Under Armor sports shoes on display.
Getty Images
Under Armor continues its change strategy to take off its sweaty sneakers and blouses from struggling middlemen and instead invest in its own stores and website, the company said on Wednesday.
Investors gathered behind management’s remarks about the future, with Under Armor shares rising by about 10% in trading and reaching a 52-week high of $ 23.23. Earlier, the company reported fourth-quarter earnings and sales that exceeded Wall Street expectations, as the company unexpectedly made a profit.
Late last year, Under Armor unveiled plans to leave some wholesalers, mainly in North America, starting in the back half of 2021 as it doubles its strategy to sell more directly to consumers. He said he plans to leave between 2,000 and 3,000 partner stores anywhere, leaving 10,000 partner stores by the end of 2022.
“This will be a two- to three-year journey for us,” CEO Patrik Frisk told analysts during a conference call Wednesday morning. “And what we have left, when we go on that journey, is really what we think are the most suitable doors for us – the doors we feel they will win.”
The company has not identified which retailers it will break ties with as part of the plan. Under Armor merchandise is sold in several US department stores, specialty sporting goods stores and retail locations at low prices, in addition to mom-and-pop businesses.
In 2020, Under Armor said wholesale revenue fell 25 percent to $ 2.4 billion, while direct sales to consumers rose 2 percent to $ 1.8 billion, driven by a gain 40% in e-commerce sales. Digital accounted for about 47 percent of direct consumer revenue last year, the company said.
“The reality is that the company is showing restraint and conservatism because they recognize the need to grow healthy and not fast,” BMO Markets Capital analyst Simeon Siegel said in an interview. “The idea that a brand will grow to the moon and sell anywhere is a thing of the past. And the retailers who relied on them … will have to look inside.”
Frisk explained that the strategy will help Under Armor eventually have a more premium position in the market, also allowing it to sell more inventory at the maximum price, which should also help increase profits.
Analysts have punished the company in the past for selling too many goods through other retailers, which often ends up being branded and dilutes the value of the brand.
A number of retail brands, including coach owner Tapestry and Levi Strauss & Co., have embarked on a similar path – some more successful than others. The switch is still in progress for some. The transition has taken place as more consumers shop online and make fewer visits to shopping malls – a trend that has weakened department store sales. And these trends accelerated during the Covid pandemic.
Nike offers one of the best examples. Its direct consumer revenues accounted for approximately 35% of total Nike brand sales in fiscal year 2020, compared to 32% in fiscal year 2019.
“The way we think about our distribution model … is really in the eyes of the consumer,” said Under Armor’s Frisk. “So the way Under Armor drives our decisions about where we should be, when we should be there, how much we should have … our growth in the future comes with the consumer.”
With Wednesday’s gains, Under Armor’s shares rose about 10% from a year ago, bringing their market value to $ 10.3 billion.