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Under Armour's rapid growth hits speed bump, shares skid
January 31, 2017 / 12:18 PM / 10 months ago

Under Armour's rapid growth hits speed bump, shares skid

(Reuters) - Sportswear maker Under Armour Inc (UA.N) (UAA.N) forecast 2017 sales well below analysts’ estimates, a sign that the company is finding it tough to replicate the rapid growth it achieved since going public in 2005 as competition intensifies.

The company also reported lower-than-expected fourth-quarter profit and revenue.

Under Armour’s Class A shares fell as much as 26.2 percent, while its Class C shares fell 28.1 percent, together wiping out more than $3 billion in market value. Under Armour’s stock was a drag on Nike’s shares as well, which fell as much as 2.7 percent.

Under Armour on Tuesday said it expects 2017 revenue to rise 11 to 12 percent, in stark contrast to Chief Executive Kevin Plank’s comments in October, when he said the company’s annual revenue would grow in the low 20 percent range in 2017 and 2018.

“The reality is that the guidance they are giving for the next year addresses the point that sales are coming at a cost,” Instinet analyst Simeon Siegel told Reuters.

Higher promotions and discounts are squeezing Under Armour’s margins as the company tries to win back market share.

The company’s gross margins fell to 44.8 percent in the quarter ended Dec 31, from 48 percent a year earlier.

“We need to become more fashionable,” Plank said on a conference call with analysts.

“...the consumer today frankly has more options, and most of those options are from good brands that we compete with that are heavily discounting as well.”

An Under Armour sign is seen outside a store in Chicago, Illinois, U.S., October 25, 2016. REUTERS/Jim Young

Under Armour also said on Tuesday that Chip Molloy, its Chief Financial Officer for about a year, would step down for personal reasons. Senior Vice President David Bergman will be acting CFO from Feb. 3.

CUT-THROAT MARKET

Intense competition from No. 1 U.S. sportswear maker Nike Inc (NKE.N), which has cut prices on some products to match Under Armour’s popular Stephen Curry line of shoes, has weighed on Under Armour.

Meanwhile, Germany’s Adidas AG ADGn.DE has doubled its market share in the United States in a year, unseating Under Armour as the No. 2 sportswear maker in the country, according to market research firm NPD.

Under Armour’s net sales in North America rose 5.9 percent in the quarter, but was well below the quarterly average growth of about 24 percent it has reported since 2013.

Revenue for the fourth quarter ended Dec 31. rose about 12 percent to $1.31 billion - the slowest growth in eight years.

Analysts on average expected $1.41 billion.

Excluding certain items, the company earned 23 cents per share, below analysts’ average estimate of 25 cents per share.

Both classes of Under Armour’s shares were among the biggest percentage losers on the New York Stock Exchange. The Class A shares have declined 34.4 percent over the past year, while Class C shares have slumped 39 percent.

Reporting by Gayathree Ganesan and Siddharth Cavale in Bengaluru; Editing by Sayantani Ghosh

Our Standards:The Thomson Reuters Trust Principles.
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