Under Armour announced sales are down for the first time since 2005. The news sent the company’s stock value tumbling nearly 19 percent.
2 Nov, 2017WASHINGTONPOST.COM
The onetime darling of the athletic wear industry on Tuesday announced that sales are down for the first time since 2005, even as it makes an aggressive push to expand into mainstream chains like DSW, Kohl’s and Famous Footwear.
The news sent shares of the company’s stock tumbling nearly 19 percent Tuesday.
“This is an abrupt about-turn for a company that, until recently, was on a mission to challenge the might of Nike,” Neil Saunders, managing director of the analytical firm GlobalData Retail, said in an email. “Under Armour has become just another brand in a sea of brands.”
The problems are multiple, he said. Although Under Armour racks up billions of dollars in sales each year, analysts say it has failed to drum up much loyalty among its customers.
It has also been slow to resonate with women and has struggled to compete with larger rivals such as Nike and Adidas, which often offer lower-priced goods. Another factor: bankruptcy filings by key retail distributors such as Sports Authority and Sports Chalet.
“Kind of a perfect storm,” Patrik Frisk, the company’s president and chief operating officer, said in a Tuesday morning call with analysts. “Both internal and external factors are hitting us really hard.”
North American sales at the Baltimore-based company slumped 12 percent in the most recent quarter amid slowing demand and mounting competition. Overall, sales fell 4.5 percent during that period, marking the company’s first quarterly sales drop since going public in 2005.
Profits, meanwhile, fell 58 percent to $54 million, or 12 cents per share, from $128 million, or 29 cents per share, a year earlier.
The company said it expects its financial struggles to continue and lowered its forecast for the rest of the year.
“We are incredibly disappointed with our 2017 performance,” Kevin Plank, Under Armour’s founder and chief executive, said during the call with analysts. “We have not performed to the level we had originally aspired to.”
Under Armour tried to keep up, he said, by discounting prices and offering more promotions than usual, which further cut into the company’s profit margins.
But, Plank added, those were just temporary efforts to shore up sales and not a long-term strategy for the company, which once could command higher prices than its competitors. (Men’s running shoes, for example, start at $74.99 at Under Armour, $65 at Adidas and $60 at Nike, according to the companies’ websites.)
“In no way, shape or form do we anticipate changing the pricing model that makes Under Armour special and unique,” Plank said. “We invented the $25 T-shirt. We’ve pressed the bounds as to what consumers will pay for apparel.
That’ll continue. No one is looking for Under Armour to have the $25 hooded fleece. They want Under Armour at the $75 and $100 price points.”
But analysts say that might be a tough sell, particularly as customers grow accustomed to deep discounts. Saunders added that a “marked slowdown” in demand for athletic apparel is likely to further complicate Under Armour’s turnaround efforts.
“While customer numbers have risen, loyalty to the brand is not deep-rooted in the same way that it is at Lululemon and Nike,” he wrote. “What this means is that as demand moderated, Under Armour has been quick to drop off the radar of many consumers.”
The latest round of disappointing earnings comes on the heels of a tough year. The company posted its first-ever loss in April and in August announced it would lay off 2 percent of its workers.
There’s also been changes to the leadership team. Still, shares of Under Armour stock, which are currently trading at about $13, have lost more than half their value this year.