
Revenue at Under Armour fell 41 percent to $707.6 million in the second quarter, with the company incurring $182.9 million in net losses. The bulk of the sales declines came through the wholesale category, which fell 58 percent. Total revenues remained well ahead of Wall Street’s $543.8 million projections, though Under Armour expects more sales losses on the horizon.
In a company earnings call Friday, chief financial officer David Bergman said revenue could decline anywhere between 20 percent and 25 percent in the second half of 2020. The athletic wear company expects an even larger decline in the fourth quarter.
Roughly 80 percent of the stores where Under Armour merchandise can be purchased, including its own shops as well as retail partners, were closed through mid-May due to COVID-19. At present, most of its locations are operational but traffic trends remain sluggish compared to the prior-year period, and Under Armour expects they’ll stay that way for the rest of the year.
In a Nutshell: Under Armour has struggled to keep up with competitors in recent quarters, with the company incurring a net loss of $590 million in the first quarter thanks to the virus. Athletic apparel brands on the whole have suffered as professional and youth sports were suspended. Nike’s sales fell 38 percent in its latest quarter, while Puma saw sales declines of 31 percent.
For the second quarter, inventory at Under Armour was up 24 percent to $1.2 billion, indicating that the company hasn’t been able to sell through excess goods piled up as a result of the pandemic. Bergman said in the earnings call, however, that because the company has been aggressively tightening its inventories, there’s a possibility it won’t have “adequate supply to meet higher demand” later this year.
Under Armour ended the second quarter with cash and cash equivalents of $1.1 billion.
During the quarter, the company amended its credit agreement in order to provide improved access to liquidity. Under the amended $1.1 billion revolving credit facility, there was $250 million outstanding at the end of the second quarter.
Restructuring and impairment charges were $39 million, consisting of $28 million in non-cash and $11 million in cash-related charges attributed to cost cuts including temporary layoffs and store closures. For the full year, Under Armour has recognized $475 million in charges consisting of $340 million in restructuring and related impairment charges ($326 million in non-cash and $14 million in cash related charges) and $135 million from impairments of long-lived assets and goodwill.
Separately, Under Armour has been under heavy scrutiny lately by the federal government, which is probing into potential accounting irregularities.
The Securities and Exchange Commission (SEC) issued “Wells notices” to both Bergman and Under Armour founder and executive chairman Kevin Plank, related to actions taken in the third quarter of 2015 through the fourth quarter of 2016, investigating whether sales were attributed earlier than when they were actually booked in order to help the company meet sales objectives.
Under Armour said it maintains its actions were appropriate and intends to resolve the matter in full cooperation with the SEC.
Owed to ongoing uncertainty related to COVID-19 and its potential effect on global markets, the company continues to anticipate material impacts on its business results for the remainder of 2020, but has not given a complete guidance the full year.
Net Sales: Revenue dropped 41 percent to $708 million (down 40 percent currency neutral), predominantly related to impacts from the pandemic.
Wholesale revenue took the hardest hit, decreasing 58 percent to $299 million in the quarter. Direct-to-consumer revenue, on the other hand, slipped a smaller 13 percent to $368 million.
North America revenue decreased 45 percent to $450 million and revenue from the company’s international business dropped 34 percent to $224 million. Within the international business, revenue declined 39 percent in the Europe, the Middle East and Africa (EMEA) region, dipped 20 percent in APAC and decreased 72 percent in Latin America.
Apparel revenue fell 42 percent to $426 million, performing worse than footwear revenue, which decreased 35 percent to $185 million. Accessories revenue had the biggest drop, plummeting 47 percent to $56 million.
Net Earnings: Under Armour posted a net loss of $182.9 million in the second quarter, or 40 cents per share, compared with a loss of $17.3 million a year ago. Excluding the $39 million restructuring charges, adjusted net loss was $141 million, or 31 cents per share. The adjusted 31 cents per share loss also beat Refinitiv analysts’ estimates, which had anticipated adjusted losses at 41 cents per share.
Operating loss was $170 million, a sizable drop off from the $11.4 million in operating losses in the year-ago period. Excluding the impact of restructuring and impairment charges, adjusted operating loss was $131 million.
Gross margin increased 280 basis points to 49.3 percent of net revenues compared to the prior year quarter, with Under Armour attributing this to a channel mix that benefited from significantly lower sales to off-price retailers, as well as a higher mix of direct-to-consumer sales, partially offset by the negative impacts from COVID-19 related discounting.
CEO’s Take: “In navigating this environment, our team continues to respond strategically and methodically—amplifying Under Armour’s connection with our consumers through innovative digital activations, proactively managing our cost structure and working to harness our brand strength amid shifts in consumer behavior to emerge as a stronger company,” said Under Armour CEO and president Patrik Frisk.
Continuing, he said, “Now, with most of these doors reopened, we are encouraged by some of the momentum we’ve experienced in June and July. However, we remain appropriately cautious with respect to the balance of 2020 due to continued uncertainty related to consumer shopping dynamics, the potential for a highly promotional environment and proactive decisions to reduce inventory purchases to be more aligned with anticipated demand related to ongoing COVID-19 impacts.”