Under Armour Transition Quarter Hit by Chinese Covid19 Lockdown Disrupting Inbound Freight

Sporting apparel maker Under Armour reported worse than expected first quarter earnings as the Covid forced closures in China led to worsening supply chains for the second straight quarter in Q1. $UAA shares fell over 23% pre-market. Under Armour competes with Nike, Adidas and Lululemon.

Under Armour – Gisele Bündchen

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

($0.01) Missed Exp $0.04 EPS AND Matched $1.3 Billion Revenue Forecast

Earnings

Under Armour Inc. (NYSE: UAA) reported first-quarter results before the open Friday of earnings per share a loss of 1 cent, compared to four-cent profit analysts were expecting, on in-line revenue of $1.3 billion. Its full-year revenue guidance also met expectations but its earnings per share range of 63 cents to 68 cents is below the 78-cent consensus.

Under Armour fell around 23% to $11.08 in premarket trading. The decline was intensified by the broader market selloff and downbeat commentary from Adidas (ADDYY) who also cut its forecast on China weakness today, and analysts are now predicting a tougher quarter for Nike (NKE).

Adidas and Nike Warn on China

Adidas in its earnings release also warned that its operating profit this year would be lower than previously expected as the company struggles with disrupted supply chains, China lockdowns and rising costs.

Operating profit fell by 38 per cent to €437mn in the first quarter. The company said lockdowns in China “have led to a large number of store closures as well as strong traffic declines, even in parts of the country not directly impacted”.

The main rival to US group Nike now expects full-year sales in China to fall by a double-digit percentage in 2022. Shares in Adidas fell by almost 5 per cent in morning trading. Adidas cut its operating profit guidance, warning that the operating profit margin would be at last year’s level of 9.4 per cent, rather than the 10.5-11 per cent previously expected.

Under Armour Q1 2022 Highlights

  • Under Armour did show positive sales outside of Asia, revenue up 4% in North America and 3% internationally.
  • Breaking down revs by region, APAC was clearly the culprit behind the weak sales growth, as sales in the region fell 14% yr/yr.
  • Latin America revs also fell, though by less than APAC at just 6%.
  • North America and EMEA both exhibited strengths, growing 4% and 18%, respectively.
  • Freight costs, particularly ocean freight, reached elevated levels. UAA utilized more airfreight than is typical because of ocean freight delays, further weighing on margins. In total, these disruptions dragged gross margins down by 350 bps yr/yr to 46.5%.

Outlook

UAA is anticipating the headwinds that weighed on Q1 results will be mostly short-term. UAA noted that the first half of FY23 should be where the bulk of the impact from order cancellations and supply chain delays to be felt. After that, sales growth should gradually improve as the year develops, with the highest yr/yr quarter coming in Q4.

UAA expects revenue growth of +5-7% for FY23, slightly above the average annual growth UAA saw from 2017-2019. This still severely trails the 20-30% yearly growth UAA experienced from 2012-2016.
Gross margins are expected to be around where they have hovered for the past couple of years at 49.6%.

Source: Under Armour

From The TradingCommunity Research Desk