Under Armour Reports $16.5 Million Q1 Operating Loss in Connected Fitness Segment

Under Armour39s connected fitness platform includes the HealthBox which contains a scale that measures body fat Photo courtesy Under Armour
<p>Under Armour&#39;s connected fitness platform includes the HealthBox, which contains a scale that measures body fat. (Photo courtesy Under Armour.)</p>

Under Armour, Baltimore, Maryland, did not achieve operating profitability in its connected fitness segment in the first quarter, according to financials released by the company on Thursday.

The connected fitness segment reported an operating loss of $16.5 million in first quarter 2016 after posting a $15 million loss in first quarter 2015. Connected fitness revenue in the first quarter was $18.5 million compared to $8.4 million in the same quarter last year.

The connected fitness segment represents about 1.8 percent of Under Armour's total first quarter sales. The company's net revenue grew to $1.05 billion in the first quarter, reflecting a 30 percent growth over the first quarter of 2015.

During Thursday's conference call with investors, Under Armour CEO Kevin Plank said the company is still in "investment mode" and working to drive consumer engagement with the connected fitness platform in 2016.

Under Armour said in a previous outlook that it expects $200 million in connected fitness revenue by 2019. The company extended its operating loss in the connected fitness segment from $20.6 million in 2014 to $61.3 million in 2015, despite reporting a net revenue increase from $19.2 million in 2014 to $53.4 million in 2015.

"We're still in the first inning of what is happening in this world," Plank told investors. "We believe in the growth opportunity."

Under Armour's connected fitness platform consists of the HealthBox as well as the UA Record, MapMyFitness, Endomondo and My FitnessPal mobile apps. Under Armour acquired Endomondo for $85 million and MyFitnessPal for $474 million in 2015. MapMyFitness was purchased for $150 million in 2013.

The connected fitness platform has approximately 160 million users who logged nearly 8 billion foods and 2 billion activities in 2015. The platform adds approximately 100,000 new users daily. Plank called the company's opportunity with its 60 million active monthly users a "big opportunity." 

The users who share activity, sleep, exercise and gear tracking data are part of the company's strategy to connect with its consumers and increase awareness and sales of existing product offerings.

"Data is the new oil," Plank said. "Those who have the data and those who have the understanding of the consumer are those who are going to win."

Under Armour's HealthBox debuted at the Consumer Electronics Show in January and retails for $400. The HealthBox is billed as a connected system that measures sleep, fitness, activity and nutrition. Products in the HealthBox are a wearable wrist tracking device, a scale that measures body fat percentage and a chest strap that monitors the user's heart rate.

"Our first reads on it are very positive, but we think it's a product that will continue to evolve," Plank said. "At the end of the day, we feel good about what happened in the first quarter."

In January, Under Armour announced a global partnership with Dwayne "The Rock" Johnson that, in part, supports Under Armour's Connected Fitness initiatives. He is supporting promotion of the HealthBox and Record app in an "integral role," according to a press release. He lent his voice to the first HealthBox commercial promoting the product this month and produces exclusive training tips and content for UA Record.

Fitbit, San Francisco, remains the worldwide leader of wearable devices, according to the most recent International Data Corporation report. Fitbit unit shipments grew 93 percent in 2015 to 21 million shipments for a 26.9 percent market share in the wearable device market.  Following Fitbit, in order, are Xiaomi (12 million shipments), Apple (11.6 million shipments), Garmin (3.3 million shipments) and Samsung (3.1 million shipments.)

Under Armour Stock was up more than 7 percent in trading Thursday morning.

Disclosure: Eric Stromgren owns shares of Under Armour stock and Under Armour Class C stock. 

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