In its earnings report Tuesday, Feb. 13, the sportswear company posted flat earnings and a slight uptick in revenue. Its turnaround efforts will continue throughout 2018, according to CEO Kevin Plank, and this year will mimic 2017 financially.
The Baltimore-based chain will spend between $110 million and $130 million on restructuring this year, on top of $129 million in 2017. The company's full-year guidance for 2018 projects slow growth, with a low single-digit rise in revenue, an ongoing dip in North America sales and only a slight bump in gross margins.
Investors, though, are unfazed by the pace of the turnaround effort. On Tuesday, Under Armour shares closed up more than 17%, trading at $16.70.
Here are the three ways the company is on track.
1. Product Innovation
In the earnings call, Plank underscored the "trifecta of style, performance and fit," central to the company's product strategy. He pointed to the new GoldGear Reactor and Unstoppable apparel collections, as well as to the new Curry 4 basketball shoes and the HOVR Phantom running shoes, unveiled earlier this month.
'We are completely re-engineering our go-to market by focusing on our design approach, revamping the process, calendar and structure and prioritizing being premium at every price point — all within the consistent margin structure," he said. "Much of this process began in the first half of last year. With a 12-to-18-month lead time, we've already begun to see some success with [these] products."
2. Tighter Inventories
Under Armour's streamlined production process goes hand in hand with a more optimized inventory. Although 2017 ended with excess products in North America, which led to a high number of discounted products, Under Armour anticipates that 2018 will be different. Between 2017 and 2019, Under Armour plans reduce the number of SKUs, or unique items, by 40%, Plank said.
Jeffries analyst Randal Konik, who reiterated his buy rating on Tuesday, wrote in a note that inventory changes will drive better gross margins in 2018. "The [gross margin] guide is up year over year, and we think inventory growth is better in two quarters, so no big deal," he added. "UAA has finally reached the inflection point, and we expect earnings-per-share revisions to begin to move up, not down."
3. Consumer Insight
In redefining its brand, Under Armour conducted a global segmentation study that polled more than 20,000 people, CFO Patrick Frisk said on the earnings call. This data gathered in this study will help the Under Armour team make better product and marketing decisions. "Now part of every season's consideration, this data and analytic set serves to inform and support the tough decisions we have to make with respect to resource allocation and the financial discipline necessary to provide high returns," he said.
Like its competitors in the athleisure field, Under Armour hopes to ramp up its direct-to-consumer sales through an expanding e-commerce business. In 2017, its direct-to-consumer segment grew 11% — that's on par with Nike Inc.'s (NKE - Get Report) direct segment, which grew 11% in its most recent quarterly earnings in December.
"We are getting incrementally better every single day, and we are feeling that right now," Plank told TheStreet in an interview Tuesday. "We are certainly not declaring victory and waving flags at this point. It's a journey, but we feel good about it."