CEO Kevin Plank, faced with fourth quarter results that missed the mark and hit a rare sour note with investors, said the company will continue to make investments toward building a $10 billion infrastructure for a $5 billion company and simultaneously accelerate its focus on operational discipline. That said, Under Armour is forecasting $600 million in revenue growth in FY17 to approximately $5.4 billion, but a $100 million decline in operating income to about $320 million.
Plank bluntly described how slower traffic and earlier and deeper promotions in the fourth quarter “commoditized” some of the brand’s basic core products and how higher consumer demand for lifestyle silhouettes caused an “out of balance” assortment and subsequent lost sales volume.
But UA delivered some strong numbers in the period ended Dec. 31, including a 36 percent increase in footwear sales to $228 million, a 23 percent gain in direct-to-consumer revenues to $518 million and 55 percent improvement in international sales to $215 million. Some corners suggested the footwear numbers were a bit deceiving given research house NPD Group reported the brand’s footwear sales slipped 20 percent in the fourth quarter. A reconciliation of both figures suggests retail sellthroughs for the brand’s footwear offerings may not have been strong as the company’s sell-in of styles.
For the fiscal year, Under Armour realized 22 percent overall revenue growth to $4.8 billion with North America up 16 percent and International increasing 63 percent to account for 15 percent of overall revenues. The company thinks international will approach, if not surpass, 20 percent of all revenues in FY17. Meanwhile, wholesale revenues were 19 percent higher in FY16 to $3.1 billion, and Direct-to-Consumer sales (31 percent of all revenues) jumped 27 percent to $1.5 billion. And annual footwear sales surpassed the $1 billion threshold for the first time with a 50 percent increase. The brand’s women’s business also crossed the $1 billion mark.
Looking ahead to the first quarter, Under Armour is forecasting a mid-single digit sales increase as fourth quarter conditions in North America carryover into the period, but nearly a 100-basis point drop in gross margin due to higher promotions and discounts.
Plank, while confirming North American retail is being disrupted due to bankruptcies and closures, added the company owned responsibility for its fourth quarter results.
“The fact of the matter though is that the consumer, they expect more today. The expect speed and convenience and the best price and value, and they expect it the next day,” Plank said. “So that choice of newness and customization is something that we need to react to and do a better job of.”
In a separate development, Under Armour has released its first U.S.-made apparel collection, the Arris Project, which consists of a women’s sports bra ($50 retail) and legging ($120) set made it its Baltimore Lighthouse facility. Initial production run is 2,000 units.