Dive Brief:
- Under Armour is closing in on a “normalized” inventory position, with levels down 9% year over year to $1.1 billion in its most recent reporting period, CFO Dave Bergman told analysts earlier in February.
- Inventory came cheaper, too, as cost of goods sold fell 7.8% YoY. Lower freight costs — despite some Red Sea-related spikes — drove a 2.6 percentage point benefit to gross margin, Bergman said. The company also made progress working with vendors to lower product costs, he added.
- At the same time, the sportswear brand paid a price to shed inventory. Offsetting part of its supply chain savings was a 1.4 percentage point hit gross margin due largely to price cuts to products in its direct channel and factory stores, and to off-price buyers, to flush inventory.
Dive Insight:
Under Armour’s journey to rightsized inventories has taken longer than many of its peers in the apparel space.
By Q3 of last year, Under Armour’s inventory was still up by about 6% year over year while rival Nike’s was down 10% and Lululemon’s was down 4.5%, according to an analysis by Telsey Advisory Group. Meanwhile, the inventories of many more other apparel brands were down by double digits.
As Under Armour struggled with lagging sales and persistently higher inventory — and with it, margin-eating price cuts — the company shuffled its C-suite, including around operations and supply chain. In June, the company announced the departure of then-COO Colin Browne. Months later it brought on Shawn Curran as chief supply chain officer.
Throughout its struggles, executives blamed an over-inventoried market overall. This time around, Under Armour management pointed to a light at the end of the tunnel on its earnings call.
“The market, we think, is coming back to normalization at this point — maybe a little bit longer to go, but pretty close,” Bergman said. “However, we are still seeing a fairly promotional environment out there, even with the inventory levels at the retailers in a lot better place.”
The company’s role as a supplier to retailers can also partly explain its struggles around inventory. Over the past nearly two years of lackluster demand, brands and suppliers have often been stuck with inventory overages longer than retailers, which were first to reel in their purchasing.
Retailers continue to be stingy about buying inventory, and Under Armour’s “meaningfully” (to use Bergman’s word) declining wholesale sales in the most recent quarter show it. The CFO added that, currently, “retailers are being fairly cautious and still really trying to keep clean after a year or two of obviously having more than they wanted.”
As for Under Armour’s own suppliers, executives hinted that they have given price concessions to the brand as it continues to struggle to rebuild its sales and profits.
Bergman said that the benefits from falling supply chain costs are “shifting a little bit more towards the product costing initiatives that we're working on with our vendors.” The company expects to realize those cost benefits in its current quarter and into the next fiscal year, which begins in April.
via https://www.aiupnow.com
Ben Unglesbee, Khareem Sudlow
