Under Armour sees a tricky yr ahead, roiled by global supply chain challenges and one other round of Covid lockdowns in China which might be putting a dent in demand.
The sneaker and apparel maker on Friday issued a disappointing outlook for its fiscal yr 2023, after reporting an unexpected loss for the three months ended March 31 and sales that got here in below Wall Street estimates.
The news sent investors fleeing, with Under Armour shares tumbling greater than 23% Friday morning to the touch a 52-week low of $10.77.
Also on Friday, rival Adidas said that its growth in 2022 will are available on the low end of a forecasted range because of a “severe impact” from coronavirus-related lockdowns in China. Adidas now sees its sales within the Greater China region falling significantly this yr.
Under Armour Chief Executive Officer Patrik Frisk called the headwinds temporary and said that the underlying demand for the brand stays strong, nevertheless. The retailer is staying disciplined to be sure it doesn’t order an excessive amount of inventory, Frisk told analysts. The danger is that Under Armour could later be forced to discount excess goods that do not sell, which weighs on its profitability.
Here’s how Under Armour did within the three-month period ended March 31, compared with what Wall Street was anticipating, based on a Refinitiv survey of analysts:
- Loss per share: 1 cent adjusted vs. earnings of 6 cents expected
- Revenue: $1.3 billion vs. $1.32 billion expected
Under Armour reported a net loss for the quarter of $59.6 million, or 13 cents per share, compared with net income of $77.8 million, or 17 cents a share, a yr earlier.
Excluding one-time items, it lost a penny per share. Analysts had been searching for adjusted earnings per share of 6 cents.
Chief Financial Officer David Bergman said profit margins were pressured by elevated freight costs, particularly those of ocean freight, which got here in higher than the corporate had expected. Under Armour also used more air freight to fetch goods from overseas, he said.
Sales grew to $1.3 billion from $1.26 billion a yr earlier. That missed estimates for $1.32 billion.
In North America, sales grew 4%, to $841 million. Its international business, nevertheless, grew just 1%, to $456 million, dragged down by a 14% drop within the Asia-Pacific region, which incorporates China.
Not only is China a growing marketplace for Under Armour to attempt to win recent customers, it is also a serious manufacturing hub for much of the athletic apparel industry. Various international corporations, including Apple and Estee Lauder, have warned in recent days that a drag from China’s Covid controls will hit their businesses.
Within the 12 months ended Dec. 31, Under Armour produced roughly 67% of its apparel and accessories in China, Vietnam, Jordan, Malaysia and Cambodia. And substantially all of its footwear was made in China, Vietnam and Indonesia, an annual filing shows.
In the primary quarter of the fiscal yr 2023, which runs from April 1 through March 31 of next yr, Under Armour sees sales flat to down barely from the prior-year period.
Bergman said the primary half of the yr shall be essentially the most heavily hurt by order cancellations and provide chain delays. Under Armour can be anticipating Covid-19 impacts in China will lessen because the yr drags on, he said.
For all the yr, Under Armour is projecting to earn between 63 cents and 68 cents per share on an adjusted basis, which is below analysts’ expectations for 86 cents.
It sees sales growing 5% to 7% from the prior yr. Analysts were searching for a 5.4% increase.
Under Armour said the outlook takes into consideration three percentage points of headwinds because of its decision to cancel some orders to vendors because of capability issues and provide chain delays.
CEO Frisk said that the brand should return to delivering “sustainable, profitable returns” as global supply chain challenges and coronavirus-related complications in China normalize.
He also teased future projects to drum up demand, include a resale platform and a loyalty program that Under Armour plans to trial in North America by the top of 2022.
Find the total financial release from Under Armour here.
