UPDATE 3-Under Armor warns of margin hit as excess inventory drives discounts

(Adds details from conference call on inventory issues; updates stock movement)

By Uday Sampath Kumar

Aug 3 (Reuters) – Margins at Under Armor Inc are set to face a squeeze as the sportswear maker raises discounts to support falling demand and eliminate the accumulation of excess inventory.

The company slashed its full-year margin and profit forecast on Wednesday, underscoring the struggles U.S. retailers face to cut back on a glut of goods that are finding fewer buyers due to soaring inflation this year.

The buildup stands in stark contrast to supply shortages experienced by retailers last year when COVID-19 restrictions in major Asian manufacturing hubs prevented them from meeting robust demand.

But with the easing of these restrictions, a flood of products is about to hit the market at a time when demand for discretionary goods, particularly clothing, is falling, said acting chief executive Colin. Browne.

“As a result, we assume the market will be very promotional. And we will have to participate in many of those promotions,” Browne said on a post-earnings call. He did not give details of planned spending for the discounts.

Under Armor now expects fiscal 2023 gross margins to fall to as low as 425 basis points, from as low as 200 basis points previously.

Annual adjusted earnings are expected to be between $0.47 and $0.53 per share, compared to a previous guidance of $0.63 to $0.68 per share.

Still, easing supply issues helped Under Armor beat first-quarter revenue estimates, pushing its battered stock price up 4%. The stock has more than halved in value this year.

Some analysts said the lowering of the forecast was also not entirely unexpected.

“The sharp reduction in FY23 EPS outlook is disappointing, but not surprising given similar actions by other consumer companies and retailers,” said Telsey Advisory Group analyst Cristina Fernandez.

German rival Adidas made a similar move last week. (Reporting by Uday Sampath in Bengaluru; Editing by Aditya Soni)

James T. Quintero