Under Armour Still Facing Headwinds Despite Plans For Expensive Restructuring
The restructuring plan Under Armour Founder, Chair & CEO Kevin Plank outlined yesterday is "going to come at a huge cost" -- potentially up to $130M -- and "didn’t impress investors" on Wall Street, according to Evan Clark of WOMEN'S WEAR DAILY. Despite Plank saying UA will get "stronger, faster" and "smarter," the company's stock fell 10.4% to $16.23. Analysts "welcomed the company’s pivot, but the skeptics were not necessarily won over." Nomura Securities analyst Simeon Siegel "maintained his 'reduce' rating on Under Armour’s stock, noting that it looks pricy based on earnings even with many investors shorting the stock, or betting it will fall." Credit Suisse analyst Christian Buss also "stayed put with his rating at 'underperform' and said the company’s longer-term growth potential was 'still opaque'" (WWD.com, 8/2). In Baltimore, Holden Wilen noted the restructuring does not mean UA is "going away from making products that help athletes perform better." Plank "highlighted the C1N, a stylish training shoe launched around" Panthers QB Cam Newton. Plank: "There will be a lifestyle bend to it but it will also be something that works in the gym. What we are not going to do is tear up the script on what has made us an authentic brand." Wilen noted in regards to pricing, expect shoes to "come down" (BIZJOURNALS.com, 8/1).
WHAT THEY'RE SAYING: Morgan Stanley analyst Jay Sole said UA "continues to be in a state of transition.” Sole: “They are working on updating their operations, they’re working on fixing the product, they’re correcting some of the tactical mistakes that they made over the last couple of years." Sole noted the “bear case out there is that Under Armour is a dying brand." Sole: "We fundamentally disagree with that and if they can come through this transition period, the stock could eventually start to outperform.” Sole said he is still "optimistic that Under Armour can right the ship.” CNBC’s Jon Najarian said UA is “still too focused on just the performance side” (“Fast Money Halftime Report,” CNBC, 8/1). CNBC’s Sara Eisen: “It was a reset -- again -- of profit expectations for this brand, but the question now: Is it growing pains as the company has grown very far very fast in terms of doubling its revenues the last few years, or is there some bigger execution risk to worry about when it comes to the company’s next leg of growth?” (“Squawk Alley,” CNBC, 8/1). CNBC’s David Faber said the last two years for UA stock has been a “house of pain" (“Squawk on the Street,” CNBC, 8/1). Stifel Managing Dir Jim Duffy said, "It’s going to be a real test of the management team as to whether they can navigate this without compromising the equity in the brand going forward” (“Squawk on the Street,” CNBC, 8/1).
PLACE TO CALL HOME? UA yesterday said its expansion to Port Covington "will be based on the pace of the company's growth." UA Senior VP/Global Communications & Entertainment Diane Pelkey said that the first phase of the 3.9 million-square-foot development for a global corporate centerpiece "will progress as required to accommodate this pace." In Baltimore, Melody Simmons noted UA unveiled plans in January '16 to build on 50 acres as part of a $5.5B "redevelopment of the peninsula spearheaded by Sagamore Development." The expansion will include "office, manufacturing and athletic space" (BIZJOURNALS.com, 8/1).