Under Armour slashes outlook amid falling U.S. sales, ops challenges
Under Armour is not feeling the warmth from U.S. shoppers.
Revenue fell 5% to $1.4 billion, missing Street expectations of $1.5 billion. Under Armour’s North America sales fell 12%, while international revenue jumped 35%. The company cited challenges stemming from implementation its new enterprise resource planning system as well as the decrease in North American sales for its revenue decline.
Under Armour reported a profit of $54 million, or 12 cents per share, for the quarter ended Sept. 30, down from $128.2 million in the year-ago period. Excluding one-time charges related to restructuring costs, it earned 22 cents a share, topping Wall Street analysts’ expectations of 19 cents per share on an adjusted basis.
Commenting on Under Armour’s third quarter results, Neil Saunders, managing director of GlobalData Retail, cited four factors for the company’s decline: shallow roots, a confusing brand proposition, distribution missteps (including its decision to go heavily into stores such as Kohl’s) and a failure to connect with women.
“As much as Under Armour has tried to increase its appeal to female shoppers, its brand is very masculine and has limited appeal — especially outside of the professional sports market,” Saunders said. “This can be remedied, but Under Armour needs to have a serious rethink about its marketing, store design, and product mix for female shoppers.” For more, click here.
Under Armour slashed its sales expectations, and is now calling for revenue in the low single-digit percentage range, down from a previous forecast of growth of 9% to 11%. It expects 2017 earnings per share to fall within a range of 18 cents to 20 cents, adjusted. Previous projections put earnings at 37 cents to 40 cents a share.
In August, Under Armour announced a restructuring effort that involved some $130 million in cost cuts.
“While our international business continues to deliver against our ambition of building a global brand, operational challenges and lower demand in North America resulted in third quarter revenue that was below our expectations,” said Under Armour CEO and president Kevin Plank. “Against this difficult backdrop, our management team is working aggressively to evolve our strategy and level of execution to proactively address these challenges.”
In his comments, Saunders said Under Armour can be fixed, “but the days of glory, when it would post double-digit uplifts in sales, are over.”
“Now is the time to work out, slim down, and become more competitive,” he said. “Ultimately, that means quite a lot of exertion and financial pain in the quarters ahead.”
Meanwhile the founder of UA has opened up his own distillery and High end hotel that costs over 300 dollars a night while investing zero into the company
Analysis: Four reasons why Under Armour is on the decline
The question arising from the latest set of results is: how did the one-time powerhouse of sports retail lose so much traction so quickly?
With revenue grow moderating for the past couple of quarters, and with North American sales down across the first half of the year, the signs of a slowdown have been present for some time. Given the gentleness of these previous shifts, it has been easy to pin the blame on external factors such as a tapering down of demand for athleisure apparel, or the bankruptcy of leading sports retailers.
The third quarter numbers represent a marked deterioration from those previously modest declines. Overall revenues tumbled by 4.5%, while North American sales plummeted by a painful 12.1%. In our view, this is now about more than external factors — it demonstrates issues with the brand and its proposition. Especially so since other brands and retailers, including Lululemon, have not posted such calamitous figures.
Before diving into the detail of Under Armour’s travails, it is only fair to note that this is not the easiest of trading environments. Our consumer data show a marked slowdown in interest in sporting and athleisure apparel, and this is having an impact on sales across the sector. A rash of discounting at many retailers has also put pressure on revenues and margins.
All that said, demand in the United States has not fallen by anywhere near 12% over the past three months, so it is clear that Under Armour is underperforming and losing market share. This is an abrupt about-turn for a company that, until recently, was on a mission to challenge the might of Nike and other major brands. In our view, there are several reasons for this fall from grace.
The first of these is that Under Armour has put down very shallow roots. While awareness has soared over recent years and customer numbers have risen, loyalty to the brand is not deep-rooted in the same way that it is at Lululemon and Nike. What this means is that as demand moderated, Under Armour has been quick to drop off the radar of many consumers.
The second reason relates to Under Armour’s focus. Lululemon has a unifying purpose to its brand; the same can be said of Nike, even though its reach across sports retail is far more varied. As it has expanded, Under Armour appears to have lost some of its brand essence, and its proposition and purpose have become confused. Admittedly, communication in its own stores and online is better, but in third-party shops the focus is completely lost and, in some instances, Under Armour has become just another brand in a sea of brands.
The third reason relates to distribution. Here, we see the decision to go heavily into stores such as Kohl’s as a mistake. Although we applaud Under Armour’s attempts to widen its reach, we believe it should have expanded more selectively. Failure to do so has alienated other, more important, retail partners and has also devalued its brand in the eyes of some consumers.
The fourth reason is the failure to connect with women. As much as Under Armour has tried to increase its appeal to female shoppers, its brand is very masculine and has limited appeal — especially outside of the professional sports market. This can be remedied, but Under Armour needs to have a serious rethink about its marketing, store design, and product mix for female shoppers.
This unfortunate state of affairs has hit Under Armour at a time when it remains in expansion mode. As much as this may be prudent overseas — where the company is still growing – the failures in its home market have hit the bottom line hard. The 57.7% decline in net income is unfortunate and suggests a lot more financial discipline is needed in the quarters ahead — an uncomfortable juxtaposition with the need to reinvent and reinvigorate the brand.
Under Armour is not so broken that it cannot be fixed. But the days of glory, when it would post double-digit uplifts in sales, are over. Now is the time to work out, slim down, and become more competitive. Ultimately, that means quite a lot of exertion and financial pain in the quarters ahead.
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Rent-A-Center to explore alternatives
The nation’s largest rent-to-own operator on Monday announced that its board has initiated a process to explore strategic and financial alternatives with an eye to maximizing stockholder value.
“Rent-A-Center remains committed to taking actions that are in the best interests of the company and all of its stockholders, as demonstrated by the commencement of what will be an extensive review of both strategic and financial alternatives,” the company said in a statement.
The retailer made the announcement on the same day that it reported its sales for the third quarter were $644.0 million versus $693.9 million in the year-ago period. Same-store U.S. sales fell 5.1%. Its net loss and diluted loss per share, on a GAAP basis, were $12.6 million and $0.24, compared to net earnings and earnings per share of $6.2 million and $0.12 last year.
Rent-A-Center noted that there it could no assurance that the board’s exploration of strategic and financial alternatives will result in any particular action or any transaction being pursued, entered into or consummated.
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