Under Armor athletic shoes on display.
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Under Armor is continuing its turnaround strategy of pulling its sneakers and sweat-wicking tops out of the struggling middlemen and instead investing in its own stores and website, the company said Wednesday.
Investors rallied behind management’s comments about the future, with Under Armor stock up about 10% during trading and hitting its 52-week high of $ 23.23. Previously, the company reported fourth-quarter revenues and sales that exceeded Wall Street expectations as the company posted unexpected profits.
Late last year, Under Armor unveiled plans to exit a number of wholesalers, primarily in North America, beginning in the second half of 2021 as it doubles its strategy of selling more directly to consumers. It has said it plans to abandon between 2,000 and 3,000 partner stores, leaving it with 10,000 partner stores by the end of 2022.
“That will be a journey of two to three years for us,” CEO Patrik Frisk told analysts Wednesday morning during a conference call. “And what we’ll be left with when we get through that journey is really what we think are more suitable doors for us – doors that we think will win.”
The company has not specified which retailers it will cut ties with as part of this plan. Under Armor merchandise is sold in a number of US department stores, sporting goods specialty stores and off-price retail locations, in addition to mom-and-pop companies.
In 2020, Under Armor said wholesale sales fell 25% to $ 2.4 billion, while direct-to-consumer sales were up 2% to $ 1.8 billion, driven by a 40% increase in ecommerce sales. . Digital made up about 47% of direct-to-consumer revenue last year, the company said.
“The reality is that the company is showing restraint and conservatism as they recognize the need to grow healthily and not fast,” said BMO Capital Markets analyst Simeon Siegel in an interview. “The idea that a brand will grow to the moon and sell anywhere is a thing of the past. And the retailers who relied on it … will have to look inward.”
Frisk explained that the strategy will help Under Armor eventually get a more premium position in the market, while also being able to sell more stock at full price, which should also help boost profits.
Analysts have in the past penalized the company for selling too many goods through other retailers, often discounting and diluting the value of the brand.
A number of retail brands, including Coach owner Tapestry and Levi Strauss & Co., have taken a similar path – some more successfully than others. For some, the switch is still underway. The transition has occurred as more consumers buy online and fewer malls visit – a trend that has weakened department store sales. And these trends have accelerated during the Covid pandemic.
Nike offers one of the best examples. Direct-to-consumer revenues represented approximately 35% of total sales for the Nike brand in fiscal 2020, compared to 32% in fiscal 2019.
“The way we think about our distribution model … is really through the eyes of the consumer,” said Under Armor’s Frisk. “So the way Under Armor is shaping our decisions where we should be, when we should be there, how much we should have … our future growth will come with consumers.”
With Wednesday’s gains, shares of Under Armor are up about 10% from a year ago, bringing its market value to $ 10.3 billion.