Under Armor undermines supply chain optimists

The current effects are a continuation of the supply chain disruptions that hit apparel manufacturers last year. Amid factory closures in Vietnam from July to September, Under Armour, like other retailers, faced a production backlog. Clogged ports added to the pain. Instead of having the goods arrive late and ending up with too much stock, the company opted to cancel orders. That means there won’t be as many pairs of sneakers or yoga pants hitting retail stores this spring.

Shares of Under Armor fell about 10% – the most in more than a year – despite updating its forecast for sales growth in the three months to March 31. He said he expected a 10 percentage point drop in revenue in the spring. -summer season from canceled orders. Gross margin is also expected to be 2 percentage points lower this quarter, reflecting more expensive shipments, only slightly offset by price increases.

Still, the stock price reaction looks harsh. Many other apparel companies, especially sportswear brands, have been hit by personnel issues in Vietnam. (Under Armor manufactures approximately 50% of its products in the Asia-Pacific region.)

And while Under Armor will lose sales by canceling orders at a time when demand is high, the alternative would have left it with too much stock that it should have heavily marked down. Victoria’s Secret & Co. also canceled holiday inventory that was in danger of arriving late. It will be worth watching if this, rather than heavy markdowns to eliminate old inventory, turns out to be the biggest legacy of industry-wide supply issues.

Either way, Under Armour’s warning is a stark reminder that the supply chain issues that caused so much consternation heading into the holidays last year weren’t thrown in with the Christmas tree trimmings. They will also remain for much of this year. This means more headaches for buyers and investors.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail sectors. She previously worked at the Financial Times.

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