China’s renewed COVID-19 lockdowns have wreaked havoc on a number of businesses, including some that you might not typically associate with China. Among the collateral damage this week is sporting goods and apparel retailer Under Armour, as $UA stock took a –25% haircut today, even landing in single-digit territory.
$UA’s Class A cousin, $UAA, was also down more than –20% today. Were the company’s just-released first-quarter 2022 fiscal results really that bad, though?
Put it this way: You know it’s not a good sign when the CEO comes right out with an excuse at the top of the press release. Before trotting through the usual lineup of fiscal stats, Under Armour President and CEO Patrik Frisk cited “global supply challenges and emergent COVID-19 impacts in China” – which, no doubt, were contributing factors to the company’s quarterly performance (or lack thereof, as the case may be).
Q1 was a highly anticipated reporting period given Under Armour’s past few quarters of tribulation in the athletic-wear segment. It’s safe to say, then, that today’s earnings report was make-or-break for the company – and judging by the market’s response, it was more “break” than “make.”
This isn’t to suggest that all of the data was underwhelming. Indeed, Under Armour’s 3% year-over-year revenue improvement could almost be described as halfway decent. However, it’s not an inflation-beating improvement, which means the gain is lost on most investors.
Beyond the revenue growth, however, lurked a slew of startling stats. In a mere three months, Under Armour’s gross margin decreased 350 basis points, while the company’s operating loss totaled $46 million and the net loss amounted to $60 million. As a basis of comparison, in the year-earlier quarter, Under Armour didn’t sustain an operating loss at all, but instead reported operational income of $106.9 million; also during that period, the company recorded net income of $77.8 million rather than a net loss.
In other words, Under Armour managed to swing from impressive income to sizable losses. “Global supply challenges and emergent COVID-19 impacts in China” are punishing many businesses in the U.S., China, and elsewhere, but it’s not hard to see why investors aren’t forgiving Under Armour’s drastic pivot to un-profitability. Hopefully, the company and its shareholders can recover from this – but for today, it’s probably best to keep your expectations low.