Under Armour takes margin hit as it sheds inventory

Dive Brief:

Under Armour inventory came in at $1.2 billion in the period ending March 31, an increase of 44% over last year, CFO David Bergman told analysts last week.
As the company cleared excess inventory with discounts, gross margin fell by just over three percentage points. Hits from discounts overwhelmed the benefits from falling freight rates on margins.
Of the $366 million in additional inventory from last year’s levels, about half are pack-and-hold items that can service future demand, according to Bergman.

Dive Insight:

Apparel as an industry has been wrestling with inventory pileups for the better part of a year now, and big brands with wholesale channels like Under Armour in particular have been stuck with excess stock as retailers tried to pare their positions.

Under Armour President and CEO Stephanie Linnartz described a “sector-wide inventory malaise” that has driven discounting. That said, the company has made some progress. Its 44% inventory growth is six percentage points below last quarter’s 50% growth. Growth in the most recent period was also better than what management projected, Bergman said.

Bergman described the discounting as a “proactive choice to reduce inventory levels,” and said that “the composition of our inventory is generally current and healthy.”

The ability to pack and hold some inventory is an advantage for apparel sellers than can do so, as it means they might be able to sell at full price and hold on to their margins later, though it costs money to store. In apparel, those products that can be packed away are typically basic items that don’t go out of style.

Under Armour has about $175 million in inventory that is currently packed away and that “we know we have demand for in fiscal '24 as opposed to kind of blowing it out at really low prices,” Bergman told analysts.

As Under Armour begins a new fiscal year, the company expects a modest increase in gross margin as the benefits from lower freight costs outweigh the pressures from channel mix and working through inventory. Bergman said that the company will have its inventory cleaned up by the time it closes out the new fiscal year it began in April.