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Under Armour Reports Another Disappointing Quarter; Adjusts Outlook

Under Armour experienced another rough quarter, showing a decline in overall revenue, with particular disappointment in North America.

“Against this difficult backdrop, our management team is working aggressively to evolve our strategy and level of execution to proactively address these challenges,” said Under Armour Chairman and CEO Kevin Plank. “We understand that success in our next chapter requires managing with focused financial discipline and driving excellence into every area of our business while we amplify innovation, deliver fresh product and connect even more deeply with our consumers.”

The company revenue drop 5 percent to $1.4 billion, which Under Armour attributes to the implementation of the company’s enterprise resource planning system and lower demand in North America.

Wholesale revenue declined 13 percent to $880 million while direct-to-consumer served as a glimmer of hope, with a 15 percent increase to $468 million.

North America served as a source of contention for the brand, with revenues down 12 percent. However, Under Armour saw a strong international business, with revenue increasing 35 percent accounting for 22 percent of the brand’s total revenue. Revenue in the EMEA grew 22 percent, while Asia-Pacific increased 52 percent and Latin America grew 33 percent.

“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 Plank. “Based on these issues in our largest market, we believe it is prudent to reduce our sales and earnings outlook for the remainder of 2017.”

Apparel revenue dropped 8 percent to $939 million, while golf and sportstyle growth offset the declines in outdoor, women’s training and youth markets.

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The company’s footwear segment saw a 2 percent increase to $285 million thanks to strong sales in running and outdoor. However, sales declined in basketball and youth categories. Accessories revenue grew 1 percent to $123 million, with golf and men’s training offsetting a decline in outdoor.

Net income came in to $54 million during the quarter, with an adjusted net income of $100 million.

Diluted earnings per share (EPS) was $0.12, while adjusted EPS was $0.22.

The gross margin decreased 160 basis points to 45.9 percent as an impact from changes in foreign currency rates and product costs were offset by pricing and other inventory management initiatives. Adjusted gross margin was 46.2 percent, a drop of 130 basis points compared to last year. However, this includes a $4 million impact from restructuring efforts.

Updated Outlook

Under Armour now expects net revenue to increase in the low single-digit percentage rate showing the lower North American demand and operational difficulties due to the company’s resource planning system and related service levels.

The company now anticipates a gross margin down 220 basis points, compared to 46.4% last year, due to benefits from product cost and channel mix being offset by heavier efforts to manage inventory with promotions, impacts from restructuring and increasing regional mix. Adjusted gross margin is now expected to be down around 190 basis points.

Under Armour expects operating income to be around $0 to $10 million, while adjusted operating income is expected to come in between $140 million to $150 million.

Adjusted EPS is now expected to be $0.18 to $.20.