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Why Under Armour Got Battered Despite a Smaller

Time:2017-08-07 10:30Shoes websites Click:

Smaller Despite under Armour battered

In this Market Foolery segment, host Mac Greer, David Kretzmann of Supernova and Rule Breakers, and Ron Gross of Motley Fool Total Income discuss the situation of athletic apparel upstart, which had shareholders sweating even more after its quarterly report. The numbers weren't actually that bad, but when it adjusted its outlook downward and announced layoffs and a restructuring, Under Armour (NYSE: UAA) (NYSE: UA) made it clear that its rapid growth story is definitively over for now. The question for the Fools: What's next?

A full transcript follows the video.

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Mac Greer: Shares of Under Armour down big on Tuesday. Ron, a narrower-than-expected loss. That sounds good, right?

Ron Gross: I don't know about good. "Good" in quotes?

Greer: "Good" in quotes. Better-than-expected sales. That's good, right? But the company cut its outlook for the full year and cut 2% of its workforce. Ron, what's going on with Under Armour?

Gross: I don't mean to be too harsh here, because it is overall an amazing story and an amazing company. However, what I think we have here is really a busted growth story. Twenty-six-quarter streak of growing sales at 20% or more ended in the fourth quarter of 2016, and we've seen that ending follow through into subsequent quarters. Revenue only up about 9%; guidance is in the 9%-11% range going forward. It's not the same company it used to be. It's struggling.

Certainly Nike is the 10,000-pound gorilla here, at a $98 billion market cap versus Under Armour's measly $7 [billion]-$8 billion. I say "measly" kind of tongue in cheek, but it is quite a bit smaller than Nike, and it is struggling. Their restructuring plan does make sense. They have to trim some cost; they have to get out of some leases that are probably dragging down their earnings. They'll have to pay $100 million or $110 million as a result of this restructuring, partly from these lease terminations, partly from contract terminations and severance payments, but it will lean them out a bit, and maybe that narrower loss will turn the corner into profitability.

David Kretzmann: I think in general, this is probably a good thing for Kevin Plank to go through. This will humble him a bit, if that's possible. The company really has to become more disciplined now. I think he recognizes that. They brought on board a new chief operating officer in July, someone who used to be with VF Corp., North Face, Timberland -- so someone who has experience managing global footwear and apparel brands. So I think that will help bring some discipline into the equation.

Then he outlined a lot of different areas where they're trying to pivot now. They're trying to focus more on direct-to-consumer rather than wholesale, trying to focus on women and kids more than just being a men's brand. They're also looking to transition from being primarily an apparel company in the U.S. to a global apparel and footwear accessories company, but that also means you're going head-to-head directly against Nike, whose bread and butter is really footwear. Under Armour's experience with footwear still leaves a lot to be desired.

Gross: They have another Steph Curry shoe coming out, because the first one really knocked the cover off as well.

Kretzmann: [laughs] The amazing thing with footwear here is, Under Armour's footwear revenue was down 2% this quarter to $237 million. The same quarter, Nike's footwear segment was up 8% to $5.5 billion. So Nike is still dominating Under Armour. Under Armour doesn't have anything on Nike at this point. And really, Nike pulled a coup of sorts when Kevin Durant went to the Golden State Warriors. Now he's the face of the franchise. Steph Curry is not the face of the franchise anymore. So now that the Warriors won another title, his shoes really aren't picking up that much weight for Under Armour now.

Greer: David, when we were at CES a couple of years ago, I was remember there was a bunch of hubbub about this connected fitness idea at Under Armour, the idea that Under Armour, in a lot of ways, was almost becoming more of a technology company, and they were harnessing all of this data. What's going on with connected fitness?

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