Summary
- Despite several years of struggle, Under Armour remains a leading brand in performance apparel with a solid fanbase.
- The company has struggled with embarrassing scandals, changing consumer tastes, and weak growth in new business lines.
- Under Armour's turnaround plan recognizes its weaknesses, some of which are opportunities if the brand can succeed.
- The valuation remains reasonable, although not a slam dunk.
- If Under Armour (NYSE:UA) (NYSE:UAA) is so bad, then how come I see a ton of guys at the gym wearing their clothes on a daily basis?
For the last few weeks, I've taken a few samples of the dozen or so men in the weight room at any given time. Typically, between 20 and 30 percent of them are wearing some sort of Under Armour apparel (shoes, shirts, or pants).
Of course, this casual anecdotal evidence isn't enough to run off and buy the stock, but it did prompt me to look more closely at the company. The more that I look at Under Armour, the more that I am convinced that reports of its demise are greatly exaggerated.
Like many storied athletic brands before it, Under Armour is going through a tough stretch. But it's still a leading player in performance athletics, and the seeds of a turnaround are there. Compared to its athletic apparel peers, Under Armour's valuation is also discounted.
A headband from Under Armour's popular Dwayne "The Rock" Johnson collection. Image source
Causes of Flagging Growth
Between 2010 and 2016, Under Armour's sales more than quadrupled from $1.1 billion to $4.8 billion, a CAGR of 28.7 percent. In the years since, growth has been anemic. Revenue grew just 9 percent total to $5.3 billion in 2019, representing a mere 2.9 percent annually.
How did things suddenly go so wrong? Embarrassing news stories such as visits to strip clubs charged to company accounts certainly didn't help. Founder and then-CEO Kevin Plank compounded perception problems with his vocal support of President Donald Trump, setting off a firestorm in the sports world. Plank stepped down as chief executive last year amid the avalanche of bad publicity and flaccid growth, but the drama didn't end there. In the latest public relations fiasco, the Feds are now probing several executives over the company's accounting practices, including Plank himself.
