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Under Armour, Adidas Reel From China Lockdowns

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By Geoffrey Smith

Investing.com -- Under Armour (NYSE:UA) stock dropped 10% in premarket on Friday after the sportswear company joined its peers in warning of big impacts from another year of Covid-19 related disruptions.

The company warned that margins and operating profit would both suffer in the coming fiscal year, which starts with the current quarter. For the three months through April, it reported a net loss of $60 million, due largely to a 14% drop in sales in the Asia-Pacific region. That overshadowed growth of 4% in North America and 18% in Europe, Middle East and Africa.

Under Armour reported stiff headwinds from rising input costs, notably for freight. Its gross margin contracted by 3.5 percentage points to 46.5%, while selling, general and administrative costs rose 16% on the year.

For the year ahead, it expects revenue to rise some 6% from a baseline period of $5.7 billion, noting that the rejigging of its supply chain will cost it some 3% in growth. Input costs will continue to weigh on margins, which are expected to fall as much as 2 percentage points, while operating income is seen falling from a baseline of $424 million into a range betwee $375 and $400 million. Adjusted earnings per share are expected to fall to as little as 63c from a baseline of 68c.

Under Armour wasn't the only apparel maker suffering on Friday. Adidas (OTC:ADDYY) saw its stock fall 6.1% to test a two-year low, after the German-based giant cut its forecast for profitability this year amid a sharp slowdown in its Chinese sales.

Adidas cut its gross margin target for the current year to 50.7% from a previous range of 51.5%-52%.

Adidas' sales in China were down 35% on the year in the first quarter, a reflection not only of Covid lockdowns but also of the ongoing pressure on western brands in China that are caught between local sentiment and investor concerns about their supply chain links to the province of Xinjiang.

Adidas ADRs were down 5.4% in premarket trading in New York.

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