Under Armour batters slow sales

A sports bra that Under Armour has made in the U.S., part of an ambitious bid to rethink its manufacturing strategy.

For a long time, Under Armour's sales have been racing ahead at the speed of a sprinter. But, in the most recent quarter, the athletic apparel giant's explosive pace slowed down significantly, as the company grappled with big-picture changes such as declining mall traffic as well as misfires for not pumping out the right mix of merchandise.

Wall Street battered the stock on Tuesday, sending it down a staggering 25 per cent by late morning. In addition to its relatively weak quarterly results, the Baltimore-based company offered an outlook for 2017 that calls for significantly slower revenue growth than it posted in 2016.

The company also announced a leadership shake-up in its senior ranks, saying that chief financial officer Chip Molloy was leaving for unspecified personal reasons and would be replaced by David Bergman, Under Armour's senior vice president of corporate finance.

Kevin Plank, the company's founder and chief executive, spoke forcefully to investors on a conference call in an effort to assuage them that the company was still on an upbeat trajectory.

"We understand very clearly the root causes and reasons, and are humbled by it," Plank said, adding, " I want to be clear: Our growth story is intact."

The company reported Tuesday that revenue was up 12 per cent in the quarter to $1.3 billion. While many retailers can only dream of that kind of growth, for Under Armour, it marks a retreat. For the last five straight years, it had delivered quarterly revenue increases of greater than 20 per cent.

The brand pointed to a number of factors that fueled its troubles. For starters, mall traffic was slower, and the company said that promotional activity during the holiday rush was challenging, with deeper discounts that started earlier than they expected.

One noteworthy contrast: In North America, Under Armour's sales to wholesale customers were up just 5 per cent in quarter. However, in its "direct to consumer" division, comprised of its own physical stores and website, sales rose a healthy 23 per cent compared to the previous year. In other words, the malaise of its big-box and department store partners appeared to have strongly weighed on its sales haul in the quarter.

Meanwhile, the company copped to missing the mark on its clothing assortment. Its basic, staple items didn't catch customers' eyes in a competitive environment. Plus, executives said, they didn't offer enough options for style-conscious shoppers, the ones going wild for the "athleisure" trend.

"We need to become more fashion," Plank said on the conference call. "The consumer wants it all. They want product that looks great, that wears great, that you wear at night with a pair of jeans, but also that performs for them."

This is an area where its new Baltimore manufacturing facility, UA Lighthouse, could eventually have some impact: The company said it was able to dramatically cut its speed-to-market timeline by using this domestic hub to develop products. This, in turn, could it allow it to better offer trendy merchandise at the right time.

Under Armour delivered a $105 million profit in the quarter, or $0.23 per share.