Under Armour Outperforms in Q4, but Supply Chain Woes Continue
Instead of retrenching, Under Armour went on the offensive in 2021 — and it paid off in a solid fourth quarter and year in terms of sales and earnings. But lingering supply chain issues that the company said will create “headwinds” well into 2023 cast a pall over the numbers and sent the company’s stock price down 12.5 percent to $17.51 on Friday.
The Baltimore-based activewear brand has been in the midst of a restructuring since Patrik Frisk took over the top post two years ago and refocused the company on its historic strength: sports apparel and accessories. It also made a bold move to cut down on promotions by eliminating 2,500 “undifferentiated” wholesale accounts in North America.
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On Friday, Under Armour reported net income for the quarter ended Dec. 31 of $110 million, or 23 cents a share, compared with $184.5 million, or 40 cents a share, a year earlier. There were $14 million in restructuring and impairment charges in the quarter, so excluding onetime items, it earned 14 cents a share, beating analysts’ estimates of 7 cents.
Sales overall rose 9 percent to $1.5 billion, which the company attributed to a “solid performance” in its owned and operated stores and a 4 percent growth in e-commerce, which represented 42 percent of its total direct-to-consumer business during the quarter.
In North America, the results were even better, with sales increasing 15 percent to $1.1 billion. But it was a mixed bag internationally where overall revenue increased 3 percent to $461 million, with a 24 percent gain in Europe, Middle East and Africa, but a 6 percent decline in Asia-Pacific and a 22 percent drop in Latin America.
Apparel revenues in the quarter increased 18 percent to $1.1 billion, while footwear sales rose 17 percent to $283 million, the company said. Accessories revenue, however, decreased 27 percent to $107 million.
In a call with analysts Friday morning, Frisk, Under Armour’s president and chief executive officer, said: “dynamic changes in purchase behavior and marketplace demand” resulted in “several obstacles as we worked through what we believed to be a recovery year following a difficult 2020. At that point, it would have been easy to stay conservative and adopt a wait-and-see strategy, yet the tremendous progress we made following our multiyear transformation — including healthier demand for the Under Armour brand and the passion that this team shows up with every day — meant going on offense was the only path for 2021.”
He said the company “saw significant progress in our largest long-term growth drivers, our international, direct-to-consumer, women’s and footwear businesses,” including the popular Curry and Project Rock collections. So despite the effects the current macro factors are having on its business, Frisk said, “we have no intentions of sitting idle.”
But the growth the company is experiencing is “dramatically different than where we were in 2018, 2019,” he continued, with “significantly less off-price sales, reduced discounting, markdowns and promotion in all of our channels. And then the fact that we have exited about 2,500 doors that we felt were undifferentiated and were still growing in spite of that just shows the type of trajectory that we’re expecting going forward.”
The situation isn’t completely rosy, however. Even though Under Armour raised its outlook for the quarter ending March 31 with expected operating income of between $30 million and $35 million and a percentage revenue increase in the midsingle digits — up from the low-single-digit rate it had previously anticipated — it still warned of “headwinds related to reductions in our spring 2022 order book from supply constraints associated with ongoing COVID-19 pandemic impacts.”
Chief financial officer Dave Bergman expanded on the situation during the analyst call, saying: “We expect many of these headwinds to continue well into fiscal 2023 until longer-than-usual transit times, backlogs and congestion find balance, associated freight and logistics costs normalize, and in-bound shipping delays subside. At this time, we do expect these uncertainties to cause material impacts and variability in our future results.”
For the full year, Under Armour reported net income of $360 million on a 27 percent gain in sales to $5.7 billion. Wholesale revenue increased 36 percent to $3.2 billion, and direct-to-consumer sales increased 26 percent to $2.3 billion. In North America, full-year sales rose 29 percent to $3.8 billion while international revenue increased 34 percent to $1.9 billion with a 41 percent jump in EMEA, a 32 percent rise in Asia-Pacific and an 18 percent increase in Latin America. Apparel revenue increased 33 percent to $3.8 billion, while footwear revenue rose 35 percent to $1.3 billion. Accessories revenue increased 12 percent to $462 million.
Bergman said as a result of the company changing its reporting structure to one that now starts on Jan. 1, it views 2022 as a “transition year,” and is not providing a financial outlook for fiscal 2023 and will wait until May to provide more color on its expectations for this year.
While the company’s stock was punished by its admittance of supply chain issues, not every analyst was bearish. Simeon Siegel of BMO Capital Markets, said he expects Under Armour will emerge “healthier than pre-pandemic and we see ongoing upside from here.”
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