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Under Armour (UAA) Posts Narrower-Than-Expected Q2 Loss

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Under Armour, Inc. (UAA - Free Report) reported better-than-expected second-quarter 2020 results. This developer, marketer and distributor of apparel, footwear, and accessories posted narrower-than-expected loss. Further, the company’s net revenues surpassed the Zacks Consensus Estimate, following a miss in the preceding two quarters. However, the coronavirus pandemic did impact the company’s performance with both top and bottom line declining sharply from the year-ago period.

Management highlighted that the company performed better than anticipated, in spite of the majority of the own stores and wholesale locations being closed for most of the quarter owing to the on-going pandemic. However, it informed that the company witnessed a sharp decline in revenues across all markets.

Under Armour estimated that about 80% of locations where its merchandise could be purchased worldwide were closed through mid-May. As of today, most of its locations are operational but traffic trends remain sluggish compared with prior-year period. Nonetheless, the overall rate of conversion is higher. Management expects traffic to remain soft for the rest of the year. Impressively, the company registered sturdy e-commerce growth globally during the quarter under review.

Under Armour President and CEO Patrik Frisk said, "Now, with most of these doors reopened, we are encouraged by some of the momentum we've experienced in June and July. However, we remain appropriately cautious with respect to the balance of 2020 due to continued uncertainty related to consumer shopping dynamics, the potential for a highly promotional environment and proactive decisions to reduce inventory purchases to be more aligned with anticipated demand related to ongoing COVID-19 impacts."

We note that shares of this Zacks Rank #4 (Sell) stock has increased 16.9% compared with the industry’s rally of 29.8% in the past three months.

Under Armour, Inc. Price, Consensus and EPS Surprise

Under Armour, Inc. Price, Consensus and EPS Surprise

Under Armour, Inc. price-consensus-eps-surprise-chart | Under Armour, Inc. Quote

Let’s Introspect

The company reported adjusted loss of 31 cents a share narrower than the Zacks Consensus Estimate of loss of 40 cents. However, the loss widened year over year. The company had reported loss of 4 cents in the year-ago period. Lower net revenues and higher interest expense hurt the company’s bottom-line results.

Net revenues plunged 40.6% (or 39.8% on a currency neutral basis) to nearly $707.6 million but surpassed the Zacks Consensus Estimate of $542 million. Sales declined across all categories, except Connected Fitness. Wholesale revenues fell 58% to $299 million, while direct-to-consumer revenues declined 13% to $368 million.

Apparel revenues declined 42.4% year over year to $425.9 million, while Footwear revenues decreased 34.8% to $185.1 million. Revenues from Accessories category fell 47.2% to $56.1 million. Meanwhile, Licensing revenues dropped 75.5% to $6.2 million, however, the company’s Connected Fitness segment reported an increase of 3.1% to $32.9 million.

Net revenues from North America plunged 44.9% to $449.7 million. Revenues from international business fell 34.1% (or down 31.6% on a currency neutral basis) to $224 million. Within international business, net revenues from EMEA and Latin America regions declined 38.7% and 71.9% to $89.1 million and $11.1 million, respectively. We note that Asia-Pacific revenues tumbled 20% to $123.3 million.

The company’s gross margin expanded 280 basis points to 49.3% driven by channel mix which gained from lower sales to the off-price channel as well as a higher mix of direct-to-consumer sales. This was partly offset by the adverse impacts from coronavirus related discounting.

SG&A expenses decreased 15.2% to $479.9 million. The year-over-year decline can be attributed to lower marketing spend and other cost containment efforts. However, as a percentage of net revenues, the metric increased to 67.8% from 47.5% in the year-ago period. Net interest expense jumped to $11.3 million from $6 million in the prior-year quarter.

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $1,079.4 million, long-term debt (net of current maturities) of $987.9 million and total stockholders' equity of $1,423.4 million. During the quarter under review, the company amended its credit agreement, in order to provide improved access to liquidity. Under the amended $1.1 billion revolving credit facility, there was $250 million outstanding at the end of the second quarter. Additionally, the company issued $500 million of convertible senior notes. Of the net proceeds, $440 million were utilized to lower the amount outstanding under revolving credit facility.

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