Under Armour's slump gets worse, may not make money in 2017

Daniel Roberts
Writer
Yahoo FinanceOctober 31, 2017

The news in Under Armour’s (UAA) 2017 third-quarter earnings report was mostly bad.

The Baltimore-based sports apparel company reported revenue of $1.41 billion, a decline of 5% vs the same quarter last year. It was its first year-over-year revenue decline as a public company. Analysts had expected revenue of $1.48 billion. Earnings per share came in at 22 cents, a beat compared to analyst expectations of 19 cents.

Most importantly, Under Armour slashed its full-year outlook for 2017. Management now expects 2017 full-year revenue to be up in the low single digits, whereas earlier this year it had predicted gains as high as 11%.

In a press release, Under Armour predicts full-year operating income to come in at “0 to $10 million.” In other words, the company might not cut a profit in 2017.

Under Armour shares fell 15% in early trading on Tuesday.

“Clearly this is a much different profile for the year than we discussed 90 days ago,” said acting CFO Dave Bergman on Tuesday’s earnings call. “On that call, we outlined several key factors we thought would come to fruition… demand and challenges in North America significantly altered the terrain.”

Adjusted for nonrecurring items, management expects to generate operating income of $140 million to $150 million, which would pan out to earnings per share of $0.18 to $0.20.

What’s going wrong for Under Armour?

The biggest problem area for Under Armour right now is its most important region: North America.

Revenue in North America fell 12% to $1.07 billion, with wholesale revenue down 13% to $880 million. Direct to consumer revenue was up 15% to $468 million. This means consumers who like Under Armour are continuing to order product directly from the company. But they are not buying the brand in sporting goods stores; or when they do, it is at a discount.

“We’ve got significant challenges in our North American wholesale business,” CEO Kevin Plank acknowledged, “which represents 60% of what we do.”

U.S. sports apparel is an increasingly promotional environment, meaning that brands are offering a lot of discounts and sales. Back in January, when Under Armour’s streak of 26 straight quarters with 20% or higher revenue growth first ended, Plank identified the discounting problem, and it has only gotten worse since then.

“The role both we and our retailers expect us to play is as a premium, full-price brand,” Plank said at the time. (More recently, in August, he framed things in starker terms: “We’re pivoting.”)

Much of the problem has been the overall decline of brick-and-mortar sporting goods chains. But some analysts are now saying that Under Armour’s problems are not just about the larger market.

“It demonstrates issues with the brand and its proposition,” a GlobalData Retail analyst said. “Especially so since other brands and retailers… have not posted such calamitous figures.”

After all, Adidas is flying high in North America. The German giant is cool again in America, and its stock has responded, up 44% in 2017 so far. Nike is up 6% in that time, Under Armour is down 53%.

Under Armour also saw declines in categories that have been shaky for the entire sports apparel market: golf gear, outdoor gear, and basketball footwear.

All “performance” gear (apparel and footwear worn for playing sports) has sold poorly in the U.S. for over a year now, and that’s debilitating to Under Armour, which is a performance-first company. UA “has got to figure out the sportswear business,” says NPD Group analyst Matt Powell. “We are deep in a non-performance cycle.”

Bright spots

It’s not all bad for Under Armour: the brand is growing rapidly outside America.

International revenue was up 35%, though that represented only 22% of overall revenue. It is an area that the company is highlighting amidst its continued bad news. “When we talk about opportunity for this company, it comes down to footwear, women’s, and our international business,” said Plank. “Obviously international is an area that’s kicking really well for us, but women’s and footwear we can improve.”

Under Armour’s footwear revenue was up 2% to $285 million, and the company cited particular strength in running shoes. Footwear is still a tiny part of its overall business.

The third quarter report is the fourth bad earnings report in a row for Under Armour.

“What we’re telling you today isn’t how we ever expect to deliver for the market and our business,” Plank reiterated. “Let me just say again how disappointed we are in the 2017 results.”

This year, Plank said, “is a reset for our business and our brand… We’re certainly not standing still, taking these blows, and saying, ‘We accept this.'”

https://finance.yahoo.com/news/armours-s...34105.html

The good news is that don't have enough to pay players to go to certain schools!

I'm sure that they have a mutual fund invested somewhere they can pay players off the interest. Whats a couple hundred thousand dollars a year when your revenue is over a billion?

(10-31-2017 04:58 PM)Bearcatbdub Wrote:  I'm sure that they have a mutual fund invested somewhere they can pay players off the interest. Whats a couple hundred thousand dollars a year when your revenue is over a billion?

Under Armour has garage products at the retail with price points that are way too high.

Under Armour's charged cotton T-shirts have a strange smell and odd sizing. The performance based heat gear has uncomfortable seams. Which the primary type of shirt they at the retial level.

