Under Armour lifts profit forecast on cost savings, shares surge

By Ananya Mariam Rajesh

(Reuters) -Under Armour shares shot up 20% premarket on Thursday as the sportswear maker raised its annual profit forecast, betting on lower input costs and cost-saving strategies such as fewer discounts at its own stores and website.

Following several quarters of poor results, company founder Kevin Plank returned as CEO to reset the business with a plan to boost profit by reducing headcount and cutting down on inventory of some products.

Under Armour (NYSE:UA ) and Nike (NYSE:NKE ) are trying to revamp their businesses to galvanize demand and win back market share from newer, more innovative brands such as Roger Federer-backed On and Deckers Outdoor (NYSE:DECK )'s Hoka.

The Baltimore, Maryland-based company is still in the early days of its reset, however, while On and Hoka have released fresher shoe styles over the past year to become consumer favorites.

Under Armour is also aiming to sell apparel and footwear at full prices. That, coupled with the lower discounts, boosted its gross margin by 200 basis points to 49.8%.

"... It takes more than the right pricing strategy to succeed in the athleisure market. Creating products that consumers are willing to pay top dollar for and swerving the need for sales stickers is the best way to impress investors," said Danni Hewson, head of financial analysis at AJ Bell.

It now expects annual adjusted per-share profit of between 24 cents and 27 cents, compared with 19 cents to 21 cents forecast earlier.

Excluding items, it earned 30 cents per share in the quarter, beating estimates of 20 cents

"For some time, we have believed Under Amour would be best situated to improve its business by focusing on health over growth," said BMO Capital Markets analyst Simeon Siegel.



North America, its largest market, saw a 12.9% fall in sales while the Asia-Pacific segment reported a 10.5% decline due to weaker demand from China.

Its second-quarter net sales fell 10.7% to $1.40 billion, compared with analysts' expectations of a 11.6% fall to $1.39 billion, according to data compiled by LSEG.

Source: Investing.com