Under Armour Severely Underperforming Amid Immense Profit Plunge

Once impenetrable Under Armour has taken a mighty blow as profits take a devastating plunge.

By Rick Gonzales | Published

under armour

Things are not looking peachy for apparel and sneaker maker Under Armour. They are, in fact, looking dour as the supply chain issues seen around the globe continue to wreak havoc. The new COVID lockdowns in China are also causing a major strain with Under Armour as factories are being shuttered left and right.

All of this equals a bleak outlook for Under Armour’s fiscal year 2023. This unfavorable prognostication comes after the shoe and apparel giant reported an unexpected loss that covered the previous three months that ended on March 31, 2022. Their sales for this timeframe also came in well below what Wall Street has estimated.

Under Armour’s poor showing and bleak outlook sent investors running for the hills. They bounced, sending Under Armour’s shares crashing to the tune of more than a 25% drop. This brought their shares in at $10.39, which is a 52-week low.

Under Armour’s CEO, Patrik Frisk, feels the dip, despite the continuing supply chain and COVID issues, is only a temporary one. Frisk feels the demand for the brand remains strong. Although positive, Frisk says the company will remain disciplined in its approach. They will not be ordering too much inventory on the chance that sometime down the line they would have to get rid of their excess product at a deeply discounted price. This would definitely have a major effect on profits.

Frisk can take solace in the fact that Under Armour isn’t the only shoe and apparel giant feeling the uncomfortable pinch from COVID and the supply chain issue. Rival Adidas has reported that they too will come in well below their 2022 forecast. Adidas claims the COVID lockdowns in China are also causing them a “severe impact” on production and sales. They have forecasted a significant drop in sales in the Greater China region.

Here are the bleak numbers Under Armour has seen over the reported past three months compared to what Wall Street had predicted. Under Armour’s loss per share was 1 cent adjusted versus expected earnings of 6 cents. Their revenue hit $1.3 billion versus expected earnings of $1.32 billion. These numbers come from a Refinitiv survey.

under armour

For the quarter, Under Armour reported a net loss of $59.6 million. This equates to 13 cents per share. You can see how far things have fallen for the shoe and apparel maker from last year when they reported a net income of $77.8 million, equating to 17 cents per share. In total, and excluding their one-time items sold, the company lost one penny per share. Analysts had been forecasting Under Armour’s adjusted earnings to hit 6 cents per share.

Under Armour’s Chief Financial Officer David Bergman says the rise in freight costs, mainly those of their ocean freight, came in much higher than they were anticipating and played a significant role in the company’s profit margins. Another issue they faced that cut drastically into their profits was the fact that they had to use more air freight than usual to bring in goods from overseas. Through it all, their sales did grow from the previous year’s $1.26 billion to $1.3 billion, though it fell short of the $1.32 billion estimates.

Under Armour’s business actually grew in North America seeing its sales rise by 4%. But it is its international business where things are shaky. There, it only grew 1% and was destroyed by the Asia-Pacific region, which includes China, which saw it take a 14% decline.

In the first quarter of the new fiscal year 2023, which goes from April 1 through March 31, Under Armour expects sales to remain flat or even slightly down from the same time last year. Bergman thinks the entire first half of the year will be the timeframe where the company will see the most damage. Supply chain issues which turn into numerous order cancellations will take their toll and he doesn’t see this easing up until COVID rates begin to fall in China.