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Under Armour Profits Bounce Back in Q3

Shares of Under Armour (UA) dropped more than 13 percent Tuesday, after the Baltimore-based athletic brand lowered its growth guidance through 2018.

Double-digit sales growth in all product categories pushed net revenues up 22 percent to $1.47 billion in the quarter ended Sept. 30, compared with $1.2 billion a year ago, and profits increased 28 percent from $100 million to $128 million. Footwear was the standout (up 42 percent), driven by running and basketball, while sales of apparel and accessories increased 18 percent apiece.

However, Under Armour’s sales growth slowed to 16 percent in North America (down from 22 percent in Q2 and 26 percent in Q1), while international sales continued to pick up, increasing 74 percent year-over-year, though still representing just 15 percent of total revenues for the quarter.

On a channel basis, the brand’s wholesale business trickled to 19 percent growth, compared with 27 percent in Q2 and 28 percent in Q1. Similarly, direct-to-consumer gained 29 percent in Q3, versus growth of 28 percent and 33 percent in the prior two quarters.

“There’s no doubt that the landscape globally, and certainly in our North American backyard, is shifting,” Kevin Plank, chairman and chief executive officer, said on a call with analysts Tuesday, noting that three sporting-goods bankruptcies in the last 12 months hurt business. “This doesn’t mean that the demand for the Under Armour brand has disappeared, but it certainly hasn’t reappeared dollar-for-dollar in our immediate distribution.”

The company now expects net revenues of roughly $4.925 billion in 2016, up 24 percent over 2015, and it’s projecting full-year revenue growth in the low 20 percent range in both 2017 and 2018. But that wasn’t upbeat enough for investors used to gains such as last year’s 28 percent, 32 percent in 2014 and 27 percent in 2013.

“Over the past 20 years we have established ourselves as a premium global brand with a track record of strong financial results. Looking back over the past nine months, it has never been more evident that we are at a pivotal moment in time, where the investments we are making today will fuel our growth and drive our industry leadership position for years to come,” Plank explained. “As a growth company with an expanding global footprint and businesses like footwear and women’s each approaching a billion dollars this year, we have never been more focused on the long-term success of our brand.”