Under Armour sales drop 23% in Q1

Yahoo Finance's Myles Udland and Dan Roberts discuss Under Armour's latest earnings report and the state of retail at large during the coronavirus pandemic.

Video Transcript

MYLES UDLAND: Let's switch gears now and move over to the retail sector, Under Armour a name under pressure today. That stock is off some 9% following its latest quarterly results. The stock, of course, as many of our viewers will know, has had a rough ride, to say the least. The last couple of years, stock is down more than 60%. Just this year, over the last five years, the stock has lost about 80% of its value. Dan Roberts joins us now for more on this story. Dan.

DAN ROBERTS: Yeah, very bad earnings report, Myles. And that's what everyone expected. But let's remember that this company was struggling mightily before coronavirus came along. So that did not help matters. Now in its defense, in terms of the revenue declines here, I mean, stores are not open.

So I think it'll be a lot more telling and interesting to see what kind of numbers Nike, Under Armour, Adidas, and other retailers report once stores have been able to reopen maybe two, three months after coronavirus ends, and we finally emerge. Who knows when that'll be?

But the actual numbers here for Under Armour, its first quarter of 2020 this morning, overall sales down 23%, very ugly. And then it gets even worse if you look at certain subdivisions. Sales in North America, its home turf, down 28%. That is the sixth consecutive quarter where sales fell in North America on Under Armour's home turf, its home market.

And then footwear sales down more than 20%, accessories down about 20%. I mean, pick your stat here, and even internationally, which has been a little bit of a bright spot the past few quarters for Under Armour like Asia, sales in Asia were down 35, and now, of course, your coronavirus closures.

There was maybe one glimmer, the only thing I saw up a little bit. Sales were up 3% in the first quarter in the EMEA region, so Europe, Middle East, Africa.

And then another key bad stat here, inventory was up 7%. And I want to explain that for our viewers who don't follow retail very closely. That means that Under Armour is sitting on a glut of unsold merchandise, unsold inventory. You don't want to see inventory going up like that. And that's something that the company's been criticized for in the past, poor inventory management.

I just think, man, there is a lot to fix for this company. CEO Patrik Frisk, who just took over in January, tough time to have just taken over as CEO. And I have a story up now that just went up about an hour ago on Yahoo Finance, looking at the possible strategy here for Under Armour coming out of coronavirus.

I don't think that the company will be willing to do this and take this leap, but one possible idea is to intentionally shrink its sales volume, put out less product, and discount a lot less, try and become a more full price premium brand. So sell total less stuff, but increase profit margins. Shrink in order to grow profit. That's always a hard sell to shareholders, but it's one idea that one analyst I spoke with thinks to be really smart for this brand.

MELODY HAHM: Dan, one way that retailers often shrink their inventory, especially in Under Armour's case, is by actually selling to those discount chains, like the TJ Maxx's, Marshalls of the world. I've seen Under Armour at Nordstrom Rack. How do you anticipate, as people get more cautious about buying or perusing in retail stores like that, do you anticipate that will have a huge impact on Under Armour kind of longer term?

DAN ROBERTS: Well, I think the climate is really tough for right now because doing that, as well as, of course, being marked down at retail chains like Footlocker and Dick's, that doesn't help the brand image, you know? That reinforces for people the idea that the stuff is cheap. It's always there. It's always on the rack. And it's easy to find. You want to make it sort of less voluminous, I guess. You want to shrink the supply.

So you're right about, you know, being in TJ Maxx and stuff like that. I just-- that doesn't help with the goal. And by the way, Kevin Plank said back in 2017 on one of the bad earnings calls, we have to become a premium full price brand. Well, three years later, that has still not happened.

Now the reason it would be hard to try and stop doing that is because after this time, I do think you're right that because of the hits to the economy, I think shoppers will be looking for discounted stuff. And so maybe to try to unload that inventory, they do go to chains like that. Man, I mean, it's sort of a lose-lose for this brand.

But something has got to change. I mean, the past many quarters in a row, it seems to me like the strategy has been, it'll get better. It will get better. Just double down on what we do. We're a performance brand. You know, we make tight wicking stuff that you use for lifting and sports. Well, that brand image isn't resonating anymore.

And I think Kevin Plank was really hesitant to shift the brand image. Maybe Patrik Frisk will be willing to do it. But something has to change for Under Armour because man, I just-- it's kind of lost its cool factor. It was once such a hot streak. Now it's just not resonating.

MYLES UDLAND: Eventually, I'm sure some PE shop will come in, LBO it, and then we'll be talking about an Under Armour bankruptcy or something in, like, 15 years. All right. We'll see if that happens. We'll reconvene in 2035 to discuss whether that came true or not.