Nike has more comfortable clothing at lower price points. I would rather buy a Nike Dri-Fit Cotton shirt, a Nike Tri-blend, or a Nike Dri-blend over anything Under Armour puts out there. Nike also has by the far most comfortable hat in the "dad hat" or low crown category in their H86 Twill Dri-Fit. Nike hoodies are far superior as well.

(10-31-2017 09:29 PM)bearcatlawjd2 Wrote:  

(10-31-2017 04:58 PM)Bearcatbdub Wrote:  I'm sure that they have a mutual fund invested somewhere they can pay players off the interest. Whats a couple hundred thousand dollars a year when your revenue is over a billion?

Under Armour has garage products at the retail with price points that are way too high.

Under Armour's charged cotton T-shirts have a strange smell and odd sizing. The performance based heat gear has uncomfortable seams. Which the primary type of shirt they at the retial level.

Nike has more comfortable clothing at lower price points. I would rather buy a Nike Dri-Fit Cotton shirt, a Nike Tri-blend, or a Nike Dri-blend over anything Under Armour puts out there. Nike also has by the far most comfortable hat in the "dad hat" or low crown category in their H86 Twill Dri-Fit. Nike hoodies are far superior as well.

As someone who owns way too many Nike and UA hoodies, UA's Storm 1 hoodies outperform Nike in the rain. I was stuck walking a couple of blocks in a sudden downpour. My shoes and pants were soaked through, but the UA hoodie repelled water and none soaked through. When I got back to the hotel room, the only thing I didn't have to change was my tshirt.

Also, I've never experienced the strange smell you continually talk about with the charged cotton nor do I find the seams to be uncomfortable in the heat gear.

Just bought a thin cotton running hoodie for 50 bucks. I love the fit but it makes my stomach stick out. I guess I cannot blame that on Under Armour.

I live a few blocks from Adidas' HQ in Portland, and work near Under Armour's brand new facility here. Adidas just announced that they're bringing 800 new jobs, which is hard to imagine given their space limitations. Nike is building multiple new buildings on their sprawling campus in the burbs, and Under Armour felt that somehow they needed to be in Portland too. They bought an old building overlooking a park that needed love, and spent close to $100 million to completely renovate the building and the park. They intended the expansion as a shot across the bow of the big boys, but its seems like it was a case of getting too big for their britches.

This quote from their CEO yesterday sums it up: "In no way, shape or form do we anticipate changing the pricing model that makes Under Armour special and unique," Plank said. "We invented the $25 T-shirt. We've pressed the bounds as to what consumers will pay for apparel. That'll continue. No one is looking for Under Armour to have the $25 hooded fleece. They want Under Armour at the $75 and $100 price points."

Only doss is more out of touch with the common man. Oh well. At least we have a nice new building and park here in town.

(11-01-2017 09:47 AM)rosewater Wrote:  Just bought a thin cotton running hoodie for 50 bucks. I love the fit but it makes my stomach stick out. I guess I cannot blame that on Under Armour.

Having the same issues with some of my "sports" clothing.

(11-01-2017 07:13 PM)UCGrad1992 Wrote:  

(11-01-2017 09:47 AM)rosewater Wrote:  Just bought a thin cotton running hoodie for 50 bucks. I love the fit but it makes my stomach stick out. I guess I cannot blame that on Under Armour.

Having the same issues with some of my "sports" clothing.

I may be (ok, I'm definitely) in the minority here... But I really miss our Nike uniforms from the early-mid 2000s.

Maybe not necessarily the materials they used but the overall uniform design itself, I thought looked great.

(11-01-2017 11:21 PM)pat5775 Wrote:  I may be (ok, I'm definitely) in the minority here... But I really miss our Nike uniforms from the early-mid 2000s.

Maybe not necessarily the materials they used but the overall uniform design itself, I thought looked great.

I liked them too...I still think the Reds we wore in the late CUSA days were incredible too.

(11-02-2017 09:04 AM)BearcatMan Wrote:  

(11-01-2017 11:21 PM)pat5775 Wrote:  I may be (ok, I'm definitely) in the minority here... But I really miss our Nike uniforms from the early-mid 2000s.

Maybe not necessarily the materials they used but the overall uniform design itself, I thought looked great.

I liked them too...I still think the Reds we wore in the late CUSA days were incredible too.

I liked the design as well (2004-2007). However, even if we were still with Nike those designs are considered archaic today. The unis would probably like something like San Diego State's




Edit: For the record, I have posted before I am not a fan of the triangles on our uniforms and find the UA gear to be over priced.

(11-02-2017 09:08 AM)CliftonAve Wrote:  

(11-02-2017 09:04 AM)BearcatMan Wrote:  

(11-01-2017 11:21 PM)pat5775 Wrote:  I may be (ok, I'm definitely) in the minority here... But I really miss our Nike uniforms from the early-mid 2000s.

Maybe not necessarily the materials they used but the overall uniform design itself, I thought looked great.

I liked them too...I still think the Reds we wore in the late CUSA days were incredible too.

