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Under Armour Focuses on Logistics Woes as Vietnam Factories Return

With its factories in Vietnam finally coming back online, Under Armour is finding that logistics troubles are once again front of mind.

In a Nutshell: As of this week, “nearly all” factories Under Armour does business with, including those in Vietnam—a country that manufactures approximately one-third of the brand’s footwear and apparel product—are open, chief financial officer David Bergman said. Though ramping those facilities back up will still take another couple months, president and CEO Patrik Frisk said the company’s larger focus now is transportation and logistics.

“[It] has to do with just congestion at every step of the chain,” Frisk said on a call with investors Tuesday. “Whether it’s a container or a chassis or access to [ports] or unloading at port, and then the entire journey once it lands, inbound. So we see the logistics and shipment being the biggest concern for us, let’s say, in the medium term here as we turn a corner into ’22.”

When it comes to Under Armour’s bottom line, Bergman said the company is seeing “some minimal impacts” in the fourth quarter as it incurs “a fair bit more in inbound freight costs.” The bigger revenue impacts, he noted, will occur in the first six months of next year as a result of canceled purchase orders. “After that, it should start to dissipate,” he added.

Under Armour’s apparel and footwear divisions both saw double-digit revenue gains in the third quarter. The company’s apparel business saw sales climb 14 percent to $1.1 billion. In particular, Frisk noted success in Under Armour’s cooling Iso-Chill line, men’s and youth fleece and women’s leggings. Footwear revenue grew 10 percent to $330 million as the brand’s core running products achieved growth across all regions globally. Accessories, however, declined 13 percent due to lower face mask sales.

At the end of the third quarter, Under Armour’s inventory was down 21 percent to $838 million. Cash and cash equivalents totaled $1.3 billion, with no borrowings outstanding under the company’s $1.1 billion revolving credit facility.

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Net Sales: Third-quarter revenue increased 8 percent—6 percent in currency-neutral terms—year-over-year to $1.5 billion. Direct-to-consumer sales rose 12 percent to $604 million amid improvements in average selling price and despite mixed store traffic trends and a 4 percent decline in e-commerce, Frisk said. Wholesale revenue, meanwhile, grew 10 percent to $911 million, driven by higher-than-expected demand in Under Armour’s full-price business, Bergman said.

In North America, revenue increased 8 percent year-over-year to $1 billion, primarily due to higher demand in Under Armour’s full-price wholesale and Factory House businesses. Versus 2019, its North America revenue increased just 2 percent in the third quarter.

“It is important, however, to revisit some key differences in these comparable periods, 2021 North America versus 2019, including a significant increase in our direct-to-consumer business, substantially lower off-price sales, reduced promotional and markdown activities, proactive supply constraints and undifferentiated wholesale exits,” Frisk said. “So then meaningfully higher quality and more productive dollars [are] going through our P&L now than just two years ago.”

Though Frisk noted traffic struggles in China—a country where Under Armour’s sportswear competitors have seen difficulties amid a consumer boycott of Western brands—the company ultimately experienced a 19 percent increase, 13 percent in constant currency, in revenue in Asia-Pacific. The CEO attributed the bump to investments in marketing and store expansions. Sales increased 37 percent compared to 2019.

Driven by wholesale, revenue in Europe, the Middle East and Africa rose 15 percent—or 11 percent in constant currency—compared to last year and 50 percent against 2019. Strength in the company’s full-price wholesale and distributor business pushed Latin America sales up 27 percent, or 20 percent in currency-neutral terms. Versus 2019, however, revenue in the region increased just 8 percent.

Internationally, sales increased 18 percent—13 percent in constant currency—to $510 million.

The brand once again raised its full-year 2021 revenue growth guidance, this time up to 25 percent. The forecast includes a “high-twenties” percentage-rate increase in North America and a “mid-thirties” increase internationally. By channel, wholesale is expected to be up at a “mid-thirties” rate, while direct-to-consumer is forecasted to see growth in the “mid-twenties.” A quarter ago, Under Armour was projecting it would see revenue growth in the “low-twenties.”

Net Income: Under Armour recorded an operating income of $172 million and an adjusted operating income of $189 million. Its net income totaled $113 million, or $0.24 per diluted share, while its adjusted net income came in at $145 million, or $0.31 per diluted share.

Under Armour nearly doubled its operating income forecast from a previous range of $215 million to $225 million to approximately $425 million. Excluding the impact of restructuring efforts, adjusted operating income is expected to hit $475 million. The company raised its diluted earnings per share to approximately $0.55, up from a $0.14 to $0.16. Adjusted diluted earnings per share are expected to reach approximately $0.74, up from an expected range of $0.50 to $0.52.

CEO’s Take: “I feel good about the progress we’ve made, the resiliency we’ve earned and the potential we have to do even better in the future,” Frisk said. “Demand for our product and consideration for our brand is growing. That gives me confidence that despite potential impacts from near-term headwinds, the long-term opportunities before us and our ability to compete and win in an ever-changing global landscape are stronger than ever.”