In the money: Under Armour focuses on sourcing and demand
Sportswear firm Under Armour has revealed that it has begun sourcing its Fleece products from higher cost suppliers after facing delivery issues last year.
After having to incur air freight charges towards the end of last year and in the beginning of this year due to "challenges getting it [Fleece] here on time," chief financial officer Brad Dickerson said the company has been re-sourcing much of the line.
The new sources will "help serve our business better, but it will come at a little bit higher cost," Dickerson told analysts on Friday (19 April).
The additional costs, he said will be due to the products coming from countries that have higher duties attached to them.
The sportswear brand is investing heavily in systems on the demand and supply side of the businesses, which, Dickerson said, " will help to give us a lot more visibility, not only to ourselves but give a more clear visibility to our suppliers, which enables us to make better commitments out going forward".
In the short term, the company admitted the moves are going to dampen margin growth. However, in the longer term, it expects to see an improvement in inventory management in 2014 and beyond, but also gross margin gains.
The comments came as Under Armour posted a 47% decline in first quarter net profit, after higher marketing costs offset rising sales. Net income reached US$8m over the quarter ended 31 March, against $15m in the prior year. Net revenue increased 23% to $472m.
The business is also working to turn itself from a North American company that is "simply selling product in other countries to truly embracing being a global company," founder, chairman and CEO Kevin Plank said.
The evolution began with expansion into Europe back in 2005, but is becoming an increasingly important driver of growth.
"Today I think that our goal is to be a global company that truly has three components where we're doing business, which would be the Americas, Asia and Europe. So checking off the list, we've seen success in international. We've had confidence that our brand will translate. But if you look across where we've been successful, it's time for us to make longer-term investments," said Plank.
The focus is now on regions like Latin America, which Plank said the company didn't think it would "really consider" when it was looking at developing its international footprint.
"Places like Brazil, Chile, Argentina and Peru are places were we believe that we can be successful. Latin America is something that is really seeing some of the biggest profits that we're looking at from an international basis right now and really beginning to drive," he emphasised.
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