• by Sarah Mahoney  @mahoney_sarah, November 9, 2023

Under new leadership, second-quarter Under Armor results came in slightly better than expected. But it scaled back the outlook for the remainder of the year, citing weak demand in North America. And Stephanie Linnartz, president and chief executive officer, said the company is backing away from broad anthemic campaigns, focusing instead on athletes.

For the second quarter of this fiscal year, the Baltimore-based company says sales were flat at $1.6 billion, with wholesale revenue slipping 1% to $940 million. Direct-to-consumer sales rose 3% to $596 million.

And early efforts to generate “brand heat” are sputtering in North America, where revenue dropped 2%. International sales added 5%. Apparel gained 3% to $1.1 billion, and footwear fell 7% to $351 million. Accessories revenue gained 3% to $114 million.

Net income advanced to $110 million, up 7% from $86.9 million in the comparable period last year.

"Second quarter results, particularly profitability, exceeded our expectations," said Linnartz in a conference call webcast for investors. Linnartz took the helm in February and announced the “Protect this House 3” transformation effort in May.

“We're doing a lot to think about marketing differently for the company,” Linnartz told investors. She pointed to successful engagements in the quarter with athletes ranging from Justin Jefferson, wide receiver for the Minnesota Vikings, Bryce Harper, right fielder for the Philadelphia Phillies, and Kelsey Plum, point guard for the Las Vegas Aces.

“Each of these 'brand heat’ moments during the quarter signals a significant evolution in our approach to marketing,” she told investors, “capitalizing on assets to generate returns via product marketing rather than simply leaning into large-scale anthemic campaigns.”

She said new digital and social media strategies are yielding green shoots with double-digit growth in followers, shares, likes, and reach on Instagram. TikTok continues to be the brand's fastest-growing platform.

While the lowered outlook is discouraging, similar issues affect many of Under Armour’s competitors. “Demand for apparel and footwear in North America has been lagging due to economic conditions and consumer spending shifts,” writes David Swartz, an analyst who follows the company for Morningstar. And that’s a more significant challenge for Under Armour, which has a greater percentage of sales in the U.S. than competitors like Nike and Adidas.

And while Under Armour plans to invest in footwear, casual, and women’s merchandise, and is searching for a new chief product officer, the impact of those efforts probably won’t be felt until fiscal 2025, he says.

The company’s once-meteoric growth in the U.S. has been stalled. “Between 2008 and 2016, the firm’s North American sales increased to $4 billion from $700 million,” Swartz notes, passing Adidas to become the region’s second-largest athletic apparel brand. Yet, in the last seven years, “North American sales are little changed.”

And while Under Armour’s D2C channel has grown, Nike and others have increased much faster. And 90% of Under Armour’s retail stores in the U.S. are off-price.

Brian Nagel, an analyst who follows Under Armour for Baird, describes the company as “largely in a holding pattern” as it tries to balance cost-cutting against weakening demand. While he still rates the company as likely to outperform peers, that’s based on a longer-term focus, reflecting “potential for new management to eventually expand the power and reach of Under Armour, off a now more streamlined and cost-effective operating model.”