© Reuters. FILE PHOTO: Customers leaving an Under Armor store in New York City, U.S., November 4, 2019. REUTERS/Brendan McDermid/File Photo
By Aatrayee Chatterjee and Ananya Mariam Rajesh
(Reuters) -Under Armor on Wednesday raised its annual gross margin expectations, as the sportswear maker benefits from easing cost pressures even as it struggles with tepid demand in its largest North American market.
The company’s shares, which have fallen about 29% so far this year, rose 5% in early trading as second-quarter earnings beat analyst estimates.
Freight and raw material costs are moderating for global companies due to spikes caused by supply chain disruptions during the pandemic and compounded by the war between Russia and Ukraine.
The sportswear brand now expects annual gross margin to increase between 100 and 125 basis points, compared to its previous expectation of between 25 and 75 basis points.
The company also expects its selling, general and administrative expenses to be stable or slightly down compared to the previous forecast of stable or slightly up.
This has helped Under Armor (NYSE 🙂 soften the blow of deep discounts implemented to attract customers struggling with higher interest rates and persistent inflation, as well as American wholesalers cutting back on orders, a problem noted by his rivals. Nike (NYSE:) and Adidas (OTC:).
Under Armor “is not seeing significant cancellations” in the wholesale business, but “does not anticipate as many or at once automatic replenishment orders as initially planned,” Chief Financial Officer David Bergman said on an earnings conference call.
Wholesale revenue declined 1% in the second quarter, while sales in North America fell 2%.
“The North American wholesale environment has been challenging and will likely continue to be challenging,” said Simeon Siegel, an analyst at BMO Capital Markets.
Still, the results suggest “a healthy flow of sales rather than one riddled with discounts,” he added, noting that the direct-to-consumer segment remains stable with a 3% increase in revenue.
Under Armor now expects annual revenue to fall 2% to 4%, compared with its previous outlook of being flat or slightly up.
The company’s second-quarter profit of 24 cents per share beat analyst estimates of 21 cents, according to LSEG data.
