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Under Armour on Thursday reported second-quarter revenue that topped Wall Street estimates, as the company saw international sales surge, showing signs that investments overseas are paying off.
The Baltimore, Maryland-based company also took a hit, however, from investments in both its direct-to-consumer business and its expansion outside of North America. It hiked an existing restructuring plan and now expects to incur more costs in a push to trim excess inventory.
Under Armour shares were last up about 3 percent on the news, having climbed as much as 9.5 percent in premarket trading.
The sneaker maker's net loss widened to $95.5 million, or 21 cents per share, in the second quarter ended June 30, from $12.3 million, or 3 cents per share, a year ago. Excluding one-time items, it reported a loss of 8 cents, in line with analysts' estimates based on a survey by Thomson Reuters.
Total revenue came in at $1.18 billion, up about 8 percent from the same period a year ago and slightly above expectations for $1.15 billion.
Apparel revenue rose 10 percent in the latest period. Footwear sales jumped 15 percent, with strength in the running and team sports categories, Under Armour said.
Like some of its peers, Under Armour has struggled to keep momentum going in the U.S. — a very competitive market as athletic apparel and shoe retailers try to reach shoppers following a number of bankruptcies by sporting-goods businesses. The company has sought to combat those pressures by rolling out a new cushioning technology called HOVR, which has been a top seller, while it also aspires to reach more female customers by refreshing merchandise more frequently.
Under Armour's revenue in North America was up just 2 percent in the latest quarter, while international revenue jumped 28 percent. That included a 31 percent increase in sales in Europe and a 34 percent jump in Asia.
Inventory levels — which have been on analysts' and investors' radars as they pile up — increased 11 percent to $1.3 billion. One fear is that Under Armour will be forced to discount more merchandise at businesses like Kohl's and J.C. Penney.
CFO David Bergman said on a call with the financial community Thursday morning that Under Armour has been using off-price retailers (i.e. TJ Maxx) as a "channel ... to clean up" its inventory position. But Under Armour is planning for fewer promotions in the third and fourth quarters of this year, he said, as many wholesale orders are already booked ahead of the holiday season.
"The athletic space in the US is showing signs of improvement, as promotions normalize and the innovation pipeline strengthens, but Under Armour still faces several challenges," Telsey Advisory Group analyst Cristina Fernandez said.
Those challenges include "less sophisticated product segmentation, a consumer shift toward streetwear/fashion vs. performance, much greater exposure to apparel than footwear, and increased competition in the U.S. market," she wrote in a note to clients.
Looking to the full year, Under Armour is now expecting to incur roughly $190 million to $210 million of pre-tax restructuring and related charges, up from a prior forecast of $110 million to $130 million. The company is in the midst of completing a restructuring plan to try to grow sales.
Under Armour said net revenue should be up roughly 3 to 4 percent in fiscal 2018 — with sales in North America dropping a low to mid-single-digit percentage, and international sales rising more than 25 percent. A prior outlook by the company said net revenue would climb a low single-digit percent.
"We are making progress toward our transformation of running a more operationally excellent company while amplifying the power of the Under Armour brand," CEO Kevin Plank said in a statement.
Under Armour shares are up about 48 percent so far this year, closing Wednesday at $19.74. The retailer has a market capitalization of roughly $8.8 billion, compared with Nike, which has a market capitalization of $124.4 billion.