Under Armour hits a wall, but remains confident of its brand, despite CFO exit
Baltimore-based company has found it tough to continue its record setting growth it has achieved since going public in 2005 as competition intensifies. Reports indicate that “Under Armour’s Class A shares fell as much as 26.2 percent, while its Class C shares fell 28.1 percent, together wiping out more than $3 billion in market value.” This all happened Tuesday, after Under Armour corrected its 2017 expected revenue to rise only 11 to 12 percent, corresponding to $5.4 billion, which is normally pretty reasonable growth for most markets, but in October, the brand promised growth in the 20 percent range for 2017 and 2018. North American revenues increased by just 5.9%, again much lower than the rapid north UA has been experiencing over the last few years. The competition is fierce, with Adidas clawing its way back to the number 2 spot and even start ups like Lululemon has taken considerable market share.
This inability to operate in innovate fashion is probably what costed the head of Chief Financial Officer Chip Molloy, who quietly stepped down “for personal reasons”. VP of Corporate Finance David Bergman, who joined the company 12 years ago, will serve as acting CFO. UA Chief Executive Kevin Planks is disappointed in the traditional operating method of promotions and discounts thinning margins in an attempt to keep its position. “We need to become more fashionable,” Plank said in a statement. “…the consumer today frankly has more options, and most of those options are from good brands that we compete with, that are heavily discounting as well.”
Overall, however, it did not have a bad year, yes, the company’s ended the year with a reduced gross margins of 44.8 percent down from 48 percent a year earlier, but 2016 revenues increased 22 percent to $4.8 billion. 2016 footwear and women’s businesses both hit $1 billion mark which is an important source of diversification for the brand; and 2016 operating income went up 3 percent to hit $420 million. Pretty good numbers indeed, especially considering 4Q international revenues grew by 55.2%, but considering 96% of UA revenue comes from North America, where operating profit was down by 15%, would them explain the shake up in investor confidence.
CEO Kevin Plank is cautiously optimistic: ”The strength of our brand, an unparalleled connection with our consumers and the continuation of investments in our fastest growing businesses —footwear, international and direct-to-consumer— give us great confidence in our ability to navigate the current retail environment, execute against our long-term growth strategy and create value to our shareholders.”
The restructuring effort looks to be the first step of many in order to keep its original objective of being a company to overtake Nike, a feat still way off, as the battle for second place has become vicious.