Under Armour Asia sales skyrocket
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Under Armour Asia sales soared 89 per cent in the latest quarter to US$93.6 million as Chinese continued to embrace the sports brand.
Profit in the region rose an equally spectacular 53.8 per cent to $15.2 million.
The US-headquartered sportswear company said the Asian regional performance was driven by China, Taiwan and Korea as it continued to resonate with consumers in key categories such as basketball and running.
But the Under Armour Asia results were a bright spot in an otherwise disappointing quarter which ended with the company downgrading its sales and profit expectations and announcing a restructure which will reduce its workforce by 277, or about 2 per cent. Investors responded by punishing the company’s share price, which fell 10.4 per cent on Tuesday.
Ironically, the second-quarter sales results were actually better than Wall Street had expected – it was a surprise decline in the footwear category and the decrease in growth projection for the full year from between 11 and 12 per cent to between 9 and 11 per cent which gave the market the jitters. Under Armour had previously targeted $10 billion in annual sales by 2020 – a huge increase from last year’s $4.8 billion.
“We enjoyed hyper-growth for several years and I want to be clear we still believe we’re a growth company,” CEO Kevin Plank told analysts on a conference call, describing the layoffs and restructuring program as “a demonstrative sign that we’re not standing still, but acting quickly to evolve Under Armour to become a stronger, faster and smarter company”.
“Investors responded by punishing the company’s share price, which fell 10.4 per cent on Tuesday.”
“Some of the growing pains that we feel, while difficult, are the ones we believe necessary in securing the infrastructure, systems, processes, leadership and discipline to realise the full strength and potential of the Under Armour brand. Reinforcing and building the Under Armour brand remains a vision for our company, and we’re in this fight. We’ve got a couple of competitors in front of us, there’s a number behind us, and you’ll see us continue to separate ourselves as we move forward in building the brand that we believe is the brand of the future.”
Total second quarter sales rose 8.7 per cent to $1.1 billion. Gross margin declined 190 basis points to 45.8 per cent, hit by currency rates, rising air freight costs and the implementation of a new enterprise resource planning system. The company posted a net loss of $12.3 million, significantly lower than the $52.7 million loss of the same quarter last year.
Regionally, North America sales rose a mere 0.3 per cent and Latin America by 10.4 per cent. Total revenues outside the US rose 57 per cent.
Questions & Answers
Q.What specifically caused Under Armour to downgrade its sales and profit expectations for the full year?
What specifically caused Under Armour to downgrade its sales and profit expectations for the full year?
The company downgraded its projections due to a surprise decline in the footwear category and a reduced growth projection for the full year. Original full-year growth was targeted at 11-12 per cent, but this has been revised down to 9-11 per cent.
Q.Which specific regions outside Asia showed slower sales growth in the latest quarter?
Which specific regions outside Asia showed slower sales growth in the latest quarter?
Sales growth in North America was very low, increasing by only 0.3 per cent. Latin America's sales rose by 10.4 per cent, which is also modest compared to the Asian market's performance.
Q.What factors led to the decline in Under Armour's gross margin during this quarter?
What factors led to the decline in Under Armour's gross margin during this quarter?
The gross margin declined due to several factors, including unfavourable currency rates, increased air freight costs, and expenses associated with implementing a new enterprise resource planning system. It fell by 190 basis points to 45.8 per cent.
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