May 1, 2018 / 11:08 AM / a year ago

Under Armour forecasts bigger loss as global expansion costs weigh

(Reuters) - Under Armour Inc (UAA.N) (UA.N) on Tuesday forecast a bigger-than-expected loss for the second quarter, taking the shine off first-quarter sales that topped Wall Street estimates, as the sportswear maker spends heavily on an overseas expansion.

As growth at Under Armour’s North America business cools after years of double-digit increases in sales, the maker of Curry 5 basketball shoes has turned to markets such as China.

In the United States, the Baltimore-based company faces vicious competition from Nike (NKE.N) and Germany’s Adidas (ADSGn.DE). The bankruptcies of a handful of sporting goods stores have also hit sales.

To win more customers, the company has aggressively marketed its Bluetooth-enabled HOVR running shoes and sealed high-profile endorsement deals with celebrities such as Dwayne “The Rock” Johnson — moves that reflect CEO Kevin Plank’s efforts to make Under Armour “a quiet company and a loud brand.”

“Under Armour is buying growth through expansion. There is nothing wrong with this strategy, but it comes with costs attached - which means the contribution to the bottom-line is less than impressive,” Neil Saunders, managing director of GlobalData Retail, said.

Under Armour on Tuesday signaled that spending would continue to rise, forecasting selling, general and administrative (SG&A) expenses to rise at a low double-digit percentage rate in the second quarter. Its SG&A costs rose 3 percent in the first quarter.

Under Armour’s international sales rose 27 percent in the three months ended March 31, making up for flat sales at the North America division that is responsible for 73 percent of overall revenue.

Overall net revenue rose 5.9 percent to $1.19 billion, topping expectations of $1.12 billion, according to Thomson Reuters I/B/E/S.

The company’s Class C shares dipped as much as 6 percent on Tuesday after Under Armour forecast a loss of between 9 and 10 cents per share for the quarter ending June, bigger than the 6-cent loss expected by analysts.

On a conference call with analysts, Chief Financial Officer David Bergman addressed concerns about Under Armour’s expansion leading to higher inventory levels, which one analyst in a report called “out of control.”

Bergman said inventories would rise less than 20 percent by the end of the first half of 2018, down from a prior expectation of 26 percent.

Under Armour’s loss widened to $30.2 million in the first quarter, hurt largely by restructuring costs.

Excluding one-time items, the company broke even on a per-share basis, while analysts had expected a loss of 5 cents per share.

Reporting by Uday Sampath in Bengaluru; Editing by Patrick Graham and Sai Sachin Ravikumar

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