- Under Armour‘s North America revenues increased for the first time in a year, showing signs that the company’s efforts to turn around its business could be taking hold.
- But a pervasive identity crisis threatens to derail its nascent recovery, according to analysts.
- Shoppers are confused about what Under Armour stands for due to its lack of focus on any particular sport, and its decision to expand into discount stores like Kohl’s undermines the brand’s value proposition, according to Neil Saunders, the managing director of retail consulting firm GlobalData Retail.
- At the same time, Under Armour is facing increased competition in the United States from Nike,Adidas, and countless other sportswear brands, according to Telsey Advisory Group analyst Cristina Fernandez.
- Under Armour CEO Kevin Plank said Thursday that Under Armour is a brand that “loves athletes” and “stays true, creates fearlessly and stands for equality.”
Under Armour delivered an upbeat quarterly sales report Thursday, saying its sales in North America – the company’s most critical market – grew for the first time in a year in the midst of a corporate restructuring.
“Today’s results demonstrate that we are tracking well against our multi-year transformation to build a stronger, leaner and more operationally excellent company,” Under Armour CEO Kevin Plank said on an earnings call.
But the sportswear company is facing a pervasive identity crisis that threatens to derail its nascent turnaround, according to Neil Saunders, the managing director of retail consulting firm GlobalData Retail.
Shoppers are confused about what Under Armour stands for due to its lack of focus on any particular sport, Saunders wrote in a note to clients Thursday.
The company’s decision to expand its distribution to discount stores like Kohl’s from a previous focus on full-price retailers like Dick’s Sporting Goods has also undermined Under Armour’s credibility, he said.
“In our view, the company is suffering from both an unfavorable shift in distribution channels and a serious lack of brand clarity,” Saunders wrote. “More and more consumers are confused about Under Armour’s proposition. Given the rather fragmented range, a lack of focus on any particular sport, and a scattergun approach to product development, this is hardly surprising.”
Plank said Thursday that Under Armour is a brand that “loves athletes” and “stays true, creates fearlessly and stands for equality.”
“As a human performance company – Under Armour’s mission is to make you better,” he added.
Ed Stack, the CEO of Dick’s Sporting Goods, slammed Under Armour in an earnings call earlier this year for its decision to broaden its distribution to lower-price stores like Kohl’s.
Stack said Dick’s sales of Under Armour products were weakened by its expanded distribution, creating a “highly promotional environment” that impacted the retailer’s margins.
“The broader distribution … definitely had an impact and I think it’s going to continue to have an impact until segmentation is done,” Stack said.
At the same time, Under Armour is facing increased competition in the US from Nike, Adidas, and countless other sportswear brands, according to Telsey Advisory Group analyst Cristina Fernandez.
“The athletic space in the US is showing signs of improvement, as promotions normalize and the innovation pipeline strengthens, but Under Armour still faces several challenges,” Fernandez wrote in a note to clients Thursday. Those challenges include “less sophisticated product segmentation, a consumer shift toward streetwear/fashion vs. performance, much greater exposure to apparel than footwear, and increased competition in the US market.”
Plank defended the company’s distribution strategy during an earnings call in May, saying, “Our refined go-to-market strategy is taking hold and should prove to be a key catalyst in establishing our next chapter as a great company.”
Under Armour said Thursday that North America revenue increased 2% to $US843 million, while the international business grew 28% to $US302 million. Meanwhile the company’s net loss widened to $US95.5 million, or 21 cents a share, compared with a net loss of $US12.3 million, or 3 cents a share, a year earlier, largely due to the company’s restructuring efforts.
Despite the sales uptick, GlobalData Retail data shows “Under Armour continues to suffer from an erosion of customers, many of which are migrating to other brands,” Saunders wrote.
Moody’s assistant vice president Mike Zuccaro commended the company’s performance however, saying,”Under Armour is making progress on its plans to cut costs and reduce inventory growth.”
“We expected 2018 to be a challenging year and that it would take some time to improve profitability, cash flow and credit metrics, with profit margins negatively impacted by inventory management initiatives and continued investment in future growth, particularly in key areas such as international and direct-to-consumer,” Zuccaro said.
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