Under Armor shares rose 25% on Thursday after the sporting goods giant raised its annual profit forecast, citing lower input costs and effective cost-saving measures such as reducing discounts in its stores and on its website.
The strong performance came after several quarters of disappointing results and prompted company founder Kevin Plank to return as CEO.
Plank’s plans to realign the company include reducing the number of employees and inventory levels of select products.
Under Armor and Nike are working to regain market share
The company’s efforts to refocus its business are in line with a broader trend in the athleisure market, where both Under Armor and Nike are working to win back market share from emerging brands like Roger Federer-backed On and Deckers Outdoor’s Hoka .
Under Plank’s leadership, Under Armor is focused on selling apparel and footwear at full price, correcting previous mistakes related to deep discounting.
In the second quarter, full-price sales accounted for about 50 percent of total e-commerce sales. This is a significant increase compared to just 30 percent last year.
This move, along with lower discounts, resulted in a 200 basis point improvement in the company’s gross margin to 49.8 percent.
“Success in the athleisure market requires more than just the right pricing strategy.
“It is critical to create attractive products that consumers are willing to pay full price for,” says Danni Hewson, head of financial analysis at AJ Bell.
Under Armor now expects adjusted annual earnings per share of between 24 cents and 27 cents, above the previous forecast of 19 cents to 21 cents.
The company reported profit of 30 cents per share for the quarter, beating analysts’ expectations of 20 cents.
Despite a 10.7 percent decline in net sales to $1.4 billion in the second quarter, Under Armor beat analysts’ forecasts, which had predicted an 11.6 percent decline.
Analysts had expected revenue to fall to $1.39 billion, according to LSEG data reported by Reuters.
Simeon Siegel, an analyst at BMO Capital Markets, noted: “We have long believed that Under Armor should focus on improving its health rather than growth at any cost.”
As the company continues to implement its turnaround plan, investors will be watching closely to see whether Under Armor can regain its competitive advantages in an increasingly crowded market.
