The long road back to growth is beginning for Under Armour. During the conference call the team mentioned a number of things that haven’t been heard at any report in the history of the brand, they failed. The quote below from WSJ’s Sara Germano @germanotes
“Under Armour’s -5% 3Q sales is its 1st quarterly sales decline in its history. Latest grim milestone this yr, since posting 1st losses
establishes that the brand is in uncharted territory. This new ground was always in the cards. UA has always focused on bringing dividends to its shareholders. The process of always growing was a prospect that saw the young footwear and apparel company reach a high of 41/share at one time. Today $UA sits at 12.44 and $UAA sits at 13.58. UAA is the Class A stock and is the oldest class for UA if you’re wondering why there are two classes. UA is the Class C that was created after the split in 2016. It was seen as an opportunity to generate more opportunity for growth. This is the lowest both classes have gone.
A few days ago I shared my predictions for how Q3 would shape up. I did a poor job of estimating the outcome. I focused more heavily on Nike during the previous month. I did predict a decrease in revenue, which anyone could have predicted. What I didn’t think was the brand could see any growth in footwear. They grew sales there 2%. This is very similar to Nike’s revenue growth. When a brand takes on inventory they tend to push sales via DTC and through their own channels which bumps up revenue, but is often undercut by a fall in margins.
The prospects for UA financially are grim, but I see serious opportunity for the brand if they can remain focused on the goal of returning to their performance roots. I realize that footwear and apparel is in a fashion cycle, but it’s always in a fashion cycle. The problem is Under Armour doesn’t really have the legs to run in that race so they shouldn’t. I heard two inspiring things from the conference call, “No more acquisitions, and a focus on performance as fashion.” Those weren’t the exact words, but they are an echo of what the brand is doing. I’ve always made a point to express that the heavy investment in tech was a distraction for Under Armour. I even laid out a timeline for the decrease in marketing of Curry and footwear as it relates to the digital acquisitions in Connected Fitness and the promotion of the products there. There is an almost direct correlation to UA’s decline.
The one thing that troubles me is UA’s inability to see how their brand is shaped by the amount of product sold via Amazon. During the call a question was asked about the relationship with Amazon. If I’m a shareholder I wanted to hear a more Nike “like” answer that states how Under Armour is remaining present on the platform but the attention will be given to DTC as opposed to continuously building out a relationship with a marketplace that is looking to enter into the market as competition.
If I were an analyst I would tell anyone near me to buy. I think the acknowledgement that UA doesn’t need to acquire anything and needs to focus on its assets to improve a return to full price sales and reigniting passion over the brand is a major plus. More important I feel that UA is nailing down footwear finally. The Curry 4 and Threadborne have been significant. As they begin to introduce new technology in their running shoes and create more attractive performance silhouettes I think people will become more engaged. I see the #Unlikeany campaign as the guide for how to approach marketing. If the brand can overcome quality control and inventory issues, I see a return to the mid 20s and low 30s by Q2 2018.
Use the source link to view the Q3 report from UA.