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Under Armour’s shares soared 25% on Thursday after the sportswear giant raised its annual profit forecast, citing lower input costs and effective cost-saving measures, such as reducing discounts at its stores and website.
The strong performance came after several quarters of disappointing results, prompting company founder Kevin Plank to return as CEO.
Plank’s plan to reset the business includes reducing headcount and scaling back inventory on select products.
Under Armour and Nike are working to regain market share
The company’s efforts to revamp its business align with a broader trend seen in the athleisure market, where both Under Armour and Nike are working to regain market share from emerging brands like Roger Federer-backed On and Deckers Outdoor’s Hoka.
Under Plank’s leadership, Under Armour is focusing on selling apparel and footwear at full prices to correct previous missteps involving deep discounts.
In the second quarter, full-price sales accounted for around 50% of all e-commerce revenue, a notable increase from just 30% a year ago.
This shift, along with reduced discounting, led to a 200 basis-point improvement in the company’s gross margin, which reached 49.8%.
“Success in the athleisure market requires more than just the right pricing strategy.
Creating desirable products that consumers are willing to pay full price for is essential,” said Danni Hewson, Head of Financial Analysis at AJ Bell.
Under Armour now expects an adjusted annual per-share profit of between 24 and 27 cents, up from its previous forecast of 19 to 21 cents.
The company reported earnings of 30 cents per share in the quarter, exceeding analyst expectations of 20 cents.
Despite a 10.7% drop in second-quarter net sales to $1.4 billion, Under Armour exceeded analyst predictions, which had forecasted an 11.6% decline.
According to LSEG data as reported by Reuters, analysts had expected sales to fall to $1.39 billion.
BMO Capital Markets analyst Simeon Siegel noted, “We’ve long believed that Under Armour’s focus should be on improving its health rather than pursuing growth at all costs.”
As the company continues to implement its recovery plan, investors will be watching closely to see if Under Armour can regain its competitive edge in an increasingly crowded market.
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