UAA Under Armour Inc

By Sara Germano 

Under Armour Inc. is trying to break out of sporting goods, and hopes a new casual-wear line and an expansion into midtier department stores will do the trick.

The Baltimore-based company said Tuesday it will begin selling its products in Kohl's Corp. stores beginning next year, giving Under Armour a significant new wholesale account that will help expand sales beyond its traditional customer base in core athletic stores like Dick's Sporting Goods Inc.

But despite posting 28% revenue growth to $1 billion for the recent quarter, the sportswear maker reported lower gross margins, weighed down by rising costs and the liquidation of Sports Authority. Its marketing expenses rose 20% and selling, general and administrative costs increased 32%. Executives said that gross margin will be down slightly this year compared to last year.

Shares of the company, down 0.7% so far this year, closed Tuesday down 5.1%.

The move to open sales at Kohl's, which will begin early next year in about 600 of their existing retail locations, accompanies Under Armour's expected September rollout of a casual-wear line of fashion-oriented shirts and shoes, dubbed Under Armour Sportswear.

Both strategies are aimed at bringing in new and different customers, Chief Executive Kevin Plank said on the company's second-quarter earnings call. Under Armour reported double-digit sales growth in each of its apparel, footwear, and accessories segments for the period, but the company is still dwarfed in overall revenue by larger rivals Nike Inc. and Adidas AG, which have larger distribution footprints and casual-wear offerings around the world.

Under Armour, like its larger rivals, already sells performance athletic gear to some department stores including Macy's Inc. and Lord & Taylor. Both Nike and Adidas have existing sales accounts at Kohl's.

One challenge for Under Armour will be making sure it has enough differentiated product for Kohl's, so it isn't cannibalizing its own sales at sporting goods retailers. Mr. Plank said plans to expand to Kohl's have been in the works for years and the company has spent much of that time working on merchandising for the rollout.

Mr. Plank also said the company will launch a New York City flagship retail store at the former FAO Schwarz building on Fifth Avenue, beginning around 2019. The location is considered one of the most expensive commercial real estate properties in the city, though the price of Under Armour's leasing agreement weren't immediately known.

The company reported a loss of $52.7 million, compared with a year-earlier profit of $14.8 million, hurt by a impairment charge related to the liquidation of Sports Authority and a dividend payout to Class C shareholders.

The company backed its 2016 revenue forecast -- which it had lowered in May -- for $4.93 billion. The Baltimore-based company has benefited from the success of its endorsed athletes. In the quarter reported Tuesday, its Stephen Curry basketball line helped footwear sales surge 58% to $242.7 million from a year earlier.

But gross margin slipped to 47.7% from 48.4% a year ago.

Apparel sales, meanwhile, climbed 19% to $613 million, again led by growth in training and golf. Accessories sales rose 21% to $101 million, driven mostly by headwear and bags. And while more than three-quarters of the company's revenue is North America-based, foreign revenue increased 68%.

--Anne Steele contributed to this article.

Corrections & Amplifications: Under Armour's results included a previously reported $23 million impairment charge. An earlier version of this article incorrectly stated that the company had a prior-year impairment charge of $32 million. An earlier version of the story also misstated the company's stock performance this year. As of Tuesday's close, the stock is down 0.7% this year.

Write to Sara Germano at sara.germano@wsj.com

(END) Dow Jones Newswires

July 27, 2016 02:49 ET (06:49 GMT)

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