Under Armour (UAA) stock was down 12.2% at 1:12 PM ET today after it lowered its 2019 revenue outlook for its North American business. The athletic footwear and apparel company announced its second-quarter earnings results today. In the second quarter, Under Armour generated revenue of $1.19 billion and lagged analysts’ expectation of $1.20 billion.
However, its second-quarter revenue rose 1.4% year-over-year. Its international business continued to be a key growth driver. Its international revenue rose about 12% to $339 million in the quarter and accounted for 28% of its overall revenue. If we ignore the impact of currency fluctuations, we’ll find that its international revenue growth was 17%.
Continued weakness in North America
Lower North American revenue continued to drag on Under Armour’s growth. The region’s revenue fell 3% to $816 million in the second quarter. The company is struggling to grow in the region amid intense competition from Nike (NKE) and Adidas. In the first quarter, the company’s North American revenue fell 2.8% due to weak demand in the direct-to-consumer channel and lower off-price sales. Under Armour is trying to regain its positioning as a premium brand and has been reducing its exposure to off-price channels.
Larger rival Nike reported a 7.5% rise in revenue in the North American region in the fourth quarter of fiscal 2019, which ended on May 31. Overall, Nike’s revenue rose 4% to $10.18 billion in the fourth quarter. However, Nike’s fourth-quarter EPS fell 10.1% to $0.62. Higher marketing expenses and growth investments dented its bottom line.
Under Armour’s second-quarter earnings
Under Armour posted adjusted EPS of -$0.03 in the second quarter compared to -$0.08 in the second quarter of 2018. Analysts had expected adjusted EPS of -$0.05. Under Armour’s gross margin expanded 170 basis points to 46.5% in the second quarter.
Supply chain initiatives and a favorable regional mix drove the improvement in Under Armour’s reported gross margin. Its gross margin also expanded due to a favorable comparison with the second quarter of 2018, which included restructuring charges.
Outlook for 2019
The company continues to expect 2019 revenue growth in the range of about 3%–4%. However, Under Armour now expects its North American revenue to decline slightly compared to its previous guidance of relatively flat revenue. Under Armour foresees growth in the low to mid-teens in its international revenue this year.
Under Armour expects its gross margin to expand about 110–130 basis points on a reported basis in 2019. On an adjusted basis, it expects its gross margin to expand about 70–90 basis points.
The company kept its 2019 EPS guidance intact in the range of $0.33–$0.34.