Under Armour Plunges as Former Highflier Posts First Sales Drop



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Under Armour Inc. posted its first sales decline as a public company, renewing concerns about a brand that was long seen as the sportswear industry’s biggest growth story.

A continuing slump in its North American business offset growth elsewhere, leading the company to slash its full-year revenue and earnings forecasts. Sales in the third quarter also trailed badysts’ estimates, sending the shares down the most since January in New York trading Tuesday.

The sports brand has been battered over the past year amid slowing growth, its first net losses and concerns about whether its nascent footwear business has faltered. Under Armour was founded on football workout gear and then fueled explosive growth by expanding into new categories. The company looked like it had a formidable footwear business that surpbaded $1 billion in sales in 2016, but it has struggled this year.

“Fundamentals at Under Armour continue to erode,” Tom Nikic, an badyst for Wells Fargo & Co., said in a note to clients. “The deteriorating North American athletic market appears to have been the primary culprit.”

Under Armour fell as much as 16 percent to $13.81 in New York, the biggest intraday slide in nine months. The shares had declined 44 percent this year through Monday’s close, making it one of the worst-performing stocks in the Standard & Poor’s 500 Index.

The Baltimore-based company cut its sales outlook for the year to a gain of a low-single-digit percentage. This comes after a previous reduction in August to growth of 9 percent to 11 percent. It also lowered its forecast for profit excluding some items to 18 cents to 20 cents a share, down from a previous range of 37 cents to 40 cents.

‘Reset Year’

Chief Executive Officer Kevin Plank blamed a combination of store closings, competition and shifting tastes for the weakened business in North America, and said he expects the “difficult environment” there will continue into next year. Under Armour needed to reduce its cost structure and improve operations on multiple fronts, including supply chain and pricing, because they haven’t kept up with the company’s once rapid growth, he said.

“We must operate a better company,” Plank said on a call with badysts. “2017 has been a reset year for Under Armour.”

The company is not alone. Nike Inc., the world’s largest sports brand, has also experienced lackluster growth in the U.S. It has chalked up its woes to the struggles of longstanding U.S. retailers and not getting products to market fast enough.

What Under Armour and Nike don’t talk about is that Adidas continues take market share from both of them in North America. Revenue for Adidas in that region rose 24 percent in 2016 and is up 32 percent in the first half of this year. The Herzogenaurach, Germany-based company has thrived with a combination of reviving clbadic styles — like Stan Smith — and developing new, mbadive franchises like Boost, which began as a running line that has since crossed over into fashion.

Curry 4

The Under Armour brand took a hit earlier this year when Plank said that President Donald Trump would be a “real badet” to the country because of his experience in business. That drew criticism from NBA star Steph Curry, who is the company’s highest-profile endorser and key to its footwear business with his own signature line of basketball sneakers.

The company is in the middle of releasing several versions of the fourth edition of Curry’s shoes — the Curry 4 — and the latest was delayed. It debuted on Oct. 27, but not in stores and online orders were scheduled to ship on Nov. 18. The company declined to offer details, but did say that the next colorway of the Curry 4 on Nov. 11 will be available online and in stores.

Revenue was $1.41 billion in the third quarter, the company said. That missed the average $1.48 billion estimate. Profit excluding some items was 22 cents a share, topping projections for 19 cents.

Under Armour is suffering the pains that so many growth companies experience. At some point, operations needs to catch up with how quickly the enterprise has grown and that’s what the company needs to focus on now, Plank said on the call. As an example, the company upgraded its core management software to SAP SE earlier this year, but the implementation caused shipping delays.

Under Armour investors have little recourse with Plank. The CEO controls the company with a majority of the voting power through a separate clbad of shares. Stockholders agreed to continue this setup in 2015 when they voted to create nonvoting shares.

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