July 31, 2020 / 11:34 AM / in 5 days

UPDATE 3-Under Armour warns of margin pressure for rest of 2020

(Adds details from conference call, CFO comments; Updates shares)

By Nivedita Balu

July 31 (Reuters) - Under Armour Inc said it expects margins to be pressured for the rest of the year on the back of increased promotions, even as online demand helped the sportswear maker post a smaller-than-expected loss.

Shares of the Baltimore-based company, which surged during before the opening bell, were down about 7% in morning trading.

Chief Financial Officer David Bergman warned on a call with analysts the company might not have adequate supply to meet higher demand, if the second half of the year recovers at a faster-than-expected rate.

"Given the dramatic impacts across the retail landscape due to store closures, and inability to reduce supply as fast as demand, we're anticipating that a highly promotional environment will materialize in the second half."

A major portion of sales to off-price channels being planned in the third and fourth quarters could result in "meaningful" gross margin pressures for the rest of the year, Bergman added.

Under Armour has been trying to reduce its dependence on the low-margin wholesale business, through which it sells to department and off-price stores.

However, with increased promotional activity expected in the second half of the year, the company is anticipating more sales to off-price stores.

Under Armour beat analysts' estimates for second-quarter revenue, as consumers shopped more online with several stores being shut due to the virus lockdowns.

During the quarter, its wholesales business revenue dropped 58%, while that of direct-to-consumer sales fell only 13%, helping gross margins rise 280 basis points.

Net revenue fell about 41% to $707.6 million in the quarter ended June 30, but beat estimates of $558.5 million, according to IBES data from Refinitiv.

On an adjusted basis, the company lost 31 cents per share, compared to analysts' estimates of 41 cents. (Reporting by Nivedita Balu in Bengaluru; Editing by Shounak Dasgupta)

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