Under Armour's Results Rocked by Sports Authority's Demiseby
Sports Authority began liquidating during second quarter
Announces expansion into Kohl’s, taking FAO Schwarz space
Under Armour Inc.’s second-quarter profit fell 57 percent, hurt by the bankruptcy and liquidation of one of the largest sellers of its products.
Net income dropped to $6.34 million from $14.8 million a year earlier, the Baltimore-based company said in a statement Tuesday. Excluding some items, profit was 4 cents a share, meeting analysts’ average estimate.
Under Armour has been spending to enhance its e-commerce operations and expand its presence beyond apparel in categories like footwear and wearable fitness technology. The company also took $23 million of impairment charges in the quarter from the liquidation of the Sports Authority Inc. On the plus side, the company said Tuesday that it will start selling in Kohl’s Corp.’s 1,100 department stores next year, increasing its distribution.
The push into Kohl’s will help to “widen the playing field in terms of access to our brand,” Under Armour Chief Executive Officer Kevin Plank said on a call with analysts.
Under Armour fell 1.3 percent to $43.02 at 10:40 a.m. in New York. The stock had climbed 4.7 percent this year through Monday. That increase followed gains of 19 percent last year and 56 percent in 2014.
Sales advanced 28 percent to $1 billion, matching projections. Still, that marked the first time since 2008 that the company didn’t surpass analysts’ revenue estimates, according to Bloomberg data.
Sports Authority failed to re-emerge from bankruptcy and is closing its more than 400 stores. As a result, Under Armour in May trimmed its annual sales forecast to $4.93 billion from $5 billion. That would mark a roughly 24 percent year-over-year increase, the smallest since 2009. The company reiterated that projection on Tuesday.
To maintain its growth, Under Armour has expanded beyond apparel into sneakers and activity trackers. The brand also plans to dabble in fashion with a line of sportswear, dubbed UAS, that will debut in September in high-end stores.
“UAS will bring a young, fresh and modern voice to sportswear and reflects the insights we’ve gained in the performance brand now applied to the everyday wardrobe,” Plank said. “We think there is a massive opportunity.”
Another prong of Under Armour’s strategy is to battle larger rival Nike Inc. for the top collegiate apparel contracts. These agreements help market the brand while also generating revenue. In May, Under Armour inked a 15-year deal with the University of California, Los Angeles that’s valued at $280 million.
The UCLA agreement is part of a push to expand Under Armour’s presence on the West Coast, where the company has less distribution and brand awareness than other parts of the country. That effort also has benefited from the rapid rise of Under Armour’s top endorser, NBA star Stephen Curry, who plays for the Golden State Warriors in Oakland, California. Under Armour’s footwear sales grew 58 percent to $242.7 million last quarter, helped by Curry’s line of shoes.
The move into Kohl’s is both a play to lure more women to the brand and help it out in the West, Plank said. The retailer has more than 100 stores in California, which will help offset the lost of about 60 Sports Authority locations. Overall, Kohl’s will boost Under Armour’s distribution points in North America by about 10 percent. That will still leave it at half the number of Nike.
“There is a massive opportunity with a consumer that is walking into those stores and hasn’t been able to find the Under Armour brand,” Plank said.
But Under Armour isn’t done with raising its profile in the East. Plank also announced on Tuesday that in 2019 the company would take over the Manhattan space of the iconic FAO Schwarz toy store, which closed last year. That will give the brand two company-run locations in the borough. Plank promised that the 53,000-square-foot store on Fifth Avenue will be one of a kind.
“Our goal is to open the single greatest retail store in the world,” Plank said.