Under Armour sends potential warning sign about retailers’ profits
Under Armor, shares sank Tuesday, even after the athletic apparel and footwear retailer beat Wall Street’s quarterly revenue and earnings expectations.
The reason for the drop may offer insights into challenges faced by other retailers.
The company drove higher sales, in part, by offering lower prices. Under Armour missed fiscal fourth-quarter expectations on gross margin as it leaned more on promotions than expected.
Shares fell more than 6% in afternoon trading.
The company’s finance chief David Bergman chalked up the margin decline to higher promotions as Under Armour marked down merchandise from prior seasons and sold it through off-price retail.
Under Armour warned the issues could persist. The company said it expects margins will still be under pressure as higher promotions outweigh lower freight costs. Diluted earnings per share are expected to range between a loss of 3 cents to a loss of 5 cents in the first quarter, below expected earnings of 6 cents per share, according to FactSet. It said it expects margins to improve as the year goes on.
Under Armour’s results could spell trouble for retailers that report quarterly results in the coming weeks. The report could signal that to move merchandise, companies may have to offer discounts and sacrifice more of their profits.