Under Armour reported "considerably better than expected" results in the third quarter, CEO Patrik Frisk said in a statement Friday. The athletics retailer recorded flat revenue, at $1.4 billion, and executives talked at length on a conference call with analysts about moving toward a more DTC-focused model and improving profitability.
At the same time, the retailer announced the sale of MyFitnessPal to investment firm Francisco Partners for $345 million. The deal is expected to close in the fourth quarter, and represents a loss of the majority of Under Armour's connected fitness revenue ($36.9 million in the third quarter, and $102.6 million year to date), executives said.
As part of the retailer's strategy, executives said Under Armour will exit between 2,000 and 3,000 wholesale doors, of all sizes, with a focus on where the brand is best displayed and moving away from undifferentiated partners.
All things considered, Under Armour had a great quarter. The retailer recorded operating income of $59 million and net income of $39 million, both of which were losses in Q2. Globally, the retailer saw over 50% growth in e-commerce, and while wholesale was down by 7% to $830 million, DTC revenue was up by 17% to $540 million.
Executives touted stronger than expected demand in the quarter, which meant fewer wholesale order cancellations and higher traffic, and led to an improved fourth-quarter outlook. Under Armour executives still expect revenue to be down in the low teens for the fourth quarter, but CFO Dave Bergman noted that was a "meaningful improvement" from its previous expectations of 20% to 25%.
North America revenue was still down, by 5%, but executives vowed that the company would "grow in North America in 2021." Part of that plan is positioning Under Armour as a premium brand, by skipping on discounting and markdowns, slimming down off-price sales, focusing more on direct-to-consumer and abandoning undifferentiated wholesale partners.
Under Armour's Q3 performance
|Net income||$39 million||-62%|
|Operating income||$59 million||-58%|
|Gross profit||$686 million||Flat|
|Gross margin||47.9%||-40 basis points|
Source: Under Armour press release
While apparel at Under Armour was still down 6%, footwear was up 19% thanks to its running and training categories and accessories was up 23%, largely because of its sports masks. Executives see continued opportunity in men's training and team sports, and also about the "energy" in women's and footwear.
"It's really nice to see how our brand is now resonating across both genders," Frisk said.
Under Armour's sale of MyFitnessPal means a loss of revenue, but executives stressed that the MyFitnessPal customer "did not fully align" with Under Armour's target customer and the move "sharpens our digital strategy." MapMyFitness, Under Armour's other connected fitness app, is a better fit for its customers, and recently reached one million connected pairs of shoes, Frisk said.
"This announcement reduces the complexity of our consumer's brand journey by empowering sharper alignment with our long-term digital strategy as we work towards a singular, cohesive UA ecosystem," Frisk said in a statement on the sale, which comes about five years after its acquisition. "Additionally, it affords us investment flexibility to drive greater return and value to our shareholders over the long-run."
Clarification: A previous version of this article misstated the date of Frisk's comments due to an editing error. Frisk's comments were made Friday.