Please ensure Javascript is enabled for purposes of website accessibility

A more agile Under Armour looks to leave 2017 behind

Baltimore sports apparel giant eager to resume growing

1a-under-armour-stockholders-plankmf45

Under Armour CEO Kevin Plank speaks at an April 2016 stockholders meeting with an image of his white board behind him. The board has a lot of notes on it but written big in red in the center is a phrase reading “don’t forget to sell shirts & shoes.” (File Photo. Maximilian Franz)

After a brutal 2017, Baltimore-based athletic apparel maker Under Armour is expected to focus on its bottom line in the new year with a goal of evolving from a strong brand into a strong business.

While there’s no specific blueprint yet for the company to deliver those results, restructuring, leadership shake-ups and a renewed focus on the business by CEO Kevin Plank are all part of the strategy.

The company hopes being more agile, with a strong focus on financial discipline, will turn the narrative in 2018 from how a big-talking upstart got its comeuppance to how a still-young company adroitly navigated the complexities of rapid growth.

“We are confident in our path forward and our ability to become an operationally excellent growth company,” Lance Allega, Under Armour’s vice president, investor relations, said. “By implementing our category management structure, amplifying our product innovation pipeline and elevating our consumer-led go-to-market strategy, we’re positioning Under Armour to realize its full potential.”

But before the company can address its future it must move past a 2017 that jarred the business, and left many questioning how Under Armour can regain the swagger that defined the brand since its start.

Under Armour, which went public in 2005, suffered its first quarterly loss in 2017. During a second-quarter earnings call the company announced it was cutting 280 jobs, roughly 2 percent of its workforce. That was followed by even more bad news when Under Armour announced in its third-quarter earnings call on Halloween that it was projecting the company’s first sales decline.

The brand also took heat in 2017 as its CEO was entangled in the toxic politics surrounding President Donald Trump. Plank praised Trump earlier this year as an “asset” and as “business friendly” during a television interview. The comments drew intense public criticism, and Under Armour endorsees like Golden State Warriors star Stephen Curry, actor and former wrestler Dwayne “The Rock” Johnson and ballerina Misty Copeland all condemned Plank’s praise of Trump. Plank would eventually resign from the President’s Manufacturing Job Initiative after Trump made controversial comments following riots in Charlottesville, Virginia.

Under Armour has blamed recent business struggles on a variety of factors. The biggest was a difficult retail environment in North America, where the company does 80 percent of its business. One of the chief reason for those struggles, according to the company, was the loss the brand’s biggest distributor, Sports Authority, which filed for bankruptcy and closed all of its locations in 2016.

A promotional environment where competitors were selling at a discount with cheaper materials played a role in cutting into the sales. There were also issues with logistics that clogged up the company’s supply pipeline.

Another Fila?

Analysts and Under Armour watchers are unsure if the onetime golden child of Wall Street will be able to continue to compete with the likes of Nike or instead will follow the trend of companies such as Fila, which  had a moment but couldn’t maintain that momentum.

04.24.2014- LAUREL, MD- Photo taken of kate Sachs, trying on a pair of Under Armour Speedform Apollo running shoes with the help of manager Deirdre Weadock at Charm City Run in Locust Point. (The Daily Record/Maximilian Franz)

04.24.2014- LAUREL, MD- Kate Sachs tries on a pair of Under Armour Speedform Apollo running shoes with the help of manager Deirdre Weadock at Charm City Run in Locust Point. (The Daily Record/Maximilian Franz)

Mitch Kummetz, senior analyst at Pivotal Research Group, rates Under Armour’s stock as a hold. There’s potential for the company to boost performance, but the turnaround isn’t expected to be dramatic or to happen overnight.

“We’re looking for modest improvement in 2018,” Kummetz said.

A step in the right direction for Under Armour was the improvement in the Steph Curry signature shoe franchise. After the misstep of the third-generation shoe cost the company dearly needed early data, the fourth generation of the sneaker shows improvement.

There’s also potential for growth in the lifestyle wear, Kummetz said, because as the product sector gets “long in the tooth” some brands may drop out and offer Under Armour a chance at greater market share.

After a rough first three quarters, and a fourth quarter that hasn’t shown much improvement, Kummetz needs to see Under Armour’s top line growth improve and, to a lesser extent, see improvement on margins to bump its stock to a buy.

“The data I’ve seen hasn’t been terrific,” he said.

Reducing expectations

Karyl Leggio, professor of finance at Loyola University, Maryland, said expectations for Under Armrour in terms of growth will have to be tempered. The days of the upstart posting double-digit top line growth, she said, are over. Under Armour, she said, still has to adjust to the new size and scope of the company after such strong prolonged growth.

One characteristic of the company that Leggio said she admires is that it has continued to operate like a privately held company in that it doesn’t get tied to a product sector. If something isn’t working the company will end it and move on.

As an example, she said, the company is exploring whether to exit tennis and outdoor categories, sectors where Under Armour products have been slow to catch on.

While the company comes to grips with its news size, Under Armour can still grow, Leggio said, particularly in international markets. She sees continued strong demand in the women’s athleisure wear, a segment where Under Armour has consistently tried to gain market share, as low-hanging fruit for the company.

“All you have to do is go to pre-school pick-up and see all the women in yoga clothes,” Leggio said.

Under Armour’s lagging stock price shows how far the once-scrappy has fallen. As of Thursday afternoon Under Armour stock was trading at $15.51 a share compared to $51.85 at its peak in September of 2015.

While 2018 may not usher in a completely revived Under Armour there are ample opportunities. Executives and analysts alike see room for growth in the company’s $1 billion footwear business, especially after a recent survey found that only about 50 percent of consumers knew the company made shoes.

Maybe the biggest opportunity for growth comes from international markets which only make up about 20 percent of the company’s business currently.

 


To purchase a reprint of this article, contact reprints@thedailyrecord.com.

One comment

  1. allpurposehomes@gmail.com

    Under Armour making excuses while still trying to pull $660 million from the poor people in Baltimore City. Not one bond has been issued for this predatory Sagamore project.