After a year focused on expansive growth and redefining its brand strategy, Under Armour is experiencing growing pains.
The sporting goods company performed lower than expected in the fourth quarter of 2016, with sales rising only 12 percent and net income falling to $104.9 million, down from $105.6 million in the same period in 2015. Kevin Plank, Under Armour’s chairman and CEO, said in a statement that the poor performance was a result of major closures in the North American athletic market, including the bankruptcy of Sports Authority and City Sports.
“We are incredibly proud that in 2016, we once again posted record revenue and earnings, however, numerous challenges and disruptions in North American retail tempered our fourth quarter results,” Plank said.
The news of Under Armour’s sales performance comes after the brand announced yesterday that it would be launching its first collection of apparel made in the U.S. The collection is the brainchild of Under Armour Lighthouse, a facility focused on innovation and product design that opened at its Baltimore headquarters in 2016. Among the items it developed are a women’s sports bra and legging set made from material that reduces drying time.
The push for American-made goods may be an attempt for Under Armour to appeal to the North American market, where numbers show it’s struggling. Though international revenue has increased 63 percent, growth in the states is at just 16 percent from 2015 to 2016. Meanwhile, gross margins have continued to fall, and in October 2016, Adidas superseded Under Armour as the second-biggest sports brand in the U.S., after Nike.
This is in part due to the focus of Nike and Adidas to provide innovative brick-and-mortar retail experiences, while Under Armour has relied on third-party sporting goods stores and department stores, to their own detriment.
“We’ve never been the biggest kid on the block, so we’ve always had to do things a little bit differently,” Kevin Haley, Under Armour’s president of innovation, told Digiday in December. “We have an advantage because we don’t have a $30 billion dollar supply chain that’s always done something a certain way.”
William Susman, analyst at Threadstone Investors, said despite not meeting expectations in the fourth quarter, Under Armour is still poised for long-term growth, noting that focusing on digital efforts with low returns will ultimately help the brand thrive.
“Under Armour remains one of the strongest growth brands in the marketplace,” he said. “The market remains very competitive, and Under Armour is playing for the long gain, not short-term wins. They continue to invest in their brand and distribution, so there will be quarters like this where growth in earnings slows. $100 million-plus of earnings is still very impressive.”