Dive Brief:
- A quarter after declaring most of Under Armour’s turnaround work was done, CEO Patrik Frisk on Friday said inventory levels at the athletics retailer are the healthiest they’ve been in a decade.
- Revenue at Under Armour was up 9% in Q4 and up 27% for the year, ending the year at $5.7 billion. North America revenue increased significantly, by 15% in Q4 and by 29% for the full year, according to a company press release.
- However, supply chain challenges continued to hamper the retailer. High freight costs and “an unfavorable product mix” hit the retailer’s gross margin for the year, and executives expect continued pressure in the upcoming fiscal year.
Dive Insight:
Under Armour is seeing momentum in its turnaround efforts, with strong gains in its North America region and a better mix of sales across wholesale, DTC and off-price. That being said, the elevated costs of ocean freight and air freight are weighing on the brand, with Chief Financial Officer Dave Bergman calling the amount of freight expenses “unfortunate.”
“The momentum in North America is definitely real,” Bergman said of its gains in the area, adding that, “It is definitely not a demand challenge … it is a supply challenge with the COVID impacts. It’s a position we’re excited to be in.”
Air freight challenges will still impact the brand during the first half of the upcoming year, but they should dissipate in the back half of the year. Ocean freight costs will take longer to normalize, Bergman said.
“We feel that our playbook is working,” Frisk said of Under Armour’s overall strategy, which includes investing more in marketing to drive brand awareness and affinity, cutting back on off-price and exiting thousands of wholesale doors. As to the supply chain challenges, Frisk said the company was “looking forward to navigating through what we believe is a short-term speed bump.”
Under Armour’s strong performance, which included net income of $360 million for the year (compared to a $549 million loss last year), has opened up several doors for the brand. Among them, executives are considering raising prices in the year ahead and plan to continue investing. The company is considering a debt buydown or a share buyback as well, with long-term debt currently standing at $662.5 million.
“The health of our growth right now is dramatically different from where we were in 2018-2019,” Frisk said, citing the company’s efforts to reshape its distribution of sales. For the year, DTC revenue grew 26% and wholesale increased 36%.
“We’ve had to cancel a lot of purchase orders … but outside of that, we feel like the operating model is working,” Bergman said.
Analysts have acknowledged the company’s progress as well, with GlobalData Managing Director Neil Saunders noting that the company gained share in North America.
“Such a lift supports Under Armour’s ongoing narrative that it is improving and sharpening its brand image,” Saunders said in emailed comments. “However, while we recognize that progress has been made on this front, the acid test will be whether the company can carry this momentum forward into the slightly more challenging trading periods ahead.”
