Under Armour shares surge 10% on smaller-than-expected loss

Key Points
  • The company reported a loss of 1 cent per share, topping analysts' expectations of a loss of 4 cents per share, according to Thomson Reuters.
  • Revenue came in at $1.12 billion for the quarter, beating a $1.11 billion estimate, according to analysts.
Under Armour shares surge on its first-ever loss
Under Armour shares surge on its first-ever loss

Although Under Armour posted its first-ever loss Thursday, it was not nearly as bad as some had feared, sending shares up more than 10 percent at one point.

Shares of the company closed up more than 9 percent on Thursday.

Here's what the company reported vs. what the Street was expecting:

  • EPS: A loss of 1 cent vs. estimated loss of 4 cents, according to Thomson Reuters.
  • Revenue: $1.12 billion vs. $1.11 billion, analysts said.

Under Armour said it swung to a net loss of $2.3 million, or a penny per share, for the first quarter, from a profit of $19.2 million, or 4 cents per share, a year earlier.

It said sales climbed nearly 7 percent to $1.12 billion from $1.05 billion a year earlier, boosted by increases in wholesale and direct-to-consumer revenues.

Under Armour's North American revenue, though, fell 1 percent "as new distribution was more than offset by the absence of business lost to bankruptcies in 2017," the company said.

The retailer reported a 12 percent increase in accessories sales for the first quarter, fueled by strength in men's training, running, youth and global football business segments. Apparel revenue climbed 7 percent from gains in training, golf and team sports, while footwear revenue grew a mere 2 percent.

During the year-earlier period, footwear sales were up a whopping 64 percent due to "significant strength in basketball sales," the company said.

"UAA is one of the few brands that matter in the athletic space," Jefferies research firm wrote in a Thursday note to clients following the earnings report. Analyst Randal Konik said the company has a significant opportunity to scale its North American segments further, specifically in women's wear and footwear.

"We believe this brand is here to stay," Konik added, as profit margins came in "better than feared" for the quarter, and Under Armour's inventories remain "in good shape."

Just last quarter Under Armour lowered its guidance for 2017, pegging estimates for operating income down to $320 million and said it now anticipates a smaller gross margin for the full year. It said it continues to back those expectations.

Under Armour also continues to anticipate net revenue to grow 11 to 12 percent to reach nearly $5.4 billion by the end of this year.

More players in the field

Earlier this year, Under Armour shares plunged more than 20 percent after it reported lower-than-expected quarterly sales and announced that its chief financial officer at the time, Chip Molloy, a former CFO of PetSmart, was stepping down for personal reasons.

Under Armour has been hurt lately by competition, leading to slowing growth in its North America segments, which has worried Wall Street. That competition stems from the likes of Nike and Adidas, all of which are vying for a larger share of athletic footwear and apparel markets and also are competing to snag key celebrity sponsorship deals.

Starting in March, department store operator Kohl's began selling Under Armour products in its more-than 1,000 stores.

"The female consumer is [in Kohl's], she's shopping and she's buying," Under Armour CEO Kevin Plank said about the partnership when it was announced. "We think there is a big opportunity."

However, much of the Street is still concerned the Kohl's deal could dilute Under Armour's brand image in the long run. Under Armour "has begun utilizing select markdowns (of 25%) on its new apparel offerings in KSS," Citi Research wrote in a note to clients earlier this month. This implies a rough start to the partnership, according to analysts who performed Kohl's store checks.

Meanwhile, struggling retailer J.C. Penney said it is dedicating more square footage in its stores to Nike.

As of Thursday's close, Under Armour's Class A shares are down about 51 percent over the past 12 months and have fallen 25 percent for the year-to-date period.

UAA 12-month performance 

Source: FactSet