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Under Armour slashes outlook amid falling U.S. sales, ops challenges

Under Armour is not feeling the warmth from U.S. shoppers.

Revenue fell 5% to $1.4 billion, missing Street expectations of $1.5 billion. Under Armour's North America sales fell 12%, while international revenue jumped 35%. The company cited challenges stemming from implementation its new enterprise resource planning system as well as the decrease in North American sales for its revenue decline.

Under Armour reported a profit of $54 million, or 12 cents per share, for the quarter ended Sept. 30, down from $128.2 million in the year-ago period. Excluding one-time charges related to restructuring costs, it earned 22 cents a share, topping Wall Street analysts’ expectations of 19 cents per share on an adjusted basis.

Commenting on Under Armour's third quarter results, Neil Saunders, managing director of GlobalData Retail, cited four factors for the company's decline: shallow roots, a confusing brand proposition, distribution missteps (including its decision to go heavily into stores such as Kohl's) and a failure to connect with women.

"As much as Under Armour has tried to increase its appeal to female shoppers, its brand is very masculine and has limited appeal — especially outside of the professional sports market," Saunders said. "This can be remedied, but Under Armour needs to have a serious rethink about its marketing, store design, and product mix for female shoppers." For more, click here.

Under Armour slashed its sales expectations, and is now calling for revenue in the low single-digit percentage range, down from a previous forecast of growth of 9% to 11%. It expects 2017 earnings per share to fall within a range of 18 cents to 20 cents, adjusted. Previous projections put earnings at 37 cents to 40 cents a share.

In August, Under Armour announced a restructuring effort that involved some $130 million in cost cuts.

"While our international business continues to deliver against our ambition of building a global brand, operational challenges and lower demand in North America resulted in third quarter revenue that was below our expectations," said Under Armour CEO and president Kevin Plank. "Against this difficult backdrop, our management team is working aggressively to evolve our strategy and level of execution to proactively address these challenges.”

In his comments, Saunders said Under Armour can be fixed, "but the days of glory, when it would post double-digit uplifts in sales, are over."

"Now is the time to work out, slim down, and become more competitive," he said. "Ultimately, that means quite a lot of exertion and financial pain in the quarters ahead."
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