Under Armour CEO Kevin Plank told investors Wednesday that the company has stabilized its North American business after the second year of a three-year reorganization and is ready to apply a revised strategy for growth to other parts of the world.
“To stay one step ahead, we have to be constantly looking to see how we adapt,” Plank said. “We’ve gotten organized. We’ve gotten to work and are now executing … with a new operational model … with tangible payoffs. We’re seeing these changes pay off and have a clear line of sight to what the transformation will yield.”
Plank’s remarks kicked off the Baltimore sports apparel maker’s annual investor day at the company’s Port Covington campus, where analysts and investors gathered after being invited earlier to shop in the Brand House store in Harbor East and work out at the in-house gym.
Plank and other executives spent Wednesday giving updates on long-term strategy, financial outlook and key initiatives. They sought to assure sometimes skeptical analysts that the turnaround plan for the 23-year-old brand is working. The changes, they said, have positioned a leaner, more efficient company for growth both in the United States and internationally, in places such as China, India, Mexico and Argentina, in sports such as running and training and among female consumers.
A five-year growth plan unveiled Wednesday will allow the company to return sales to a low double-digit growth rate by 2023, improve profit margins and allow earnings per share to reach a five-year growth rate of 40 percent, the company said. The plan relies partly on data science and analytics, some from the brand’s Connected Fitness health and fitness tracking apps, to better understand customer demands. Plans also call for reinvesting some of the $200 million in average savings from restructuring in areas such as marketing, international expansion and footwear development.
Under Armour offered no on-site media access but showed the event live via webcast.
One analyst said he viewed the company’s targeted sales growth rate of more than 7 percent over five years as both manageable and conservative.
“Achievability of these objectives is a favorable set-up for the stock, in our view,” Jim Duffy, a Stifel analyst who has a buy on Under Armour stock, said in a report.
But others were more skeptical of the brand’s rosy projections.
Camilla Yanushevsky, equity analyst at CFRA Research, downgraded the stock to “strong sell” from “sell,” and cut the 12-month price target by $5 to $15 per share.
“Our downgrade reflects our skepticism of the timeline of [Under Armour’s] turn-around narrative following today's Investor Day,” Yanushevsky said. “We remain concerned with [Under Armour’s ability to tighten inventories … without significant brand degradation from aggressive off-price selling.”
The analyst said she also has doubts whether Under Armour can reach its annual growth rate targets for sales through its websites and branded store, given that sales decreased in that channel in the most recent quarter. That might have been because consumers were not interested in the assortment of products offered, she said.
Shares of Under Armour fell more than 10 percent Wednesday to close at $19.81 on the New York Stock Exchange.
Under Armour has been tackling challenges on several fronts. After years of rapid growth ended toward the end of 2016, it is fighting to reverse sales declines in the United States, the brand’s biggest market. It’s struggling to keep a performance-based brand relevant in a hypercompetitive sports apparel category dominated by much larger rival Nike. And it’s trying to control costs and high inventory levels.
The brand has become more efficient, shortening time it takes to design products and launch them in the market, said Patrik Frisk, Under Armour’s president and chief operating officer. And it cut by nearly half the number of individual products, allowing the company to streamline the number of vendors and factories.
Changes have included improvements in "category management, what product should go where and when," Frisk said.
Executives said the brand embarked on extensive consumer research that showed the company should be targeting “focused performers,” who are central to the brand’s mission of helping athletes improve their performance.
Such consumers are "hard-wired to fight," younger, more diverse, more active and spend more money than other consumers, said Attica Jaques, Under Armour’s vice president of global brand management.
“Focused performers" represent a $29 billion market in the U.S. and Canada, said Jason LaRose, the brand’s head of North America. That accounts for 30 percent of the athletic apparel and footwear market on the continent.
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LaRose appeared to respond to criticism that the value of the brand has become diluted because of expanded distribution to moderate store channels such as Kohl’s.
“We are concerned and obsessed with being premium,” he said. “It’s how the brand started. … We’re very focused on premium distribution.
“In the end, the goal is to set the tone, to re-establish Under Armour as the performance authority in North America. This region is not done growing."
Clay Dean, Under Armour's chief innovation officer, offered investors a peek at products in the pipeline, including the "warmest most versatile insulation ... a significant development in outerwear." Designers also are working to create a material that conforms to body and foot to offer flexibility, comfort and support, he said.
Under Armour also is working on a footwear midsole Dean described as hyperlight, ultra-cushioned and appropriate for all types of weather and footwear.
Dean said design teams are constantly looking at “how do we hunt for white space in the industry and create things that have not been created before in sports apparel.”
Over the next five years, apparel is expected to continue to make up the bulk of Under Armour’s business, but the fast-growing footwear segment is expected to account for a quarter of sales.