Under Armour isn’t letting the coronavirus pandemic get in the way of its revitalization plans.
With stock trading at about a 9-year low, the Baltimore-based company is moving forward with its previously announced steps to get back on track — including sharpening its focus on performance-wear and leaning into digital.
Since the coronavirus outbreak ramped up about two months ago, Under Armour has seen “significant increases in digital app usage and the emerging strength of our e-commerce business,” CEO Patrik Frisk said during the brand’s annual shareholders call today. The athletic giant is looking to target performance-focused consumers through digital engagements like virtual social events and at-home workouts — with the hope of improving strength in the performance space and ultimately increase direct-to-consumer sales.
“Consumers know Under Armour as a brand rooted in athletic performance and we’ve built on a legacy with a digital offering that delivers the fitness and wellness insights they need now more than ever,” said Frisk. “We believe [the athletic performance] space has plenty of runway for Under Armour going forward.”
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Frisk said in the longterm, Under Armour believes it can double its market share in the performance active space. Additionally, the CEO highlighted a number of steps UA is taking as it looks to improve on its home turf of North America, which he said is the company’s “most important market right now.” To return to growth, Under Armour is looking to make better use of its brand ambassadors through its “The Only Way is Through” marketing campaign, as well as gain increased shelf space with its wholesale partners. It is also seeking to elevate the positioning of the brand by reducing off-price sales. Further, the company is banking on innovation — including its HOVR sneaker, which Frisk says is “doing incredibly well in the market right now” — to help boost its performance-wear business.
While Under Armour has doubled down on its plans to focus primarily on performance, Wall Street has been weary of the approach — cautioning that the brand could be at a disadvantage if the fashion athletic trend continues to grow.
“The Under Armour brand image is not improving in the manner management expects — or perhaps believes it is,” Susquehanna Financial Group analyst Sam Poser warned last year. “The obsessive focus on performance products limits the customer base… Under Armour views performance and fashion/lifestyle as mutually exclusive, which they are not — just ask some of the largest athletic retailers out there. Performance product, positioned properly, becomes a fashion item.”
Similar to other brands, Under Armour has experienced difficulties in recent months amid the coronavirus outbreak. In mid-March, more than 80% of doors for Under Armour’s owned stores and wholesale partners were shut due to the coronavirus, which Frisk said caused a “significant decline” in the business. Although most of its units in South Korea and China have reopened, only a handful of stores in North America and Europe have come back so far.
Under Armour declined to provide an outlook for the 2020 fiscal year at this time due to the uncertainty surrounding the coronavirus pandemic, but it is forecasting a “significant” negative impact due to the virus. Since March, the company has taken a number of steps to preserve cash flow, including reducing annual operating expenses by about $325 million, focusing marketing efforts on digital and temporarily laying off workers in U.S. retail stores and distribution centers. UA has begun bringing back furloughed employees as stores reopen, but it is tightening hiring as well as travel, contract services and other discretionary expenditures.
For the first quarter, Under Armour posted a net loss of $589.7 million, or a loss of $1.30 per share. On an adjusted basis, its net loss was $152 million, or 34 cents per share. Revenues, meanwhile, decreased 23% to $930.2 million, with the company attributing roughly 15 percentage points of that drop to the COVID-19 health crisis. The brand ended Q1 with $959 million in cash, with about $700 million in outstanding borrowings under its revolving credit facility. At market close on Wednesday, Under Armour shares were trading at $9.61.
