A massive shift in American fashion is causing a $1.3 billion problem for Under Armour
- Under Armour beat expectations in the second quarter and reported an increase in revenue in North America on Thursday.
- But the company is still sitting on a mountain of unsold inventory, which grew 11% to $1.3 billion in the most recent quarter.
- Under Armour Chief Financial Officer David Bergman said that while inventory levels are "more than what we want," the company is working to "actively manage [it] down."
Under Armour still has a lot of unsold inventory.
Despite a quarter that beat analyst expectations with rising revenue across the board even in North America, inventory levels remain a problem for the brand. Revenue was up 8% to $1.2 billion, but the level of unsold inventory increased 11% percent, to $1.3 billion.
The company's inventory levels are being monitored closely by analysts and investors, as the discounting required to move product might affect the rest of the brand's segmentation strategy.
Under Armour Chief Financial Officer David Bergman acknowledged the excess inventory in a call with analysts discussing the recent earnings.
He said that while inventory levels were still "more than what we want," the company is looking to "actively manage [it] down."
Bergman noted that the excess inventory is being sold in off-price channels. It's not Under Armour's newest offerings, either, as the company has been working diligently this year to cut down the number of individual products it's producing - known in the industry as stock keeping units, or SKUs.
"The off-price we've been driving through has been mostly [2017] products," Bergman said, noting that this year's products are being sold through the brand's traditional wholesale and direct channels, and that there's not a lot of inventory from before 2017.
The brand is now trying to appropriately segment and get rid of excess inventory while keeping the brand's current-year selection full-price. Excess inventory is usually dispersed with sales, which can weigh on margins and discourage shoppers from going for full-price styles.
The brand says it has found success with selling its apparel at full price, including the product produced in partnership with Dwayne "The Rock" Johnson and the Hovr running shoe.
Managing the inventory is part of Under Armour's multi-year turnaround, in which company executives are seeking to right the brand after struggling to adapt to changing consumer tastes.
Telsey Advisory analyst Cristina Fernandez said in a note to investors that "a consumer shift toward streetwear/fashion vs. performance" is one of the difficulties facing the company in its turnaround, CNBC reported.
"No way do I think we are declaring victory," CEO Kevin Plank said during the call about the better-than-expected results on Thursday.
Rising inventory levels is a troubling trend for some retailers. Fast-fashion house H&M says it has $4.3 billion worth of unsold clothes that it is struggling to get rid of, and retailers like Gap, Burberry, and Ralph Lauren have all said they have high levels of unsold items.