Sportswear giant Under Armour was hit with delivery problems in 2012 and consequently has dropped its low cost suppliers in favor of sources which can deliver promptly and reliably despite increased costs.
Although Under Armour’s fleece will cost more, gross margin for the firm was up slightly in the first quarter of 2013 to 45.9 percent from the previous year’s 45.6 percent.
But increased costs will reduce margins and impede margin growth in the immediate future. Eventually, however, Under Armour says it expects improved inventory management and increases in gross margin next year and into the future.
The move to higher priced fleece came after Under Armour had to pay air freight charges in the last quarter of 2012 and the first quarter of this year because fleece was not being delivered on time.
Under Armour’s chief financial officer Brad Dickerson said in a conference call to analysts that the new sources will “…help serve our business better, but it will come at a little bit higher cost.”
Higher duties for countries now providing fleece to Under Armour account for the increased costs.
Timely delivery of apparel and textiles is an absolute necessity for the marketing of seasonal-dependent products.
Despite problems, Under Armour ended 2012 with a 26 percent increase in revenue over the previous year, to $506 million. Earnings grew by 52 percent over 2011.
Net profits for the first quarter of 2013, however, fell by 47 percent, the decline attributed to marketing expenses.
Looking to the future, Under Armour chairman and CEO, Kevin Plank said,
“…our goal is to be a global company that truly has three components where we’re doing business, which would be the Americas, Asia and Europe.”