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Below Armor shares rise after gross sales of sneakers add to backside line

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The products will be on display in an Under Armor store in New York City on November 4, 2019.

Brendan McDermid | Reuters

Under Armor stocks rose on Friday as the retailer's profits and sales beat estimates and consumers stocked up on the brand's sneakers and exercise equipment during the coronavirus pandemic.

CEO Patrik Frisk pointed to increased demand for the sportswear maker's products, particularly in North America, for the better than expected performance.

The share price rose by more than 7% in premarket trading.

The company has been working to grow back on the home lawn. In the past, the company relied heavily on department stores and discount chains to sell its equipment. This strategy has hurt profitability and has watered down the brand's image relative to competitors like Nike, Adidas and Lululemon. But the pandemic effects – more consumers are shopping online and looking for clothes and shoes to work out with – are giving Under Armor a welcome boost.

The question, however, is how long it will take.

Under Armor offered Wall Street a more optimistic outlook for 2020: it now expects full year sales to decrease by a large percentage of teenagers. Previously, a 20% to 25% decrease had been requested in the second half of the year. The new outlook is still down, but better than the 25.7% decline forecast by analysts.

Also on Friday, Under Armor said it had agreed to sell its MyFitnessPal training platform valued at up to $ 345 million to private equity firm Francisco Partners.

Here's how the company performed in the third quarter of the fiscal year, compared to analyst expectations based on refinitive data:

  • Earnings per share: 26 cents, adjusted compared to 3 cents expected
  • Revenue: $ 1.43 billion versus $ 1.16 billion expected

For the quarter ended September 30, net income shrank from $ 102.3 million, or 23 cents per share, to $ 38.9 million, or 9 cents per share, last year. Excluding one-off costs, 26 cents per share were earned, which Refinitiv estimates exceeded expectations of 3 cents.

Revenue was roughly unchanged from the previous year at $ 1.43 billion, beating estimates of $ 1.16 billion.

In North America, sales decreased 5% to $ 963 million, while international sales increased 18% to $ 433 million.

Apparel sales decreased 6% to $ 927 million, while shoe sales increased 19% to $ 299 million and accessories sales increased 23% to $ 145 million. The company said the increase in shoes was partly due to the launch of its first women-specific basketball sneaker in the quarter.

Armor's direct customer business, which includes website and store sales, grew 17% year over year. The global e-commerce business grew by more than 50% in the quarter.

Under Armor's strategy has increasingly been to sell to customers more directly than through wholesale partners such as department stores. Wholesale sales decreased 7% to $ 830 million in the third quarter.

Under Armor plans to be more profitable this year compared to 2019 as less inventory is handled through off-price channels. However, it was pointed out that fourth quarter earnings will come under pressure due to the competitive promotions around the holidays.

Under Armor stock was down about 36% this year at Thursday's close, giving the company a market cap of $ 6.3 billion.

The full press release on the results can be found here.

Correction: The year-to-date decline of around 36% was due to Under Armor's share price. In an earlier version, the category was specified incorrectly.

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Steven Gregory