February 12, 2019 / 12:06 PM / 7 months ago

Under Armour beats holiday-quarter profit on fewer discounts

(Reuters) - Under Armour Inc beat analysts’ estimates for quarterly profit on Tuesday, as the sportswear maker kept a tight lid on costs and sold more sneakers at full price during the holiday shopping season.

FILE PHOTO - A wall of basketball shoes is seen on display at an Under Armour store in Chicago, Illinois, U.S., October 25, 2016. REUTERS/Jim Young/File Photo

The company’s Class A common shares rose 3.8 percent to $21.58, as investors shrugged off a disappointing current-quarter revenue forecast for North America, its biggest region.

Under Armour struggled with excess inventories for most of last year and was forced to offload more products to discount chains. This added to costs and dented margins.

To cut expenses, the company has shut underperforming stores, slashed jobs and reduced product sourcing costs.

In the fourth quarter, a 12 percent reduction in inventory levels and rising demand for sportswear, which includes Under Armour’s popular Project Rock, Curry 6 and HOVR sneakers, allowed the company to cut back on discounts and beef up its margins.

The company’s online markdowns during the peak holiday period were about 10 to 20 percent lower, compared with a year earlier, according to brokerage William Blair.

Excluding one-time items, Under Armour earned 9 cents per share in the fourth quarter, beating analysts’ average estimate of 4 cents, according to IBES data from Refinitiv.

Adjusted gross margins rose 160 basis points to 45.1 percent, beating analysts’ expectations of 44.8 percent.

North America sales, however, fell 6 percent, as larger rival Nike Inc continued to dominate with a slew of hot product launches.

Under Armour forecast mid-single-digit percentage fall in first-quarter North America sales.

A lack of any major product launches on the horizon has also left analysts skeptical that the company can see a sales recovery in North America any time soon.

“It would appear that Under Armour has hit a ceiling domestically,” Nomura Instinet analyst Simeon Siegel said.

Total revenue rose 1.5 percent to $1.39 billion, edging past estimates of $1.38 billion.

Reporting by Uday Sampath in Bengaluru; Editing by Sai Sachin Ravikumar and Sriraj Kalluvila

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