With high inflation hitting the pocketbooks of Americans, companies are fighting to stay afloat. Under Armour is no exception. To combat a drop in sales, they started running significant promotions to stay relevant and remain a household name during the current financial environment.
The promotions are great for the average family, who still needs to find clothing for sports and everyday wear. Many rely on Under Armour to meet both needs. Their clothing is known for its staying power and comfort. However, goods and services are seeing costs increasing almost across the board. Since they are getting hit from every spending angle, it is becoming more challenging for people to spend the same way they are accustomed to.
Given all this, as a company, Under Armour decided to meet people where they are financially. In theory, and for the consumer, that is great news. For the company, not so much. The consistent promotions are starting to weigh heavily on their financial outlook and eat into their profit margins.
At the moment, Under Armour is still doing just fine. They met all the earning expectations Wall Street had for them in the first quarter of the year. But their future outlook is a little grimmer. They have had to make some serious adjustments to their projections.
Under Armour just announced major changes to its future earning outlook, slashing its projected profit margin for 2023. Initially, their forecasted earnings per share were between 79 and 84 cents. The adjusted number is now between 61 and 67 cents, which is a huge decrease. It does not bode well for the company’s future well-being.
Despite the expected dip in earnings, the stock market is still reacting favorably. After announcing the cut to their forecast, their position in the market improved. With all the volatile actions in the stock market so far in 2022, it may not mean much. At least, temporarily, it seems the market is reacting favorably to Under Armour’s conservative position.
On top of that, Under Armour is currently sinking a tremendous amount of money into active litigation. They reported current legal expenses as a whopping $10 million. Part of this went to a multi-year court battle with UCLA to cover a dispute over an apparel deal gone bad.
The legal fee expenditure will continue to harm overall profits, on top of the dip due to their promotions. However, the legal fees aren’t the only thing hurting Under Armour financially. Before the pandemic, the company saw some growth and expanded into new market segments. But the pandemic and subsequent supply chain issues hit them hard financially.
To make matters worse for the company, they are currently without a CEO. Their previous CEO, Patrik Frisk, stepped down at the end of May, and the board is still searching for his replacement. In the meantime, Chief Operating Officer Colin Browne has taken over as interim CEO. Perhaps once a new CEO is in place, everything will finally turn around for Under Armour.