Under Armour Inc, the American sports apparel brand, recently announced lower-than-expected annual sales and profit projections due to sluggish demand and increased discounts impacting profit margins. As a result, the company’s shares experienced a decline of 4%. The cautious consumer spending on non-essential products, driven by rising interest rates and rental costs, has had a significant impact on the sales of discretionary items such as home goods, apparel, and electronics.

Compared to its industry peers Nike Inc and Lululemon Athletica, who have managed to maintain consistent demand for their products despite an oversupply of inventory in the market, Under Armour seems to be struggling to attract consumers. Neil Saunders, the managing director at GlobalData, suggests that the Under Armour brand lacks the same level of loyalty and appeal as its competitors, making it easier for consumers to deprioritize the brand during challenging economic times.

To address the surplus inventory issue, Under Armour has resorted to offering higher discounts and promotions, which has resulted in a decline of 310 basis points in gross margins, now standing at 43.4%. Additionally, the company’s inventories have increased by 44%, amounting to $1.2 billion.

While Under Armour’s revenue for the fourth quarter exceeded estimates, driven by a 3% growth in its largest market, North America, and a 31% surge in the Asia Pacific region on a currency neutral basis, the company remains cautious about its future performance. For fiscal year 2024, Under Armour expects its net sales to remain flat or experience a slight increase, falling short of analysts’ expectations of a 3.7% growth rate. Earnings per share are projected to be between 47 cents and 51 cents in 2024, while analysts predict a profit of 61 cents based on Refinitiv data.

In the quarter ending on March 31, 2023, Under Armour achieved a 7.5% rise in net revenue, reaching $1.40 billion, surpassing the estimated $1.36 billion. However, the company’s outlook for the upcoming year suggests a challenging environment, as weaker demand and heightened competition continue to impact its performance.

Useful Links:
1. CNBC: Under Armour Q1 2023 Earnings
2. Forbes: Under Armour’s Gross Margins Decline Amid Higher Discounts