On Tuesday last week, Under Armour Inc forecast a surprise drop in their profit guidance for 2020. The athletics wear brand blames their continued weakness in North America and caution from the coronavirus outbreak in China as the reason shares have fallen as much as 16 percent. Indeed, the company has been losing market share to sportswear rivals like Nike Inc and Adidas in the highly saturated North American market.
Unfortunately for Under Armour, North America accounts for 70 percent of the company’s revenue. And the coronavirus threat in China—which has already claimed more than a thousand lives—has forced many retailers to revise forecasts and close their doors, likely resulting in first quarter sales losses between $50 and $60 million. This will translate to estimated pre-tax charges between $325 and $425 million on the year.
To retain existing customers and, more importantly, acquire new ones, Under Armour has had to dramatically discount their products at both retail chains and major department stores in their home market of the US. This, of course, has really cut profits.
In his first conference call as Chief Executive Officer, Patrik Frisk admitted “I’m not satisfied with where we are today.”
The second-ever CEO in the company’s twenty-year history (the first was Kevin Plank) goes on to say, “A combination of demand challenges and distribution dynamics is materially impacting our business” adding that these problems are clearly evident in across their full-price wholesale and e-commerce businesses.
Under Armour’s slowdown in North America has been so dramatic that they have been forced to revisit plans to open a new flagship store in New York City to cut costs. That, of course is a cultural hot spot and major market for footwear brands.
All this in mind, shares of Under Armour were down 16 percent, in early trading on Tuesday, to $17.24.