Direct-to-Consumer Might be the Key to Under Armour’s North American Turnaround
Under Armour’s direct-to-consumer strategy is paying off.
In the footwear and apparel maker’s latest earnings report, executives highlighted the success of the brand’s DTC business, which grew 12% to $604 million in Q3. Compared to 2019, DTC business was up 31% during the period.
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Overall, revenue in Q3 was up 8% to $1.5 billion year over year.
The DTC growth, executives explained, was due to strong sales from Under Armour branded stores. At the same time, e-commerce declined 4% to represent 33% of the company’s total direct-to-consumer business. Fewer discounts helped improve margins across the board.
“Overall, we’re pleased that our strategies towards improved presentation and experiences in our stores and online are driving better economics throughout this business,” said CEO, president, and executive director Patrik Frisk in a Tuesday call with investors.
Like many apparel and footwear retailers, Under Armour has zeroed in on its DTC channels in recent quarters. In 2020, Under Armour said it planned to cut ties with certain wholesale retailers, starting in the second half of 2021 to focus on DTC growth.
“Some of the demand constraints are now fully in play for us,” said Frisk, highlighting the brand’s decision to exit around 3,000 stores in North America by the end of 2022. Frisk said this decision has helped more the brand “towards a more premium position again.”
In recent quarters, this strategy has proven successful. Last quarter, DTC revenue increased 52% to $561 million, driven by Under Armour’s owned and operated stores. E-commerce represented 39% of the total DTC business, marking an 18% decline.
This DTC focus is also one of the key drivers of Under Armour’s recent growth in North America.
In 2019, Under Armour rolled out a five-year plan to help it win over the market, a region in which it had historically struggled. And while analysts were skeptical of the plan at first, recent results suggest that the strategy has started to pay off. Revenue in North America was up 8% to $1 billion in Q3.
“We have been focusing a lot on DTC,” said Under Armour CFO David Bergman. “And we’re starting to see some of the benefits of that pay off.”
Bergman highlighted Under Armour’s full-price retail commercial concept as well as its outlet factory house store concept, both are which are improving profitability for the company.
Given Under Armour’s performance this quarter, most analysts and executives predict that the brand’s momentum will last through future quarters.
In a note, Wedbush analysts said, “We continue to believe that UAA is in the early innings of a multi-year turnaround (aided by the long-term structural growth of the athletic industry), which will drive strong improvement in fundamentals and share price.”