Dive Brief:

• Under Armour on Tuesday reported that third quarter revenue fell 5% to $1.4 billion, in part due to lower North American demand, which drove revenue there down 12%. Wholesale revenue fell 13% to $880 million, but direct-to-consumer revenue rose 15% to $468 million, according to a press release.

• The sports gear made up for its North American troubles with a 35% boost in international revenue (34% currency neutral), which accounted for 22% of its total revenue, according to the release. Revenue from the European, Middle Eastern and African regions rose 22% (20% currency neutral), 52% in Asia-Pacific (53% currency neutral) and 33% percent in Latin America (27% currency neutral).

• Q3 net income fell 57.7% to $54 million, with adjusted net income at $100 million. Gross margin declined 160 basis points to 45.9%, as benefits from changes in foreign currency rates and product costs were more than offset by pricing and other inventory management initiatives, as well as regional mix. Adjusted gross margin, which excludes a $4 million impact from restructuring efforts, fell 130 basis points to 46.2%.

Dive Insight:

Competition is especially fierce in sports retail. Demand for athletic and athleisure apparel is slowing, according to consumer data from GlobalData Retail, and the resulting discounting at many retailers is pressuring revenues and margins.

But Under Armour's troubles have widened since the early part of the year, more so than at its rivals, suggesting that the company is losing market share, according to GlobalData Retail Managing Director Neil Saunders. "[T]his is now about more than external factors; it demonstrates issues with the brand and its proposition," Saunders told Retail Dive in an email. "Especially so since other brands and retailers, including Lululemon, have not posted such calamitous figures."

Part of the problem lies in a dearth of product innovation in apparel and footwear from Under Armour, and a less-than-enticing selling environment, according to a note from Jane Hali & Associates. "Their in-store experience is modern and their merchandising is on point," analysts said in an email to Retail Dive. "However, there are no 'bells & whistles' exercise or community hub space."

And while executives told analysts Tuesday that women's merchandising will be a key focus in its revamp, analysts indicated that it has far to go. "The 'Unlike Any' collections launched for women are very small and will not be enough to attract female consumers," Jane Hali said in their note. "We found the Misty Copeland collection in-store and online, but they are a small count of products."

Indeed, the brand is "very masculine," with limited appeal 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."

The company is also suffering from a thin brand proposition more generally, leaving it vulnerable as demand has moderated in the space. "Under Armour has put down very shallow roots," according to Saunders. "While awareness has soared over recent years and customer numbers have risen, loyalty to the brand is not deep-rooted in the same way that it is at Lululemon and Nike. What this means is that as demand moderated, Under Armour has been quick to drop off the radar of many consumers."

Amid its expansion in recent years, Under Armour "appears to have lost some of its brand essence," Saunders also said. He agrees with Jane Hali analysts that its own in-store merchandising is healthy, but warns that at third-party retailers "in some instances, Under Armour has become just another brand in a sea of brands."

The company's tie-up with Kohl's may have backfired, according to Saunders. "Although we applaud Under Armour's attempts to widen its reach, we believe it should have expanded more selectively," he said, calling the venture a "mistake." "Failure to do so has alienated other, more important, retail partners and has also devalued its brand in the eyes of some consumers."

Under Armour's new ArmourBox subscription service has potential, but it doesn't have the merchandise to make regular deliveries work, according to Jane Hali. Earlier this month, UA unveiled the service, which includes four to six items curated by a "dedicated Official Outfitter" and sent every 30, 60 or 90 days as chosen by the customer. The service and shipping both ways is free, and customers get a 20% discount if they buy everything in the box. "ArmourBox could be big for them," according to Jane Hali's note. "However, we don't see enough fashion at this point to substantiate a repeat subscription business."

Overall, the picture is fairly dire for Under Armour—its steep third-quarter net income decline indicates a need for more financial discipline, which executives on Tuesday morning listed as a priority. But the timing is bad, Saunders noted. "It's an uncomfortable juxtaposition with the need to reinvent and reinvigorate the brand," he said. "Under Armour is not so broken that it cannot 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. Ultimately, that means quite a lot of exertion and financial pain in the quarters ahead."