I liked the design as well (2004-2007). However, even if we were still with Nike those designs are considered archaic today. The unis would probably like something like San Diego State's




Edit: For the record, I have posted before I am not a fan of the triangles on our uniforms and find the UA gear to be over priced.

Oh I completely agree that they're severely outdated now, but at the time they were great.

I actually really like our current look...my favorite of the UA era is the soccer gear from last year, but the football jerseys have definitely grown on me. I think as a design, without all of the other mumbo-jumbo included, the stripe is nice.

UA is overpriced.. and their designs, specifically for shoes.. are mocked almost 100% of the time. Their "designers" know almost nothing about making a shoe that performs, looks good, and frankly holds up to standards of actual use. I remember when their shoes first came out I was working at Dicks Sporting Goods in college.. as a Dicks employee we got the shoes at 60% off. The shoes I got lasted less than 4 flag football games before my foot ripped out the side of the shoe.. working at dicks I heard many of the same stories. I bought them because they were super cheap, not because they looked good. Had I known they were as trash as they were(and people I know who have bought anything besides their football cleats recently have said very similar things) I would have saved my money. I still contend UA is like the rich kid who moved on the block and may have changed the game(with compression shorts and other gear they were far ahead of everyone), but being that cool expensive brand doesn't last if your product hasn't changed in 10 years now but you still expect to get the premium $$... I can't remember spending 1 dime on UC UA gear simply bc the price was super high and the quality was subpar to anything Nike is putting out these days. It's sad that by far the best UA unis I have seen are the throwback Nike wannabes from the game v UCONN.. simply put UA has been passed by the others since UA always thought they were the Apple of the gear game and never needed to discount their products

(11-02-2017 02:06 PM)Ahhhorsepoo Wrote:  UA is overpriced.. and their designs, specifically for shoes.. are mocked almost 100% of the time. Their "designers" know almost nothing about making a shoe that performs, looks good, and frankly holds up to standards of actual use. I remember when their shoes first came out I was working at Dicks Sporting Goods in college.. as a Dicks employee we got the shoes at 60% off. The shoes I got lasted less than 4 flag football games before my foot ripped out the side of the shoe.. working at dicks I heard many of the same stories. I bought them because they were super cheap, not because they looked good. Had I known they were as trash as they were(and people I know who have bought anything besides their football cleats recently have said very similar things) I would have saved my money. I still contend UA is like the rich kid who moved on the block and may have changed the game(with compression shorts and other gear they were far ahead of everyone), but being that cool expensive brand doesn't last if your product hasn't changed in 10 years now but you still expect to get the premium $$... I can't remember spending 1 dime on UC UA gear simply bc the price was super high and the quality was subpar to anything Nike is putting out these days. It's sad that by far the best UA unis I have seen are the throwback Nike wannabes from the game v UCONN.. simply put UA has been passed by the others since UA always thought they were the Apple of the gear game and never needed to discount their products

Agree completely. Not a fan of their products at all. Like you said, way overpriced.

I bought one of the UA polo shirts that the football coaches seemed to wear last year (dark red on the bottom, and a light red on top). It was expensive, but it has been one of the more comfortable and durable polos I have purchased in a while.

(11-02-2017 02:32 PM)Bruce Monnin Wrote:  I bought one of the UA polo shirts that the football coaches seemed to wear last year (dark red on the bottom, and a light red on top). It was expensive, but it has been one of the more comfortable and durable polos I have purchased in a while.

UA's golf attire is excellent...their polos are the best in the business in my opinion as far as comfort and durability are concerned.

This is hilarious. A few years back when the contract was coming to an end, most everyone was hating on Adidas and how their clothing and uniforms sucked and predicting how great UA was gonna be, and a couple years later people are now dumping all over UA, and griping about how their clothing and uniforms suck. Some things never change.

(11-02-2017 05:20 PM)JackieTreehorn Wrote:  This is hilarious. A few years back when the contract was coming to an end, most everyone was hating on Adidas and how their clothing and uniforms sucked and predicting how great UA was gonna be, and a couple years later people are now dumping all over UA, and griping about how their clothing and uniforms suck. Some things never change.

Nike is easily the best. I've been saying that since way back in 2017.

(11-02-2017 05:33 PM)geef Wrote:  

(11-02-2017 05:20 PM)JackieTreehorn Wrote:  This is hilarious. A few years back when the contract was coming to an end, most everyone was hating on Adidas and how their clothing and uniforms sucked and predicting how great UA was gonna be, and a couple years later people are now dumping all over UA, and griping about how their clothing and uniforms suck. Some things never change.

Nike is easily the best. I've been saying that since way back in 2017.

Nikes quality is extremely poor. Left them years ago and never looked back. Love Adidas running gear. Thought they put out a great product for UC. However, they low balled UC and money talks. UA is overpriced. I have to agree their polo's are the best though.