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Under Armour CEO Reveals What Put a ‘Spring in Our Step’

If the past couple weeks of earnings reports are any indication, things are looking up.

At Amazon, sales soared 44 percent, pushing the e-commerce conglomerate’s net income past $8 billion for the first time. When the baby and children’s apparel firm Carter’s published its first-quarter earnings, one Wall Street analyst dubbed it a “blowout.” Crocs, having emerged from 2020 with revenue right in line with its pre-Covid forecast, doubled its full-year sales growth guidance last week to between 40 percent and 50 percent.

Under Armour proved no exception Tuesday.

The Baltimore athleticwear company reported net revenue growth of 35.1 percent. The company returned to the black, posting a net income or $77.8 million, or 17 cents per diluted share, as compared to a net loss of $589.7 million, or $1.30, a year ago. Adjusted earnings before interest and taxes are expected in the $230 million to $240 million range, “implying nearly identical margins to what the business generated in
2019, which we view as very conservative,” according to Cowen & Co analysts, which rate Under Armour’s stock as “outperform.”

Even compared to 2019, CEO and president Patrik Frisk said Under Armour is “running a better, higher quality and more profitable business.”

“By staying focused on athletic performance, operational excellence and connecting even more deeply with our consumers, [the company’s] efforts are beginning to drive more consistent results, particularly in North America—our largest and most challenged business over the past couple of years,” Frisk said Tuesday on a call with analysts. “At the highest level, we are executing well strategically, operationally and financially.”

Given these factors—as well as ongoing market dynamics and continued strong momentum for fitness and wellness—the business upgraded its 2021 revenue growth forecast into the high teens. This shift, Frisk said, would “essentially” bring Under Armour back in line with its 2019 results.

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“Today’s outlook is predicated on our business continuing under the same general macros we’ve seen most recently, with no significant shutdowns, as well as moderate improvements within the greater retail landscape as the year progresses,” chief financial officer David E. Bergman cautioned.

Like others, Under Armour is experiencing supply chain troubles. Indeed, pressure on logistics, container availability and port delays prompted the company to build further supply chain headwinds into its forecast, Bergman said. Improvements in pricing ability and inventory health have simply outweighed emerging logistical challenges, he noted, allowing the company to upgrade its forecast rather than downgrade it.

What’s more, Under Armour seems to have made its peace with potentially missing out on sales should demand outstrip supply this year. Because it’s being “selective” and “constraining” its inventory position, the company largely lacks the maneuverability to “capitalize on accelerating demand beyond what we’re actually seeing,” Frisk said, adding, “we do want to continue to tighten up the availability of bad inventory, making sure that we’re staying as clean as we can in every channel and every point in distribution.”

Under Armour is “being very careful with any sort of chase for the back half of 2021,” Frisk continued, describing that readiness to pursue demand as a “risky proposition” due to trends roiling global supply chains.

However, according to Frisk, the overall “meaningfully improved” outlook has given Under Armour the confidence to look to amplify its momentum in the back half of the year, namely through additional investments in marketing. These efforts, he said, would primarily focus on North America and “critical countries” like China and Germany, where the business sees itself as “significantly under-penetrated from a brand-awareness perspective.”

Neither Frisk nor Bergman noted any impact in China from consumer calls to boycott Western brands who had voiced concerns over reports of forced labor in Xinjiang. When the Shanghai-based analysts from China Market Research discussed the state of athletic brands in the country a few weeks ago, they noted that store traffic to Under Armour had fallen in the 10 percent to 30 percent range. Frisk, however, said China traffic has rebound “especially in the outlet business,” describing the country’s overall market as “more promotional” than it was prior to Covid-19.

Meanwhile, Frisk said the company was upbeat about the progress it had made in terms of e-commerce, as well as the “careful” opening of new doors it has planned for this year. He noted that the market had become more promotional than it was pre-Covid, but did not tie the phenomenon to any specific cause.

Total wholesale revenue increased 35 percent to $800 million. Approximately two-thirds of this growth, Bergman noted, came from changes in supply chain timing between last year’s fourth quarter and the first quarter. The direct-to-consumer category climbed 54 percent to $437 million, driven by 69 percent growth in e-commerce and 44 percent growth at owned and operated retail locations.

“Ultimately, while it’s left to be seen about how sticky last year’s e-commerce results are against this year’s performance, we’re confident that making additional investments in our sites, teams and processes to support our long-term growth expectations is money well spent,” Frisk said.

Footwear revenue grew 47.4 percent to $309.0 million, helped along by strength in running and team sports, Bergman said. Frisk specifically highlighted the “success” of the brand’s Hovr franchise. The CEO also gave a shout out to the brand’s UA Flow Velociti running shoe, saying it “is delivering well against our expectations.”

Under Armour’s training and running categories, meanwhile, helped apparel revenue expand 35 percent, Bergman said. The largest growth, however, occurred within Under Armour’s accessories segment, where sports masks drove sales up 73.3 percent to $117.4 million.

“Our transformational strategy to architect the global operating model capable of driving sustainable and profitable growth is on track,” Frisk said, noting that the company has a “spring in our step” when it comes to the positive North American landscape in particular.

“With a solid start to the year, it’s about continuing to execute the play with patience and allowing the processes, tools and structure we built to drive improved capabilities across Under Armour and further enable our ability to compete for premium brand-right growth,” Frisk added.