Yahoo Finance Under Armour’s Turnaround Plan Is Working
Ever since rolling out its five-year plan to turnaround business in December of 2019, analysts have been skeptical of Under Armour’s potential to regain significant share of the North American market. But the strategy is beginning to pay off.
Under Armour just posted a profit of $59.2 million for Q2, or 13 cents per share, reversing its year-ago loss.
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The company posted a revenue growth of 91% to $1.4 billion, with footwear revenue increasing 85% to $343 million. North American revenues rose 101% to $905 million, marking a milestone in the company’s turnaround efforts in the region.
“With the critical mass of our transformation behind us and the continued improvements across product, marketing, and our financial results, I believe this year sets a robust foundation that positions us well for our next chapter of profitable growth,” said Under Armour president and CEO Patrik Frisk in a statement.
For the last several years, Under Armour struggled to capture the North American market, often trailing behind giants such as Nike and Adidas. Under Armour’s laser focus on performance and reluctance to capitalize on the the lifestyle market — where smaller brands like Lululemon and Athleta dominate — was perplexing to some market watchers.
But the company’s latest results point to an upward swing for the Baltimore Md.-based company, which managed to further reconfigure its business amid the pandemic. In April of 2020, the company rolled out a restructuring plan with the goal of adding between $475 million to $525 million in pretax charges and reduced its expenses further with temporary layoffs for retail and distribution workers, reduced compensation for top executives, and other cost cutting measures.
In a call with investors, CEO Patrik Frisk pointed to four areas of focus for the company, which include strengthening the Under Armour brand, improving the operating model, focusing on direct-to-consumer channels, and yielding profitability across the company.
According to analysts, moves like these are contributing to the company’s positive results.
“We continue to believe UA is a prime example of a company that used a ‘COVID-Cover’ to refashion its business for multi-year success and return to under-promising and over-delivering, suggesting that today’s guidance hike may well prove conservative,” BMO Capital Markets Analyst Simeon Seigel wrote in a note.
In 2020, Under Armour said it planned to cut ties with certain wholesale retailers, starting in the second half of 2021 to focus on DTC growth. In Q2, DTC revenue increased 52% to $561 million, driven by Under Armour’s owned and operated stores. E-commerce represented 39% of the total DTC business, marking an 18% decline.
Footwear has also been an important area of growth for Under Armour, with sales in the sector growing steadily since 2019. Footwear was up 85% in Q2, driven by run and team sports categories. Under Armour’s Flow Velociti and Hovr Phantom and Machina 2 sneakers performed better than last year. The Curry Flow 8 signature shoe and the Project Rock 3 were also standout silhouettes for the brand.
“We have now learned, as a brand, how to drive franchises in footwear. We have also learned how to drive specific initiatives like Curry, like the Rock,” Frisk said. “So for us, it’s really about continuing to play now, stick to the strategy, execute the play, stay consistent, spend a little bit more in marketing to drive the brand. And when we come out of this pandemic, we’re going to be ready for growth.”
Under Armour now projects earnings of 14 cents to 16 cents per share and a sales increase in the low 20% range. Shares rose 3.6% in early trading.
