Under Armor stocks rise as the turnaround accelerates

(Reuters) – Under Armor Inc. (UA.N.) (UAA.N) The stock gained 25 percent on Tuesday after the sportswear manufacturer's optimistic quarterly figures and forecast for the year underlined the success of its multiyear plan to reduce costs and reduce bloated inventories.

FILE PHOTO: An Under Armor logo is seen on a running shoe in a shop in Chicago, Illinois, USA, October 25, 2016. REUTERS / Jim Young / File Photo

The third largest sportswear manufacturer in the US has closed deals, cut jobs and withdrawn promotions to boost its profit margins as it battles for market share with larger rivals Nike IncNKE.N.) and Adidas AG (ADSGn.DE).

The increase in equities reflects investor confidence in the company's turnaround and expansion in international markets to offset weakness in the United States, where it has lagged rivals in the past two years.

The company said on Tuesday that it had cut the commodity volume by about 1 percent in the quarter, as it is surplus from 2017, when it expected higher demand.

The bloated warehousing forced the company to sell products to lower-priced retailers at lower prices, which reached margins in recent quarters.

However, cost reductions and fewer discounts also led to margin increases in the third quarter. Gross margin increased for the first time in several quarters – up 20 basis points to 46.5 percent in the quarter, beating the average analyst estimate of 45.8 percent.

The reduction of material stocks such as zippers and buttons by up to 80 percent and the reduction of the supplier base by a quarter also contributed to this.

Under Armor said it has a better storage position going into the Christmas season and would sell more of its products through its own channels at full price to improve the brand's margins and image.

"Under Armor continues to make progress in its multi-year restructuring, particularly in terms of warehousing and cost-cutting measures," said Moody's Apparel Analyst Mike Zuccaro.

"While there are still some challenges, the company is stabilizing and better positioned for improvement in 2019."

Although sales in North America continued to be challenging, the company experienced strong growth in its international markets of Europe, Middle East and Africa, as well as Latin America. International sales increased 15 percent, while in North America they fell nearly 2 percent.

The maker of Stephen Curry shoes increased its full-year earnings per share forecast to 19 cents to 22 cents from 16 cents to 19 cents, according to a previous forecast.

Excluding certain items, it earned 25 cents a share, outperforming analyst estimates of 12 cents, according to the refining data.

The Under Armor share rose 19.4 percent to $ 20.07, leading to a 26 percent gain this year.

Reporting from Uday Sampath in Bengaluru; Arrangement of Arun Koyyur and Saumyadeb Chakrabarty

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