Under Armor sports shoes on display.
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Under Armor continues to move forward with its investment strategy to remove sneakers and sweatshirts from troubled middlemen and instead pour investments into its own stores and website, the company said Wednesday.
Investors rallied behind management’s statements about the future, with Under Armor shares soaring around 10% in trading and touching a 52-week high of $ 23.23. Earlier, the company reported fourth-quarter earnings and sales that exceeded Wall Street expectations as the company made unexpected profits.
Late last year, Under Armor revealed its plans to leave some wholesale retailers, mostly in North America, from the later half of 2021 as it doubles its strategy to sell more directly to consumers. He said he aims to leave between 2,000 and 3,000 partner stores, which would leave it with 10,000 partner stores by the end of 2022.
“This will mean a two- to three-year journey for us,” Patrik Frisk, CEO, told analysts during a conference call Wednesday morning. “And what we will have left, when we are on this journey, is really what we believe are the most appropriate doors for us: doors that we believe we will win.”
The company did not identify which retailers it will break ties with as part of that plan. Under Armor merchandise is sold in several U.S. department stores, specialty sporting goods stores and retail locations, as well as mom and pop businesses.
In 2020, Under Armor said wholesale revenue fell 25% to $ 2.4 billion, while direct sales to consumers rose 2% to $ 1.8 billion, driven by a 40 percent increase. % in e-commerce sales. The digital company accounted for approximately 47% of direct consumer revenue last year.
“The reality is that the company shows moderation and conservatism because they recognize the need to grow healthy and not fast,” BMO Capital Markets analyst Simeon Siegel said in an interview. “The idea of a brand growing to the moon and being sold anywhere is a thing of the past. And the retailers who trusted them … will have to look inward.”
Frisk explained that the strategy will help Under Armor have a more premium position in the market, while allowing it to sell more inventory at full price, which should also help increase profits.
Analysts have punished the company in the past for selling too much merchandise through other retailers, which often ends up branding and diluting the value of the brand.
Several retail brands, including the owners of Coach Tapestry and Levi Strauss & Co., have taken a similar path, some more successful than others. Some follow the change. The transition has occurred as more consumers shop online and make fewer visits to malls, a trend that has weakened department store sales. And these trends have accelerated during the Covid pandemic.
Nike offers one of the best examples. Its direct consumer revenue accounted for about 35% of total Nike brand sales during 2020, compared to 32% during 2019.
“The way we think about our distribution model … is really through the eyes of the consumer,” Under Armor’s Frisk said. “So the way Under Armor drives our decisions about where we should be, when we should be there, how much we should have … our future growth reaches the consumer.”
With Wednesday’s gains, Under Armor shares have risen about 10% from a year ago, raising their market value to $ 10.3 billion.