New CEO, new game plan
Under Armour looks to win over more female consumers, push into lifestyle market
Under Armour’s new, third-ever CEO said Tuesday that she envisions a plan over three years to strengthen the brand in the United States, boost U.S. sales growth and elevate the design of footwear, women’s apparel and “sportstyle” products.
“The potential for this brand is even bigger than I imagined when I walked through the door at the end of February,” said Stephanie Linnartz, who took over as president and CEO of the Baltimore-based company Feb. 27, during a call with analysts. But “I am realistic about our challenges.”
Linnartz, a former Marriott International president, took the helm of a brand that has emerged from a multiyear reinvention and aims to rekindle interest with teens and young adults, win over more female consumers and make a substantial push into the fashion and lifestyle market.
She commented publicly about her vision for the first time as Under Armour reported fourth-quarter earnings that beat Wall Street’s sales and profit estimates.
Under Armour reported income of $171 million, or 38 cents per share, in the January-to-March quarter compared with a loss of $60 million, or a loss of 13 cents per share, in the fourth quarter of its 2022 fiscal year.
Excluding an $87 million benefit from a tax valuation allowance for prior-period restructuring, adjusted income was $84 million, or 18 cents per share, the company said. That topped analysts’ forecast of 15 cents per share.
But shares of Under Armour fell 5.6% Tuesday to close at $8.16 each after the company’s outlook for revenue and earnings this fiscal year fell short of expectations.
The company said it expects fiscal 2024 revenue to be flat to up slightly, after reporting that 2023 fiscal year sales grew 3% to $5.9 billion.
Under Armour’s sales for the three months ended March 31 increased 8% to $1.4 billion. Sales to retailers jumped 10% to $909 million, while sales through online channels and company-owned stores were up 3% to $454 million, mostly due to strength in online revenue.
U.S. sales edged up 3% to $862 million, while international sales soared 16% to $526 million. Apparel revenue inched up 1% to $889 million. But the real growth came on the footwear side, with a 27% jump to $378 million.
Linnartz said she sees the most significant opportunity in footwear. Most sports brand rivals have considerably larger shoe sales as a share of business compared with Under Armour.
“You will hear us talking a lot more about sneaker culture, especially as we open the aperture to sportstyle,” said Linnartz, describing the category as style and design intersecting with performance, typically for time outside of games or workouts.
Pushing into that category, she said, will triple Under Armour’s global addressable market to more than $300 billion.
Linnartz said she’s met with Under Armour employees, wholesale customers and athletes, and reviewed “mountains” of analysts’ reports in developing a plan to boost the brand’s prominence, elevate its products and drive growth in the U.S., Under Armour’s largest market.
While viewed as a premium brand in international markets, Under Armour’s U.S. reputation has struggled because of inconsistent efforts on product, marketing and retail fronts, Linnartz said. She said she hopes to start turning that around, taking steps such as positioning products in a more premium way in company-owned stores and websites and reintroducing the “Protect This House” campaign.
While Under Armour’s performance has been hurt by a highly promotional retail environment, the company expects the new strategies to result in a return to growth in the U.S. by fiscal year 2025.
Jim Duffy, managing director at Stifel, who kept a “buy” recommendation on Under Armour’s stock Tuesday, called Linnartz “clear-eyed about challenges.”
“We are encouraged by her strategic focus and bias to action,” Duffy said in a report. “With new leadership, rebased estimates, and an improving inventory posture we believe shares are washed up and will attract new interest.”
Under Armour’s journey as a public company over the past 18 years has been
inconsistent at times and has “not created the shareholder value that we see this brand capable of,” said Kevin Plank, the company’s founder, brand chief and executive chairman, while introducing Linnartz during the analysts call.
“With new leadership in place, continued strategic evolution and a renewed mindset, I am both proud and confident the steps we’ve taken have put us in a position to begin to reach the full potential we all believe is available for this brand,” Plank said.
Under Armour also will look at its U.S. store base, Linnartz said during Tuesday’s call. She said its U.S. outlet business is profitable, but makes up about 90% of company-run stores.
“That leaves only 18 full-price brand house stores in our home market, not many places where we can showcase our brand in the best presentation possible,” Linnartz said.
Opportunities include expanding the number of full-price stores, likely in smaller formats, as well as expanding through wholesale sellers where Under Armour is underrepresented, including in malls, department stores, and run and golf specialty shops.
Zachary Warring, an equity analyst at CRFA Research, maintained a “sell” rating on Under Armour stock and noted in a report Tuesday that inventory remained high.
Under Armour “has underperformed peers in most financial metrics for many years and we see this trend continuing until there is a significant management change,” Warring said in the report.
Linnartz said she already has made some leadership changes, including searching for a “chief consumer officer,” a new position, and having heads of brand, sports marketing and digital report directly to her.