Under Armour's Q2 results pummeled by Sports Authority's demise

Dive Brief:

Under Armour reported a second quarter net income decline of 58% mainly due to the bankruptcy of Sports Authority, one of the largest sellers of its footwear and athletic apparel.
Under Armour’s net income plummeted to $6 million in the quarter ending June 30, down from $15 million the same period a year ago. Operating income declined 39% year-over-year from $32 million to $19 million, inclusive of a $23 million impairment related to Sports Authority’s liquidation.
Net revenues nevertheless jumped 28% to $1 billion compared to $784 million in the second quarter of 2015. Wholesale net revenues grew 27% year-over-year to $635 million, and direct-to-consumer net revenues jumped 28% year-over-year to $321 million.

Dive Insight:

The aftershocks of Sports Authority’s bankruptcy continue to ripple across the retail segment, shaking up Under Armour’s second quarter earnings in the process. With Sports Authority closing and liquidating merchandise across more than 400 stores, Under Armour in May trimmed its annual sales forecast to $4.93 billion from $5 billion, representing a 24% year-over-year increase, its smallest since 2009. Under Armour reiterated that projection on Tuesday, also forecasting 2016 operating income in the range of $440 million to $445 million, up 8% to 9% over 2015.

Sports Authority’s demise notwithstanding, Under Armour’s second quarter results otherwise impressed. For starters, footwear sales surged 58% year-over-year to $243 million, buoyed by demand for basketball and running shoes, including Under Armour's partnership with basketball star Stephen Curry. Apparel sales jumped 18.9% to $612.8 million.

“The Stephen Curry signature line has continued to drive strong momentum for the brand and our pinnacle football product, the Highlight Cleat, continues to lead the market,” Under Armour Chairman and CEO Kevin Plank said in a statement.

In addition, Under Armour’s inventory growth slowed to 30% in Q2 after climbing 44% in the first quarter of 2016, which should assuage investor concerns that too much inventory (for example, those much-maligned Steph Curry “chef” shoes) is collecting dust on retailer shelves.

Looking ahead, Under Armour is expected to roll out its UAS (Under Armour Sportswear) collection this fall. UAS, announced early last month, is spearheaded by sports fashion designer and skateboarder Tim Coppens, who is serving as creative director. UAS will include footwear, men's and women's apparel, and accessories, and will be sold through Under Armour’s own online website, in stores in New York, and at a few upscale retailers.

“UAS will bring a young, fresh and modern voice to sportswear and reflects the insights we’ve gained in the performance brand now applied to the everyday wardrobe,” Plank told analysts Tuesday, according to Bloomberg. “We think there is a massive opportunity.”

Under Armour also is expanding its brand into the mainstream retail consciousness, announcing Tuesday it will partner with department store retailer Kohl's to offer Under Armour-branded apparel, accessories and footwear in more than 1,100 Kohl's stores nationwide starting March 1, 2017. The deal, more than two years in the making, will be "one of the biggest launches in the history of Kohl's," Kohl's Chief Merchandising and Customer Officer Michelle Gass told the Milwaukee Journal Sentinel.