Under Armour shares surge 23% on earnings beat driven by strong international sales

  • Under Armour reports third-quarter earnings and sales that top analysts' expectations.
  • Despite a boost in sales overseas, the athletic clothing retailer is still struggling to grow its business in the U.S.
  • Under Armour also raises its earnings outlook for the full year, excluding any impact from its ongoing restructuring efforts.
Shoppers pass an Under Armour store in White Plains, New York. 
Scott Mlyn | CNBC
Shoppers pass an Under Armour store in White Plains, New York. 

Under Armour shares surged Tuesday after it reported quarterly earnings and revenue that topped analysts' expectations thanks to a spike in sales overseas and fewer promotions.

The company also raised its earnings outlook for the full year, excluding any impact from its ongoing efforts to trim excess inventory and cut costs. The results offer investors a sign that the retailer's turnaround efforts are paying off after years of patchy sales.

Under Armour shares climbed more than 23 percent on the news. The stock as of Monday had risen more than 25 percent so far this year, even though the company continues to struggle to grow its business in the U.S.

Here's what Under Armour reported for the third quarter compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: 25 cents, adjusted, vs. 12 cents expected
  • Revenue: $1.44 billion vs. $1.42 billion expected

Faced with heightened competition from rival athletic apparel companies, Nike, Adidas and Lululemon, Under Armour has been pressured to roll out new merchandise that goes beyond the performance gear it's known for. But analysts say there's still progress to be made, and North America is still a weak spot, with athleisure sales slowing for some brands.

"The Under Armour brand is still unfocused and confusing for customers, especially on the product side," said Neil Saunders, GlobalData Retail managing director. "Although the assortment has some good individual pieces, the entire range is a hodgepodge with no clear focus or specialism."

The Baltimore-based retailer reported net income of $75.3 million, or 17 cents per share, up from from $54.2 million, or 12 cents per share, a year ago.

Excluding one-time items, Under Armour earned 25 cents per share, ahead of the 12 cents per share expected by analysts surveyed by Refinitiv.

Net sales rose about 2.4 percent to $1.44 billion, beating expectations of $1.42 billion.

In North America, Under Armour said revenue fell 2 percent during the quarter to $1.1 billion. It reported a bigger boost overseas, where international sales jumped 15 percent to $351 million and now represent 24 percent of total sales. Its strongest segment was Latin America, followed by Europe, the Middle East and Africa and Asia-Pacific.

The company still has room to grow with women's items, CEO Kevin Plank said on a call with analysts Tuesday morning. "I wasn't crazy about our product in 2017. We like it much more in 2018. We're really excited about the way it looks in 2019."

Apparel revenue was up 4 percent during the quarter, with footwear sales flat and accessories revenue down 6 percent, Under Armour said. Its Curry 5 and Project Rock 1 shoes have been two recent top sellers.

Gross margins rose 20 basis points to 46.5 percent, topping analysts' expectations of 45.8 percent.

"We have been noting a clear focus on recovering margin and focusing on the health of the business, and with inventory clean, and [gross margin] up, we believe the company is doing just that," Nomura Instinet analyst Simeon Siegel said in a research note.

Looking to 2018, Under Armour now expects to earn 19 to 22 cents per share, adjusted, up from a prior outlook of 16 to 19 cents a share.