanged.”
The company, which is now in the midst of its fiscal first quarter, gave an outlook that it said took into account “current visibility, including ongoing supply chain challenges, COVID-19 uncertainty and inflationary trends.”
Revenues this year are expected to rise 5 percent to 7 percent with gross margins down 150 to 200 basis points. Adjusted earnings per share are slated to come in at 63 cents to 68 cents, with the top end of that range being on par with the comparable period a year earlier.
Wall Street had 78 cents penciled in.
But Under Armour still has its believers — and it certainly has company when it comes to navigating a tough landscape. Kate Fitzsimons, a Wells Fargo analyst, said the Under Armour faced a “tough set up as numbers come down,” but that its “underlying brand health” was improving.
“While we expect Under Armour won’t be alone in terms of negative revision led by macro headwinds (China, supply chain, elevated freight) especially in the fiscal first quarter, we are encouraged that Under Armour’s brand health remains on stronger footing headed into fiscal 2023.”
Fitzsimons also noted that the company has greater visibility in its wholesale business going forward and is operating with “discipline” on inventory and expenses.
And Frisk is keeping at least one eye on the horizon.
“When I look at it longer term, we will start to build back inventory in the back half of the year,” the CEO said. “And we’ll start to get healthier from a revenue growth perspective as well in the back half of the year as we accelerate out of this temporary situation.”
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