Under Armor reiterates plans to break ties with some retailers, shares rally

Under Armor sneakers on display.

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Under Armor is moving forward with its restructuring strategy to take out its sweat-wicking sneakers and blouses from distressed middlemen and instead invest in its own stores and website, the company said Wednesday.

Investors supported management’s comments on the future, with Under Armor shares rising about 10% in trade and hitting a 52-week high of $ 23.23. Previously, the company reported fourth quarter earnings and sales that beat Wall Street expectations as the company unexpectedly posted earnings.

Late last year, Under Armor revealed plans to leave some wholesale retailers, primarily in North America, beginning in the second half of 2021 as it duplicates its strategy of selling more directly to consumers. It has said it aims to drop 2,000 to 3,000 partner stores, which would leave it with 10,000 partner stores by the end of 2022.

“That will be a two- to three-year journey for us,” Chief Executive Patrik Frisk told analysts during a conference call Wednesday morning. “And what will be left for us, when we finish that journey, is really what we think are more appropriate doors for us, doors that we believe are going to win.”

The company did not identify which retailers it will break ties with as part of this plan. Under Armor merchandise is sold in various US department stores, specialty sporting goods stores and discount retail stores, as well as family businesses.

In 2020, Under Armor said wholesale revenue fell 25% to $ 2.4 billion, while direct-to-consumer sales increased 2% to $ 1.8 billion, driven by a 40% increase in e-commerce sales. . Digital accounted for about 47% of direct-to-consumer revenue last year, the company said.

“The reality is that the company is showing restraint and conservatism because they recognize the need to grow healthily and not quickly,” BMO Capital Markets analyst Simeon Siegel said in an interview. “The idea that a brand will grow to the moon and sell anywhere is a thing of the past. And the retailers that depended on it … will have to look inward.”

Frisk explained that the strategy will help Under Armor have a more premium position in the market, while allowing it to sell more inventory at full price, which should also help increase profits.

Analysts have chided the company in the past for selling too much merchandise through other retailers, often ending with a downgrade and diluting the brand’s value.

Several retail brands, including Coach owner Tapestry and Levi Strauss & Co., have embarked on a similar path, some with more success than others. Change is still underway for some. The transition has come as more consumers shop online and make fewer visits to shopping malls, a trend that has weakened sales in department stores. And these trends have accelerated during the Covid pandemic.

Nike offers one of the best examples. Its direct-to-consumer revenue accounted for about 35% of its total sales for the Nike brand in fiscal 2020, compared to 32% in fiscal 2019.

“The way we think about our distribution model … is really through the eyes of the consumer,” said Under Armor’s Frisk. “So the way Under Armor drives our decisions about where we should be, when we should be there, how much we should have … our future growth comes with the consumer.”

With Wednesday’s gains, Under Armor shares were up about 10% from a year earlier, bringing their market value to $ 10.3 billion.


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