Under Armor sports shoes on display.
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Under Armor is moving forward with its recovery strategy to remove the sneakers and sweaters that soak up the sweat of struggling intermediaries and instead invest in its own stores and website, the company said on Wednesday.
Investors composed themselves with management’s comments about the future, with Under Armor’s shares skyrocketing about 10% in trading, reaching a 52-week high of $ 23.23. Previously, the company reported fourth quarter earnings and sales that exceeded Wall Street expectations, as the company reported earnings unexpectedly.
Late last year, Under Armor revealed plans to leave some wholesale retailers, mainly in North America, beginning in the second half of 2021, as it reduces its strategy of selling more directly to consumers. She said she plans to leave between 2,000 and 3,000 partner stores, which would leave her with 10,000 partner stores by the end of 2022.
“This will be a two to three year journey for us,” CEO Patrik Frisk told analysts during a conference call on Wednesday morning. “And what we will be left with when we finish this journey is really what we believe are the most appropriate doors for us – doors that we feel are going to win.”
The company has not identified which retailers will break off the relationship as part of that plan. Under Armor’s merchandise is sold in various department stores across the United States, specialty sporting goods stores and retail out-of-price locations, as well as small businesses.
In 2020, Under Armor said wholesale revenue fell 25% to $ 2.4 billion, while direct consumer sales increased 2% to $ 1.8 billion, driven by a 40% gain in sales. e-commerce sales. Digital accounted for about 47% of direct consumer revenue last year, the company said.
“The reality is that the company is showing moderation and conservatism because it recognizes the need to grow healthily and not quickly,” said analyst Simeon Siegel of BMO Capital Markets in an interview. “The idea that a brand will grow to the moon and sell anywhere is a thing of the past. And retailers who have trusted it … will have to look inside.”
Frisk explained that the strategy will help Under Armor to have a more premium position in the market, while allowing more inventory to be sold at full price, which should also help increase profits.
Analysts have criticized the company in the past for selling too much merchandise through other retailers, which often ends up with low prices and dilutes the brand’s value.
Several retail brands, including the owner of Coach Tapestry and Levi Strauss & Co., have embarked on a similar path – some more successfully than others. The change is still underway for some. The transition has occurred as more consumers buy online and pay less visits to malls – a trend that has weakened department store sales. These trends accelerated during the Covid pandemic.
Nike offers one of the best examples. Its direct consumer revenue represented about 35% of its total sales for the Nike brand in fiscal year 2020, compared with 32% in fiscal year 2019.
“The way we think about our distribution model … is really through the eyes of the consumer,” said Frisk of Under Armor. “So the way Under Armor guides our decisions about where we should be, when we should be, how much we should have … our growth in the future comes with the consumer.”
With Wednesday’s gains, Under Armor’s shares rose about 10% from the previous year, bringing its market value to $ 10.3 billion.