Under Armour Shares Jump after Beating Estimates

Under Armour experiences a surge in shares following a revision of profit expectations despite a decline in sales. The athletic apparel retailer revealed a slowdown in holiday-quarter sales attributed to soft demand in North America and a decrease in wholesale orders, leading to a 6% drop in revenue.

However, the company successfully managed to exceed earnings estimates by focusing on cost control measures, resulting in significant gains in gross margin.

Anticipating a slighter decline in full-year sales than initially expected, Under Armour adjusted its projections just weeks before the end of the fiscal year.

Although the company foresees a decrease in sales by 3% to 4% for the full fiscal year, compared to the previous estimate of 2% to 4%, it raised expectations for full-year gross margin and earnings.

In the third fiscal quarter, Under Armour outperformed Wall Street expectations with adjusted earnings per share of 19 cents compared to the anticipated 11 cents.

Despite revenue slightly missing the mark at $1.49 billion versus the expected $1.50 billion, the company reported a net income of $114.1 million, or 26 cents per share, for the period ending December 31.

For the entire fiscal year, set to conclude at the end of March, Under Armour projects a 3% to 4% decline in sales, while expecting earnings per share to range from 57 cents to 59 cents, up from the prior estimate of 47 cents to 51 cents.

Adjusted earnings per share are anticipated to be in the range of 50 cents to 52 cents.

During the quarter, Under Armour witnessed a 1 percentage point increase in gross margin to 45.2%, attributed to reduced freight expenses, despite increased promotions and sales to off-price channels.

The company now anticipates a full-year gross margin increase of 1.2 to 1.3 percentage points, up from the previous expectation of 1 to 1.25 percentage points.

Under Armour's CEO, Stephanie Linnartz, acknowledged the challenges of the mixed retail environment during the holiday season but highlighted the company's ability to deliver better-than-anticipated profitability.

Linnartz expressed confidence in the strengthened leadership team's ability to reset Under Armour for improved revenue growth and enhanced value creation in the future.

In the quarter, the company experienced a 13% decline in wholesale revenue, accounting for approximately 60% of sales.

Major partners such as Dick's Sporting Goods, Kohl's, and JD Sports reduced orders, aligning with broader trends in the apparel sector, where wholesalers tightened their order books in response to economic uncertainties.

Similar to its peers, Under Armour continues to emphasize direct sales to consumers through its stores and website.

Direct sales rose 4% to $741 million in the quarter, driven by a 5% increase in store revenue and a 2% rise in digital sales.