Under Armour on Tuesday forecast a surprise drop in 2020 profit, blaming ongoing weakness in its North American business and the coronavirus outbreak in China, sending its shares tumbling as much as 19 per cent.
The company has been losing market share to rival sportswear makers, such as Nike and Adidas in a saturated North America market, which accounts for about 70 per cent of Under Armour's revenue.
To keep and bring in more customers, it has been forced to offer big discounts at retail chains and department stores in its home market, squeezing profits.
“I’m not satisfied with where we are today,” Patrik Frisk said on his first conference call after taking over as chief executive. Mr Frisk – only the second CEO in the company’s two-decade history – took over from founder Kevin Plank in January.
“A combination of demand challenges and distribution dynamics is materially impacting our business,” Mr Frisk said, adding that the problems were most evident in the company’s full-price wholesale and e-commerce businesses.
For the past few months, Under Armour executives have promised that 2020 would be the coming-out party of a brand-new company, a shift from defence to offense after a multi-year restructuring and a change in leadership.
Now, the company is considering another restructuring, one that could cost as much as $425 million and could result in the company scrapping the opening of its flagship New York City store, for which it already has a long-term lease.
Under Armour now expects revenue in North America to decline at a mid- to high-single-digit percentage rate in 2020, while it expects international sales to grow in the low double-digit percentage rate. Group revenue in 2020 will trail the consensus estimate of $5.51 billion (€5 billion) by a wide margin.
“The magnitude of the decline is surprising,” Telsey Advisory Group analyst Cristina Fernandez said.
The company said the coronavirus outbreak in China, which has killed more than a thousand people and forced several retailers to close and revise their forecasts, would have a $50 million to $60 million hit on first-quarter sales. Full-year revenue is expected to be down in the low single-digit percent range, Under Armour said, in contrast to analysts’ expectations for a 4.2 per cent rise. The company also said profit per share would be between 10 and 13 US cents, compared with 20 cents a year earlier and Wall Street estimates of 47 cents.
For the fourth quarter, net revenue rose 3.7 per cent to $1.44 billion, but missed estimates of $1.47 billion, according to IBES data from Refinitiv. Adjusted earnings of 10 cents per share also fell below expectations by a penny. – Reuters / Bloomberg
