Under Armour Reports First Quarter Results
I had the unfortunate problem of listening in to the conference call on an Android phone that dropped the connection via bluetooth every 8 seconds. This means I only caught small soundbites of the call. It will be up to listen to if you’re interested via the Under Armour news site.
Here are the most important takeaways and I will bold print the one the sneaker community is obviously interested in:
- Revenue was up 7 percent to $1.1 billion, driven by a 4 percent increase in wholesale revenue to $773 million and a 13 percent increase in direct-to-consumer revenue to $302 million. North American revenue declined 1 percent as new distribution was more than offset by the absence of business lost to bankruptcies in 2016. International revenue, which is comprised of our EMEA, Asia-Pacific, and Latin America regions, represented 20 percent of total revenue in the quarter, and was up 52 percent (up 57 percent currency neutral). By region, revenue was up 55 percent in EMEA, 60 percent in Asia-Pacific and 30 percent in Latin America. Apparel revenue increased 7 percent to $715 million including strength in training, golf, and team sports. Footwear revenue grew 2 percent to $270 million, against last year’s same period which was up 64 percent due to significant strength in basketball sales and the timing of liquidations. Accessories revenue increased 12 percent to $89 million with strength in men’s training, running, youth, and global football.
Notes: While I expected a more detailed discussion let’s see where my predictions landed in what I could hear. My predictions are in plain text and the result is in bold print:
- UA will discuss digital and their performance technology and running shoes designed to interact with their suite of digital acquisitions. I have long thought that these acquisitions did little to inspire interest in the brand and actually pulled resources away from the athletes. Digital will not inspire confidence and will not move the needle in regard to the stock. The conference call mentioned connected running often throughout the call as a place where they can lead. I said in an older article, this isn’t leading and someone obviously didn’t pay attention to the Nike+ basketball failure.
- Plank will discuss the “Trump” situation and continue to distance the brand. He should not gloss over it, but he should take it head on explain the diversity of the company, and he should show a strong support of the athletes and stand lockstep with the athletes in refuting the negative aspects of this administration. If he does this and then establishes that the brand is leaning heavy into it’s athletic roster for inspiration this will make the market respond better. He didn’t mention Trump, but he did lean heavy into his athletic roster and touted upcoming releases for Fall including one based on Misty Copeland.
- He should discuss The Rock and Threadborne as two positives that show the direction the company is headed. Threadborne has been a revelation. While the rollout of apparel just happened, it should be performing well and the Slingflex is a great product at the right price. Plank directly referenced Slingflex and rightfully so, the shoe has been a positive for the company. He also discussed more from the Supervent/Project Rock. While these won’t be major releases they will continue to inspire brand recognition.
- Kohl’s will feature prominently. The question should be why is Kohl’s doing all of the heavy lifting. There have been some excellent short campaigns from Kohl’s supporting the launch. Under Armour however hasn’t done anything. This relationship is too early to gauge, but the discussion on the relationship can inspire confidence. Throughout the discussion the mention of 13,000 different outlets that carry Under Armour was discussed. Questions were raised about the promotions being used and Plank said, “Promotion is just the market we are in.” (paraphrase) He’s right, but UA promotion is heavy and Kohl’s is too soon to really gauge.
- E-commerce, DTC and poor sales at chains will be a topic that will be downplayed, but should be addressed. The company will have lower margins because they have been pushing sales all quarter. The retail numbers will hurt and cause a lack of confidence. I was only slightly wrong here. The company had stronger DTC sales (13% growth), but this was due to promotions so the gross margin was down 70 basis points due to the sales to reduce inventory.
- Curry 3.5 should be a focus and the brand should stress that Steph Curry remains a priority. What would truly help with confidence is a rollout of a multifaceted campaign on the superstar player. Since Curry 3’s release in September of 2016 Under Armour has only produced 1 campaign for Curry. If Plank doesn’t show that he is completely invested in Curry shares will not shift. There is not a 3.5, but there is a Curry 3Zero which was released at a 20 dollar lower price point. Curry sales are still down and although my connection was garbage, I noticed that Curry was not a major discussion. I think this is a big failure.
- The MLB rollout will be addressed, but only in regard to Fanatics and Majestic and if the confusion there will create issues as the brand moves toward the 2020 takeover. MLB and lifestyle were addressed as innovation and forward movement, so this was addressed but it was at the tail end of the conference call.
7 points that will be discussed, or should be presented. What will be the outcome? I think Class A and C will remain steady. There will not be an increase and the market won’t panic anymore. Class A $UAA will uptick to 21/share. Class C will stay at 19. The job at this point is to establish that the slide is over and things are rebounding for the brand.
$UA I was right about Class C. It remains at 19.80 from the time I wrote this article at 19.05.
$UAA did even better than I thought. I said it would go to 21 but it is sitting at 22/share.
Overall, my predictions were accurate.