Under Armour expects wider Net Loss because of overhaul Costs

Under Armour Inc. posted higher revenue, but said its net loss widened in the latest quarter as the sportswear company restructures itself after facing slower demand for its products.

Baltimore-based Under Armour said revenue for the second quarter rose 8 % to USD 1.17 billion

The Baltimore firm said its second-quarter revenue rose 8 % to USD 1.17 billion. Analysts polled by Thomson Reuters expected USD 1.15 billion in quarterly revenue.

North America revenue increased 2 % to USD 843 million, while the international business grew 28 % to USD 302 million, representing 26 % of total revenue.

That growth, however, was offset by restructuring and impairment charges of USD 79 million.

The athletic apparel and footwear company posted a net loss of USD 95.5 million, or 21 US cents a share, compared with a net loss of USD 12.3 million, or three cents a share, a year earlier.  Adjusted earnings were a loss of eight cents a share, in line with analysts’ expectations.

Shares in Under Armour increased 4.6 % to USD 22.04.

The company’s inventory levels rose 11 % to USD 1.3 billion. During a call to discuss its first-quarter results in May, the company had projected that its inventory would be up less than 20 % in the second quarter. The company’s inventory has been worrisome to analysts and investors because the increases could possibly lead to discounting.

During an earnings call with analysts July 26, 2018, Patrik Frisk, President and Chief Operating Officer, said the company expects inventory growth to decline to a high single-digit percentage in the third quarter, on track with the goal of slowing to the low single digits by the end of the year.

Under Armour is in the midst of a restructuring plan after hitting a wall with revenue growth. The company said it now expects to incur about USD 190 million to USD 210 million of pretax restructuring and related charges in 2018, up from its estimates in February of USD 110 million to USD 130 million.

The second and third quarters will be the most negatively affected by the company’s planned restructuring charges, Chief Executive Kevin Plank said during the earnings call.

The restructuring plan includes contract, facility and lease terminations, and inventory management. The company is also determining the products that should be kept or discontinued.

For fiscal 2018, the company expects net revenue to grow about 3% to 4%, up from the earlier outlook for growth in the low single digits. The new outlook reflects a decline in the low- to mid-single digits in North America and international growth of more than 25%.

The company retained its guidance for earnings per share of 14 cents to 19 cents in fiscal 2018, compared with analysts’ estimates of 18 cents a share.

For the third quarter, the company expects revenue to be in line to slightly down versus last year. Third-quarter adjusted earnings per share are expected to be 11 US cents to 12 US cents. Analysts were expecting 24 US cents a share.

The company expects fourth-quarter revenue to improve because of expected lower composition of off-price sales and a higher direct-to-consumer mix. The company is also planning to be less promotional in North America during the third and fourth quarters.