Jan 31, 2017
Under Armour's founder-led approach wears thin
Jan 31, 2017
Under Armour's founder-led approach is wearing thin. The $12 billion athletic-wear maker reported its slowest top-line growth in eight years and signaled more challenges ahead. Its chief financial officer is also bailing. The news wiped a quarter off the company's market value. Chief Executive Kevin Plank's strategy of maintaining power is underperforming badly.
Nearly two years ago Plank set out a plan worthy of Silicon Valley to ensure he remained at the helm of the company he started in 1996. Under Armour changed its capital structure in a move not unlike Google parent Alphabet and Facebook, issuing non-voting stock to offset sunset provisions that would have diluted Plank's control. He has 65 percent of the vote but only 15 percent of the economic stake, according to Under Armour's latest proxy.
Investors did well in the first decade after the company's 2005 IPO as the split-adjusted stock soared more than sevenfold. But the shares have plummeted nearly 60 percent over the past 18 months, a period that closely overlaps with the new share scheme.
During the fourth quarter, Under Armour's year-over-year revenue growth slowed dramatically to 12 percent because of deep discounting caused by slower foot traffic. The company's signature compression shirts, which emphasize athletic performance, face growing competition from a slew of competitors. Nike, Adidas, Lululemon, Macy's, The Gap and J Crew are just a few brands that are pushing their own athletic wear as well as hoodies, yoga pants and the like. The absence of stores like the bankrupt Sports Authority that once carried the brand have also taken a toll.
The forecast for 2017 doesn't inspire confidence. Under Armour said top-line growth was projected to increase about 12 percent, well below prior expectations of about 20 percent. Operating income and gross margins will slip this year too. Plank mentioned on a Tuesday call with investors that he now keeps whiteboards in his office with the operational mantra "make UA simple." Putting the focus back on performance rather than share classes would be a good way to start.
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