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Sporting apparel maker Under Armour reported worse than expected first quarter earnings as the Covid forced closures wrecked sales.$UAA shares fell over 10% pre-market. Under Armour competes with Nike, Adidas and Lululemon.

under armour project rock 1

 The Heel of Project Rock 1 Shoe

Under Armour Inc Class A NYSE: UAA Reported Earnings Before Open Monday

($0.34) Missed (Exp $0.19) EPS AND $930.2 Billion Missed $949 Billion Revenue Forecast

Earnings

Under Armour Inc. (NYSE: UAA) reported first-quarter results before the open Monday of Earnings per share a loss of 34 cents, adjusted on revenue of $930.2 million. The net loss was $589.7 million, or $1.30 per share unadjusted, compared with a profit of $22.5 million, or 5 cents per share, a year earlier. Analysts expected an adjusted net loss of 19 cents per share, on revenue of $949 million, according to a poll by Refinitiv.

Under Armour said roughly 15 percentage points of the decline stemmed from the Covid-19 crisis.

 Under Armour said it expects to report $475 million to $525 million in pretax restructuring costs this year as it looks to revive its business. During the first quarter, it recorded $436 million in restructuring and impairment charges

 

Under Armour Inc Class A NYSE: UAA

Market Reaction Pre-market 9.03 −0.95 (-9.52%)

Highlights

“Since mid-March, as the pandemic accelerated dramatically in North America ... and retail store closures ensued, we’ve experienced a significant decline in revenue across all markets,” CEO Patrik Frisk said in a statement.

  •  Apparel sales dropped 23%, to $598 million
  • Footwear revenue was down 28% to $210 million
  • Accessories revenue declined 17% to $68 million
  • The company said it ended the first quarter with cash and cash equivalents of $959 million.
  • UAA expects to spend about $100 million on capital expenditures this year compared with prior expectations of $160 million.
  •  Under Armour’s wholesale revenue fell 28% to $592 million during the first quarter. In North America, which marks its largest business region and accounts for roughly 65% of total sales, revenue fell 28% to $609 million.
  • International sales dropped 12% to $287 million.

Outlook

Under Armour said it plans to cut about $325 million in operating costs in 2020 to help it weather the crisis, including by temporarily laying off some retail employees. 

Some retailers such as Macy’s and Gap are slowly beginning to get some of their locations back up and running, Under Armour said Monday, “the pace and timing of store openings, a traffic patterns when the stores re-open, remain highly uncertain.”

With approximately 80% of our global business having been closed since April 1, we currently anticipate that revenue could be down as much as 50% to 60% in our second quarter. Although we do anticipate that our business will gradually reopen in the coming weeks and months, we believe there will be a number of challenges ahead for us in a greater global retail space, including a slow and progressive return to normalization, a highly promotional environment and significant uncertainty in brick-and-mortar traffic and conversion as consumers return to stores.

Under Armour Project Rock

The Rock’s Under Armour Project Rock 1 shoes were released on May 28, 2019 in limited quantities through the company’s online store and in Brand Houses across the country over Memorial Day with a red, white and blue color scheme in honor of America’s service men and women, .

The whole inventory sold out in 30 minutes.

“We like to think of Dwayne as our motivator of the masses,” said Adrienne Lofton, senior vice president of global brand management at Under Armour.

The shoes were priced at $120, with features like heel support for stability while lifting weights, as well as a top knit for a snug fit around the ankle and foot. Under Armour will restock the shoes on June 28, which will be the global launch. Further details are yet to be announced. The Rock has been in partnership with $UAA since 2016 with the first joint projects a backpack and duffel bag.

In addition to The Rock’s new shoe, Under Armour also introduced a new Steph Curry basketball shoe on Pi Day, March 14. The latest version was priced at $130 and sold out online. Curry's team Golden State Warriors is up 3-0 in the NBA world championships so a further flow on affect is seen there.

Outside of Lululemon apparel retailers have been burdened by high inventory levels which puts pressure on margins. The popularity of the Project Rock 1 could be a sign of improvements a number of analysts have said, though sceptics see the analysts searching for a trade after missing $LULU.

Instinet Analysts noted “We believe that the limited availability (and subsequent restocking) is part of the company’s plan for managing the franchise to generate buzz and promote a ‘call to action’ and represents a positive for brand equity,”

Stifel analysts said “We are particularly encouraged by opportunities for gross margin improvement from both elimination of the liquidation burden and improved sourcing (SKU [stock keeping unit] rationalization, materials planning, factory consolidation, capacity planning, etc.),” Stifel raised their price target $UAA shares to $27 from $20 and rates Under Armour shares a buy. 

Source: Under Armour

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