Under Armour shares plunge on surprise Q1 loss

The news shaping the markets today

The entire G7 group of nations pledged to phasing out their dependency on oil imports from Russia. WTI crude prices rose on the news.

China’s imports came in flat from a year ago in April, versus expectations of a 3% decline. Despite this, the CNY/USD pair slipped in forex trading this morning.

Japan’s services PMI was revised higher to 50.7 in April, from the flash reading of 50.5 and up from a final of 49.4 in March. However, the JPY/USD forex pair remained under pressure.

Egypt’s S&P Global PMI rose to 46.9 in April, from a 21-month low of 46.5 in March. However, the EGP/USD pair declined in forex trading this morning.

US consumer credit grew by $52.43 billion in March, from a $37.7 billion increase in the previous month. The Dow Jones index traded lower by around 100 points on Friday.

What’s happening: Shares of Under Armour fell sharply on Friday, after the company reported weak results for its first quarter.

What happened: Investors shorted Under Armour’s stock on disappointing results and management’s projections of downbeat profits for the year.

The Baltimore-based company also reported a sharp decline in its revenue from a region that had contributed around 15% of its overall revenues last year.

How were the results: The athletic apparel and footwear maker reported a surprise loss for its transition quarter ending March 31, 2022.

• Sales grew 3% year-over-year to $1.30 billion, falling short of market expectations of $1.32 billion.
• Net loss came in at $60 million, with an adjusted loss of 1 cent per share, versus Street expectations of earnings of 6 cents per share.

Why it matters: Although economies around the world have mostly reopened, a resurgence of covid-19 cases in China and other regions impacted Under Armour’s manufacturing and sales in the quarter.

Renewed restrictions resulted in a 14% decline in revenues in the Asia-Pacific region, which had contributed approximately 15% of the company’s overall sales last year. Rival athletic giant Adidas also lowered its projections due to weakness in China.

Revenues from North America, Under Armour’s largest market, grew 4% to $841 million. International revenues also rose 1% to $456 million. Wholesale revenues grew 4% year-over-year to $829 million, while direct-to-consumer revenues rose 1% to $441 million.

Delays in shipping and labour shortages also impacted the company’s operations and resulted in order cancellations.

Management warned of a gross margin contraction by 1.5 to 2 percentage points this year from the first quarter’s 49.6%. Under Armour projected adjusted profits between 63 and 68 cents per share for fiscal 2023, below market expectations of 83 cents per share.

How shares responded: Shares of Under Armour tanked 23.8% to settle at $10.89 on Friday, recording their biggest decline since January 2017. The stock has lost around half its value so far this year.

What to watch: Markets will continue to monitor conditions in Asia, expecting sales to be boosted by the easing of pandemic-related restrictions in the region.

The markets today

The Canadian dollar will be in focus today, after closing lower last week

Context: The CAD/USD forex pair fell on Friday, following the release of jobs data from Canada.

Details: Data released on Friday showed that the Canadian economy had added fewer jobs than expected for April. The country added merely 15,300 jobs during April, following 75,000 job adds in the previous month and falling short of expert projections of 55,000. On the brighter side, Canada’s unemployment rate declined to a record low of 5.2% last month, from 5.3% in March.

On the other hand, data from the US showed higher-than-expected growth in jobs in April. The US economy added 428,000 jobs in April, higher than the market expectations of 391,000. Although investors responded to this by adding more US dollars to their portfolio, it also raised concerns of aggressive rate hikes by the Fed to combat inflation.

The Ivey Purchasing Managers Index for Canada eased to 66.3 in April, after hitting to a 16-year high of 74.2 a month ago.

The loonie did not find support even from a rise in crude, one of Canada’s major exports. WTI crude prices added 2.2% to close at $110.61 per barrel on Friday.

The CAD/USD pair fell around 0.5% to close at 1.2897 on Friday. The forex pair lost around 0.4% last week, representing the sixth straight week of losses.

What to watch: Investors await the release of building permits data from Canada today. The total value of building permits, which surged 21.0% to a record C$12.4 billion in February, is expected to rise by merely 0.5% in March.

Markets will also keep an eye on the ongoing war in Ukraine and rising covid-19 cases in some parts of the world.

Other Markets: European trading indices closed lower on Friday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 1.54%, 1.64%, 1.73% and 1.91%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

South Africa’s foreign exchange reserves and SACCI monthly business confidence index, France’s balance of trade, current account, exports and imports, Turkey’s total motor vehicles production, Mexico’s consumer price index, auto production and auto exports, Central Bank of Brazil’s focus market readout, US wholesale inventories and consumer inflation expectations, as well as India’s central government budget value.