Under Armour Tuesday reported fourth quarter revenue rose 5% to $1.4 billion (or 4%, currency neutral), handily beating the forecast for $1.31 billion from Thomson Reuters I/B/E/S cited by Reuters. Wholesale revenue fell 1% to $733 million and direct-to-consumer revenue rose 11% percent to $575 million. Direct-to-consumer represented 42% of global revenue in the quarter.
The news in North America was bleak; Revenue fell 4%, consistent with company expectations. But momentum continued abroad, where revenue rose 47% (or 43% currency neutral) and represented 23% of total revenue.
For the full year, revenue rose 3% to $5 billion, as wholesale sales fell 3% to $3 billion and direct-to-consumer sales rose 14% to $1.7 billion. Direct-to-consumer represented 35% of global revenue last year. North America sales last year were down 5%, as the company’s strength abroad contributed to a 46% increase in revenue (47% currency neutral).
In September 2015, Under Armour anticipated quite a different 2018 than the one it’s having so far: The retailer announced then it was accelerating a long-term net revenue target to $7.5 billion by this year. But the brand has struggled, ceding its number two place to Adidas a couple of years ago, and has been cutting costs to get a better footing.
Under Armour is running into difficulties in several areas, especially at home. Apparel revenue in the fourth quarter rose 2% to $952 million, as growth in men's training and global football was tempered by declines in the team sports and outdoor categories. Footwear revenue rose 9% to $246 million, driven by strength in running, offset by team sports and basketball.
Direct-to-consumer sales and overseas sales increases are taking a toll: Gross margin declined 150 basis points to 43.2% as benefits from changes in foreign currency rates and product costs were more than offset by pricing and other inventory management initiatives, and channel mix, the company said.
While Wall Street rewarded the company for its results Tuesday morning, GlobalData Retail Managing Director Neil Saunders warned the company’s report still displays "signs of a company in difficulty."
"Under Armour is reliant on its North American operation to drive performance on both the top and bottom lines," he told Retail Dive in an email. "Unfortunately, the North American division had a lamentable quarter and is the main source of Under Armour's woes.”
The retailer has over-extended itself with expansions like last year's partnership with Kohl’s and has lost much of its appeal, which it paid for dearly at the holidays, Saunders said.
"The brand seems to have lost power. Compared to last year, Under Armour was firmly off the radar for holiday gifting," he said. "Under Armour has spent too much time trying to expand its footprint and product coverage, and too little time building connections with customers."
As a result, consumers are unsure of what it stands for, in great contrast to Lululemon, which has a strong identity, making it a destination and helping maintain premium price points, Saunders said. "These shallow roots are dangerous: they leave Under Armour vulnerable to competition and the vagaries of changing market conditions," Saunders warned. "While we do not believe that Under Armour should simply emulate Lulu, we do think it can learn some lessons from its playbook."