By Granth Vanaik and Juveria Tabassum
(Reuters) -Under Armour posted a surprise first-quarter profit and beat sales expectations on Tuesday, as cost pressures eased and higher discounts upheld demand for the sportswear maker's clothes and footwear.
Under Armour (NYSE:UA), like many other clothing brands, has been offering steep discounts in a bid to clear its bloated inventories and attract budget-conscious consumers that have cut back on non-essential purchases amid still high inflation.
That hit gross margins which fell 60 basis points to 46.1% in the quarter ended June 30, compared to a year earlier. Meanwhile, its selling, general and administrative expenses declined by 1% to $587 million, helped by lower freight costs.
"Under Armour is making progress," said BMO Capital Markets analyst Simeon Siegel, adding that for better or worse, promotions would still exist across retail.
Like rivals Nike (NYSE:NKE) and Adidas (OTC:ADDYY), Under Armour has seen demand for its products wane in North America, its largest market, though this has been partly offset by a strong rebound in China.
The company's Asia-Pacific sales rose 14.5%, while its North American revenue fell 9.1%.
The apparel retailer's inventories were up 38% year-over-year at $1.3 billion.
"Under Armour hasn't necessarily tapped into the outdoor trend," said Jessica Ramirez, senior analyst at Jane Hali & Associates. She added the company had gone into its "own silo", not engaging as many consumers as it could have.
Shares of the Baltimore, Maryland-based firm dropped marginally in early trading.
Still, the company reported a profit of 2 cents per share in the quarter, while analysts had expected a loss of 2 cents per share, according to Refinitiv data.
Quarterly revenue fell 2.4% to $1.32 billion, slightly ahead of analysts' estimate of $1.30 billion.
Under Armour also reiterated its revenue and profit outlook for the fiscal year 2024.