Dive Brief:
- After reducing SKUs by 25%, Under Armour over the next 18 months will prune them by another 25%, aiming to pull back promotions on a lighter but stronger assortment, executives told analysts Friday.
- The goal of pushing up prices comes even as the sports brand lowered its outlook “driven by softer demand, particularly in North America and Asia-Pacific,” the company said in a press release. Sales in North America plunged 9%.
- Under Armour also reported that Q1 revenue fell 3% year on year to $1.1 billion. Wholesale revenue fell 2% to $638 million and direct-to-consumer revenue fell 6% percent to $437 million.
Dive Insight:
Under Armour’s turnaround will require not just halving the size of its assortment, but also improving product and storytelling, CEO Kevin Plank said during a conference call Friday.
He pointed to the recently released Bouncy Tee, a cotton-blend performance T-shirt that is commanding full price and exceeding sales expectations, and a few longtime best-sellers as proof “that we know how to create products with a clear reason to command value.”
Other items, including the brand’s Tech T-shirt, are discounted too often. Plus, customers have made a habit of turning to its DTC channel for promotions, and the company is testing more full-price offers there, he said.
Plank promised that, following merchandise and marketing changes, “consumers are going to choose Under Armour at a premium.”
“We will sell so much more of so many less products at a much higher full retail price, and this mission is well underway,” he said, adding, “What we know is that when the product is differentiated and the value proposition is clear, the sell-through follows.”
To make all this plain to the customer, Plank emphasized the need for more effective storytelling, but said the company has rethought its marketing expenditure for the year. Recently, Under Armour said marketing would take 10% to 11% of revenue, and, while that still holds, it will land on the lower end, Chief Financial Officer Reza Taleghani told analysts.
Under Armour is among companies that have factored tariff refunds into the bottom line, which flattered its Q1 results. The company said Q1 gross margin expanded by 590 basis points to 54.1%, “primarily due to refunds” from tariffs, and that net income reached $1 million. Taking out the refunds, though, gross margin contracted and the brand swung to a net loss in the period, according to GlobalData Managing Director Neil Saunders.
In emailed comments, Saunders acknowledged that “the market is challenging and the brand rework is extensive,” but that “rebuilding margins without the benefit of tariff refunds” will be an important test of the brand’s progress.
“The failure to do this will raise some serious questions over whether Under Armour can ever fully get back on track,” he said, noting this will be a rebuilding year for the brand and that its “recovery is going to take a lot longer than anticipated.”
