Apparel maker Under Armour (UAA.N) raised its annual profit and margin forecasts on Thursday, betting that easing input and freight costs would help offset weak demand in North America, sending its shares up 6%.
The company is leaning on lower production costs to drive up profit at a time when demand for its apparel and footwear has slowed despite heavy discounts to customers holding back on spending due to elevated inflation.
Lower spending led to a third straight quarter of decline in sales in its largest North America market and the company missed market expectations for third-quarter sales.
It has also seen a hit from wholesalers such as Dick's Sporting Goods (DKS.N) and Foot Locker (FL.N) reducing orders in the United States.
Wholesale revenue fell 13% while direct-to-consumer (DTC) revenue rose 4% in the quarter, as deeper promotions helped pull in more customers in this channel.
"(Gross margins) are going to be better in this current fiscal year...but the problem is that Under Armour has been around the same sales level for several years," Morningstar analyst David Swartz said.
Under Armour now expects annual gross margin to be up 120 to 130 basis points and forecast a profit of 57 cents to 59 cents per share for fiscal 2024, compared to prior forecast of 47 cents to 51 cents.
However, CFO David Bergman warned of "a little bit" of impact on gross margin from promotions.
Its third-quarter revenue of $1.49 billion missed LSEG estimates of $1.50 billion, while adjusted profit of 19 cents topped expectations of 11 cents.
