Shares of Under Armour Rise 7% as Profit Beat Offsets Revenue Decline

Under Armour Inc.'s stock experienced a 7% surge in early trading on Thursday, propelled by the company's fiscal third-quarter performance that surpassed profit expectations, offsetting revenue figures that fell short.

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For the quarter, the Baltimore-based sportswear company reported net income of $114.1 million, or 26 cents per share, in contrast to $121.6 million, or 27 cents per share, during the same period last year. The adjusted per-share earnings stood at 19 cents, surpassing the 11-cent FactSet consensus.

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However, the revenue for the quarter declined to $1.486 billion from $1.582 billion in the corresponding period a year ago, missing the $1.503 billion FactSet consensus.

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CEO Stephanie Linnartz commented on the results, acknowledging a mixed retail environment during the holiday season but expressing satisfaction with the third-quarter revenue meeting expectations. Despite challenges, the company achieved better-than-anticipated profitability, remaining on track to meet its full-year outlook.

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In terms of revenue breakdown, wholesale revenue experienced a 13% decline to $712 million, while direct-to-consumer revenue saw a 4% increase to $741 million. The fiscal second quarter had witnessed inflation, subdued consumer confidence, elevated inventory levels, and widespread promotions, which impacted the wholesale business and affected the company's future-orders book.

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Geographically, North America revenue decreased by 12% to $915 million in the quarter, whereas international revenue witnessed a 7% rise to $566 million. The international growth was fueled by a 7% increase in EMEA, a 7% rise in Asia-Pacific, and a 9% increase in Latin America.

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Analyzing revenue by category, apparel revenue declined by 6% to $1 billion, footwear revenue dropped by 7% to $331 million, and accessories revenue remained flat at $105 million.

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The company reported a gross margin expansion of 100 basis points to 45.2%, attributed to supply chain benefits resulting from lower freight costs. These gains were partially offset by inventory management measures, including a higher percentage of sales from the off-price channel and increased promotions in the direct-to-consumer business.

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Under Armour adjusted its guidance for 2024, now anticipating a revenue decline of 3% to 4%, narrowing the previous guidance of down 2% to 4%. The expected earnings per share (EPS) range is 57 cents to 59 cents, with adjusted EPS forecasted at 50 cents to 52 cents. The FactSet consensus predicts an EPS of 49 cents and a revenue decline of 2.9%.

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The company projects a gross margin increase of 120 basis points to 130 basis points, up from the prior guidance of 100 basis points to 125 basis points.

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Over the last 12 months, Under Armour's stock has faced a 24% decline, in contrast to the S&P 500's 21% gain. The company's performance, marked by strong profitability despite revenue challenges, reflects a complex market landscape and the ongoing impact of global economic dynamics on the sportswear industry.

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