Under Armour’s Q1 Results Were Worse amid COVID-19



Under Armour (NYSE:UAA) was already struggling due to the increased rivalry from Nike (NYSE:NKE), Adidas, and Lululemon (NASDAQ:LULU). However, COVID-19 made matters worse for the athletic apparel and footwear maker. Under Armour’s revenue declined 22.8% YoY (year-over-year) to $930.24 million. COVID-19 had a negative impact of 15 percentage points on the first-quarter revenue. The company lagged analysts’ revenue expectation of $949 million.

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Under Armour’s adjusted loss per share widened to $0.34 in the first quarter of 2020 compared to its adjusted EPS of $0.05 in the first quarter of 2019. Analysts forecasted an adjusted loss per share of $0.19. Meanwhile, the company’s gross margin expanded by 110 basis points YoY to 46.3% due to lower off-price sales and a higher direct-to-consumer mix. However, lower revenue and higher marketing and legal expenses dragged down the company’s earnings.

Under Armour stock has fallen 11.8% as of 11:18 AM ET today. The stock has fallen 53.8% YTD (year-to-date) as of May 8. Meanwhile, Nike and Skechers fell 10.7% and 35.2%, respectively, as of May 8, while Lululemon rose 2.7%.

Recently, Skechers reported better-than-expected first-quarter sales. However, the company’s first-quarter earnings declined significantly YoY amid the COVID-19 crisis.

Under Armour’s business declined across geographies

Under Armour’s revenue from North America fell about 28% YoY to $609 million in the first quarter. The company closed its stores in mid-March in the US. Likewise, several retailers and department store chains, which sell Under Armour’s products, temporarily closed their stores to curb the spread of COVID-19.

The company’s international revenue fell 12% YoY to $287 million. Notably, a 3% and 8% rise in EMEA and Latin America revenues were offset by a 34% fall in Asia-Pacific revenue.

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China, which generates more than half the company’s Asia-Pacific revenue, was also impacted by temporary store closures. The COVID-19 outbreak led to store closures in China from late January to early March. By the end of March, over 80% of owned and partner locations reopened in China. Currently, most owned and wholesale locations in China have reopened. However, the company said that the year-over-year revenue growth continues to be down at these stores.

Meanwhile, Under Armour’s apparel revenue fell 23% YoY to $598 million in the first quarter. The footwear revenue fell 28% to $210 million. Also, the accessories revenue declined 17% to $68 million.

Gloomy outlook

Under Armour disclosed that about 80% of its global businesses have been closed since April 1. Currently, the company expects a 50%–60% decline in its second-quarter revenue. The company’s e-commerce business has been seeing favorable trends in North America and EMEA in the second quarter. However, Under Armour’s e-commerce business only generates a low-double-digit percentage of its overall revenue.

Amid the current crisis, the company aims to reduce its 2020 operating expenses by $325 million. The company cut down its marketing expenses. Under Armour is also reducing incentive compensation and controlling other discretionary costs. The company will temporarily cut down the workforce at its US retail stores and distribution facilities.

Under Armour also reduced its 2020 capital expenditure plan to $100 million compared to the previous budget of $160 million. The company expects to incur restructuring and other related charges of $475 million–$525 million this year. In the first quarter, Under Armour recorded $301 million in restructuring and other impairment charges under its 2020 restructuring plan.

Overall, even with the gradual reopening of stores in several geographies, Under Armour’s outlook is bleak due to lower consumer discretionary spending amid the pandemic.


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