The rapid growth spurt that established US brand Under Armour as a major player in the global sportswear market, has slowed down to a dribble as the company this week reported its second quarterly loss in a row.
Its first quarter net revenue did, however, grow 6% to $1.19-bn due to a rise in international (27% growth) and direct-to-consumer (17% growth) sales. But sales were down 1% in its domestic market, the US, which accounts for the bulk of the brand’s business.
Wholesale sales to retailers only grew 1% in the quarter.
In the last (4th) quarter of 2017 sales to retailers had dropped 1% to $733-m, but the 11% growth in direct-to-consumer sales contributed to the 5% (4% in currency neutral) sales growth reported in the quarter. In the period direct-to-consumer sales represented 42% of revenue.
In the full 2017 financial year sales to retailers dropped 3%, but a 14% growth in direct-to-consumer sales contributed to a 3% revenue growth (to $5-bn) for the year. At the end of the year direct-to-consumer sales comprised 35% of company revenue.
At the end of the first quarter of 2018 the company’s loss had grown to $30.2-m from $2.3-m a year ago. This was mainly due to restructuring costs of $37.5-m incurred during the quarter – without which the company would have broken even, it reported.
No wonder CEO and founder Kevin Plank told investors that the brand is going through the most challenging period in its history. He also said that currently the re-structuring allows the company to bring product innovations to the market faster, which will drive consumer demand for Under Armour apparel and footwear.
The ongoing restructuring plan announced in August 2017 had been extended into 2018 at a cost of $110-m to $130-m. The aim is to reduce the product ranges, but to introduce new products more rapidly. They will also be targeting specific consumer groups with merchandise placements. According to its 2017 financial report the company expects to save a minimum of $75-m annually from 2019 onwards due to this restructuring.
But, Under Armour’s woes are not restricted to a sales drop. Two shareholders are suing Plank and the board over a development project in South Baltimore. This Port Covington project is a big mixed-use development that will have new Under Armour offices as an anchor and the aggrieved shareholders allege that Plank is using Under Armour to enrich himself through the development. Under Armour says there is no merit in the lawsuits.
And if that is not enough to cause stress, Under Armour announced in March that the My Fitness Pal app it acquired in 2015, was hacked a month before, compromising data of approximately 150-m users.