Investors punished Under Armour Inc.’s stock on Wednesday as executives presented their long-term strategic plan for the athletic-apparel maker. The reaction was understandable, if not entirely deserved.
It’s not that management put forward lousy ideas. In fact, several promising initiatives are already underway. Rather, the outlook for a “low-single digit” compound annualized revenue growth rate in North America probably wasn’t satisfying to those who already have pumped up this stock so much in 2018.
Under Armour is at a stage in its business life cycle where it is going to have to fight harder for every dollar and where change cannot happen overnight. It shouldn’t be surprising that investors want more evidence that the leadership team — which is full of relatively new faces — can get real results from the sensible-sounding plans they’ve laid out.
During Wednesday’s event, executives talked extensively about the customer they are now targeting — a group they dub “focused performers,” or serious athletes who relish a fight and a challenge. Under Armour is right to zero in on this subset. The brand has its roots in highly technical, performance-oriented gear. And while athleisure is in fashion these days (i.e., yoga pants as a brunch outfit), the choice to follow an active, healthy lifestyle isn’t about latching on to trends. Good on Under Armour for deciding not to be sidetracked by the shiny object, and go after an audience that has a better chance of sticking with it even when fads change.
The company also has done commendable work on its supply chain, trimming months out of its production calendar and ditching underperforming garments. We’ve seen what a world of good this so-called “SKU rationalization” can do in other corners of the apparel industry. Ralph Lauren Corp., for example, has found this to be a successful path to better, more focused collections of merchandise.
Those moves will likely be tailwinds for Under Armour, but its path forward still isn’t going to be easy. Some of the tacks the company is taking sound eerily similar to those that Nike Inc. recently embraced.
Nike, for example, decried “mediocre” retailers in its 2017 investor day and pledged to shift its emphasis to “differentiated” ones. Compare that to Under Armour’s North America president, Jason LaRose, declaring Wednesday that in the retail landscape, “We just think there’s no room for boring anymore.” He also said that he is “obsessed with being premium.” With both of these brands looking to reshape their retail presence in roughly the same way, competition is going to be fierce in a narrower set of places.
Under Armour executives are talking up everything they’re doing to improve product innovation, including using consumer insights more effectively and devising repeatable processes that can lead them to that next big thing. But they acknowledged in their own presentations today that they still haven’t made Under Armour’s “defining product.”
I will have more confidence in Under Armour when we see something fresh from the brand that fits that description — or, at very least, something that shows it can compete more aggressively in a category such as footwear, where it is still a relative newcomer. Under Armour has practical ideas for putting a rough patch behind it. But I’ll believe the hype when I see its team execute these plays and turn them into wins.
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Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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