UNDER PERFOURMER

2020 is looking bleak for Under Armour

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Image: AP Photo/Jeff Chiu
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Last year wasn’t a good one for Under Armour. Sales in 2019 grew a meager 1.4%, the company announced today, marking the slowest pace it has recorded since going public more than a decade ago.

But so far, 2020 is looking worse. For the year, Under Armour said it expects sales to be down a “low single-digit percent” compared to 2019’s lackluster results. “First and foremost, I am not satisfied with where we are today,” CEO Patrik Frisk said as he began a call with investors and analysts today—his first since taking over Under Armour’s top job on Jan. 1, when he stepped into the role previously held by founder and longtime chief Kevin Plank. Shares were down more than 16% on the news as of this writing.

Under Armour has a number of big issues to work out. Due to the new strain of coronavirus upending life and business in China, the company estimates lost sales of roughly $50 million to $60 million in the first quarter resulting from closures of Under Armour or partner-owned stores and disruptions to its supply chain. It cautioned there’s still a good deal of uncertainty and the effects could have an impact beyond those so far anticipated.

The company is also losing sales as it cuts its reliance on discounting. In North America, its biggest market, its outlet stores account for about 90% of its store fleet and two-thirds of sales it does straight to shoppers rather than through retail partners. For years Under Armour leaned on its outlets to offload excess inventory, but in the process, hurt its brand as shoppers came to think of it as one they could always find on sale. Now it’s trying to correct the issue by reducing sales through its outlets. But so far, it’s finding shoppers aren’t coming around to buying at full-price as quickly as it had hoped.

These two factors account for the majority of a 13% to 15% plunge in first-quarter sales the company warned of on the call. Maybe an even deeper problem, though, is what it called “demand challenges” in the US. Translation: Shoppers don’t want Under Armour products.

One area where Under Armour has fallen short is style. It’s a brand built on performance clothing for athletes, but to become a sports giant on the order of a Nike or Adidas, it needs to nail clothes for non-athletic use too. In the US right now, shoppers are buying more products inspired by sports than designed to play them. Despite its efforts, Under Armour hasn’t been able to connect with these shoppers.

Frisk tried to make the case on the call that Under Armour hadn’t given up on making clothes that look good and are on trend. He pointed out the most successful sneakers all had their foundations in performance. Well, yes and no. Across most big US retailers—the sort Under Armour relies on—the top selling sneaker in 2019 was Nike’s Air Max 270. The Air platform has its roots in running, but Nike designed it specifically as a lifestyle shoe.

Under Armour is not where it was supposed to be at this point. Nearly three years ago, around the time its years of rapid growth slammed to a halt, the company announced a restructuring plan that was intended to have paid off by now. While Frisk said operationally Under Armour is better—faster at getting products to store shelves, with less debt and leftover inventory dragging on it—it still has a lot of work to do. This year, it could undergo further restructuring and may abandon plans for a new flagship store on Fifth Avenue in New York.