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under shieldWall Street shares fell on Tuesday, even after the athletic apparel and shoe retailer beat Wall Street’s quarterly revenue and profit expectations.
The reason for the decline may provide insight into the challenges faced by other retailers.
The company drove higher sales, in part, by offering lower prices. Under Armor missed its fiscal fourth quarter forecast for gross margin because it pushed for more promotions than expected.
Shares fell more than 6% in afternoon trading.
Company CFO David Bergman adjusted the margin drop to higher promotions as Under Armor differentiated merchandise from previous seasons and sold it through off-price retail.
Under Armor warned that the problems could continue. The company said it expects margins to remain under pressure as higher promotions outweigh lower shipping costs. Diluted earnings per share is expected to range between a loss of 3 cents and a loss of 5 cents in the first quarter, below the expected earnings of 6 cents per share, according to FactSet. She said she expects margins to improve as the year goes on.
Armor’s results could spell trouble for retailers reporting quarterly results in the coming weeks. The report may indicate that to move goods, companies may have to offer discounts and sacrifice more of their profits.
In the coming weeks, retailers incl Walmart , GoalAnd best buy And Messi, will highlight consumer health and reveal how much pricing power they have. It would also help show how much of Under Armor’s problems the company has, rather than represent it Broader industry and economic background.
Upgrade levels have fluctuated greatly due to Pandemic trends. During the early years of Covid, retailers had lower markdowns than usual as they struggled to keep shelves stocked due to supply chain delays. Then they benefited from massive consumer spending fueled by the stimulus payments.
But the pendulum swung last spring. Goal, kohlAnd gap Suddenly, he and others had a glut of extra inventory—including a lot of popular pandemic categories like patio furniture and sports toys that had fallen out of favor. Oversupply led to a wave of deep discounts.
Now, retailers are dealing with another dynamic. consumers Think twice about discretionary spending because they earn bigger bills at the grocery store or booking flights than filling up their cupboards.
Simeon Siegel, retail analyst at BMO Capital Markets, said the pandemic gave retail traders an opportunity to hit the reset button. However, their determination has faded.
“Very few companies have the audacity to give up scale for the sake of profits outside of a global pandemic,” he said. “It’s very easy to fall back on a promotional medication when it’s time to push.”
Due to higher transportation and supply chain costs, he predicts that many retailers won’t see the benefit because they’re “going back into the promotional cookie jar.”
The company’s results reflect the company’s specific challenges along with consumer trends. The company recently selected Stephanie Lennartz as its new CEO to lead efforts to grow its online business, modernize its brand, and better compete with competitors Nike and Lululemon. She stepped into the role in late February.
Some of the company’s weakest sales in the fourth quarter came from North America. Net sales in the region grew by 2.5% in the three-month period compared to growth of 13.8% in Europe and 23.6% in Asia Pacific.
On an earnings call, Lennartz said the company “continues to navigate a legacy of above-par promotional activity in our home market.”
She said the apparel and footwear brand bears part of the blame for the trend due to inconsistent marketing and disappointing in-store presentation. She said the company will promote its brand in the coming year.
Inventory levels are still a factor for some retailers, too. As of the end of the quarter, Under Armor had approximately $1.2 billion in inventory, up 44% year-over-year.
Bergman said about half of this is inventory that Under Armor chooses to package and hold for future sales.
For its fiscal fourth quarter, Under Armor reported adjusted earnings per share of 18 cents per share, above analyst expectations of 15 cents per share, according to Refinitiv.
The company’s net income for the three months ended March 31 was $170.5 million, or 38 cents per share, compared to a net loss of $59.6 million, or 13 cents per share, during the same period last year. Sales jumped 8% to $1.4 billion from $1.3 billion in the same period last year. That beat analysts’ expectations of $1.36 billion, according to Refinitiv.
– Robert Hmm Contribute to this story.
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