Under Armour Has Biggest Plunge in 5 Years After Forecast Misses

(Bloomberg) — Under Armour Inc. sank the most in five years after an earnings report revealed it’s struggling with supply-chain issues and pandemic-related shutdowns in China.

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Revenue is projected to rise 5% to 7% in the fiscal year ending in March, the company said Friday in a statement. That includes about 3 percentage points of headwinds related to the decision to cancel orders affected by capacity issues, supply-chain delays and Covid-19 in China. Earnings per share, excluding some items, are forecast to be in the range of 63 cents to 68 cents for the year, falling short of analyst estimates.

Chief Executive Officer Patrik Frisk has been focused on improving operations at the athletic-wear brand after global supply-chain disruptions made it difficult to secure enough inventory to meet customer demand. The company cautioned in February that those issues would take months to resolve, through the spring-summer season.

Under Armour said Friday that inventory fell 3% in the transitional quarter ended March 31, and gross margin shrank to 46.5% on higher freight costs.

“Operationally, we remain concerned about a tightening of margins over the next few quarters,” Neil Saunders, an analyst at GlobalData, said in a note. “Should the top line growth predictions fail to materialize, perhaps because of a downturn in consumer sentiment, then profit erosion could become more serious.”

Shares of the Baltimore-based company plunged 24% in New York, their biggest drop since January 2017. The stock has now lost almost half of its value this year.

Under Armour’s global revenue rose 3% to $1.3 billion in the quarter, dragged down by weak performance in Asia, where Covid shutdowns in China led to a 14% drop in sales in the quarter. Revenue was up 4% in North America, the company’s largest market.

Inflation in freight and product costs is taking a toll on operations. Gross margin this year is expected to be down 1.5 to 2 percentage points from the prior period’s adjusted gross margin of 49.6%.

Rival athletic-wear maker Adidas AG said Friday that it has been experiencing the same pressures. The German company pinned a cut in profitability targets this year to supply bottlenecks and plunging sales in China as zero-Covid policies keep stores closed.

Under Armour is moving to a fiscal calendar that began April 1. Some analysts had said ahead of Under Armour’s results that they expected the company to give conservative guidance.