Under Armour sales top estimates on international momentum, sending shares soaring

Key Points
  • Under Armour shares surge after fourth-quarter sales top expectations.
  • Total revenue in the period climbed 5 percent to $1.37 billion.
  • Sales in international markets jumped 47 percent, representing 23 percent of total sales.
  • Under Armour managed to sell more apparel, footwear and accessories during the holiday season.
Under Armour's quarter 'in line with expectations,' says analyst

Under Armour shares soared more than 17 percent Tuesday morning after the company reported sales that topped analysts' expectations, fueled largely by growth outside of North America.

Under Armour said total revenue in the fourth quarter climbed 5 percent to $1.37 billion. Analysts were expecting $1.31 billion, according to a Thomson Reuters survey. Sales in international markets jumped 47 percent, representing 23 percent of total sales.

The company reported a net loss of $88 million, or 20 cents a share, compared with net income of $103 million, or 23 cents per share, a year ago. The company incurred a one-time charge of $39 million in the quarter due to new U.S. tax legislation. Excluding one-time items, Under Armour broke even on a per-share basis, matching analysts' estimates.

"2017 was a catalyst for us to begin strategically transforming Under Armour into an operationally excellent company," CEO Kevin Plank said in a statement. "Our fourth quarter and full year results demonstrate that the tough decisions we're making are generating the stability necessary to create a more consistent and predictable path to deliver long-term value to our shareholders."

Late last year, Under Armour reported third-quarter sales that fell short of analysts' expectations as the company booked an $85 million charge for restructuring efforts. It has since trimmed about 2 percent of its global workforce and has considered exiting smaller categories, such as fishing.

Moving forward, the Baltimore-based company is expecting to incur additional restructuring charges of $110 million to $130 million throughout the remainder of the year, stemming from lease terminations and the closure of some facilities. Under Armour said it should save at least $75 million annually, starting in 2019, from its turnaround plans.

Under Armour has suffered in North America, where demand for its apparel merchandise hasn't been as strong. That's against a backdrop of brands such as Adidas, Nike, Lululemon and up-starts like Outdoor Voices stealing market share.

In the fourth quarter, though, which includes the holiday season, Under Armour managed to sell more apparel, footwear and accessories. Apparel sales were up 2.5 percent, footwear 9.5 percent, and accessories 6.1 percent. The company said its strongest businesses include men's training and running shoes.

Plank has said one area where the company is still focused on growing is selling directly to consumers internationally. The company recently announced a handful of new hires to help meet those goals.

North American sales in the fourth quarter fell 4 percent, but direct-to-consumer revenue climbed 11 percent overall. Under Armour continues to build out its website to meet these new growth targets, as its wholesale revenues (i.e. selling to other distributors such as Kohl's and Foot Locker) decline.

"I think they have to improve their distribution," Guggenheim Securities analyst Bob Drbul told CNBC. The same products that are in Dick's Sporting Goods, for example, shouldn't also be in Kohl's, he said.

Further, "Under Armour has to double down on the innovation side and improve the product pipeline," Drubl said, in order to compete with Nike and others. Nike is aggressively targeting $50 billion in revenue by 2020, with about 75 percent percent of that growth expected to come from outside the U.S., and 50 percent of future sales stemming from new categories and innovation.

Looking to fiscal 2018, Under Armour said it anticipates sales to grow at a low-single-digit percentage rate, which incorporates a mid-single-digit decline in North American sales and growth internationally of more than 25 percent. Management also said there should be less promotional activity in the second-half of the year, something analysts and investors alike have been concerned about.

"We've learned a lot of lessons in 2016 and 2017," Plank said Tuesday during an earnings conference call. "For us as a brand ... we think about footwear, women's and international being our three growth drivers."

Including Tuesday's gains, Under Armour shares are down about 24 percent from a year ago, as the company claws its way back from months of losses.