Under Armour (NYSE:UA, NYSE:UAA) CEO Kevin Plank said this week he’s resigning and handing the reins of the athletic wear maker to CFO Patrik Frisk. Or did he? And raising more questions, Frisk told the media after his promotion the company is not going after the athleisure market and instead will continue to make what he termed “performance wear.”
Certainly, the move buoyed the stock, which rose over 6% on Oct. 22. It opens for trade at about $20.48 with a market cap of $9 billion. But a quick look at the stock chart indicates investors should ask another question. Did the move really help Under Armour stock?
Was Plank Fired?
Shares in Under Armour had risen sharply during 2019, to over $27 each, before the June earnings report sent them into a skid. The report showed a net loss of $17 million, or 4 cents per share, on revenue of $1.2 billion. That’s just $25 million more than the same quarter last year.
When Plank hired Frisk two years ago from Aldo, a footwear and accessories company, he said he had a three-year plan. The plan for the current year was to execute. Those numbers aren’t execution.
In addition to bottom-line failure, Plank led Under Armour through a series of scandals in the last year. These included taking athletes to strip clubs, running around with a married woman and joining one of President Donald Trump’s economic councils.
Any sports team faced with these facts knows what’s going to happen next. You’re going to fire the coach.
But can Plank be fired? He really can’t. Since late 2016 UAA has had a dual-share structure. Plank got voting shares in stock that’s not publicly traded. The public got UAA shares with one vote and UA shares with no votes.
Plank remains executive chairman and chief brand officer of Under Armour. It’s still his company.
Has Under Armour Changed?
What initially sank Under Armour shares was the liquidation of Sports Authority, its largest retail outlet. The company got some of that distribution back through an agreement with Kohl’s (NYSE:KSS), but that store is a discounter. North America is still the problem for Under Armour. It’s doing fine elsewhere.
Plank has made one smart move. He signed Dwayne “The Rock” Johnson to back his clothing. That’s not a “performance wear” move. It’s an athleisure move disguised as a performance wear move. It’s a good marketing move.
Just because Under Armour sells “performance wear” doesn’t mean you can’t wear it out shopping. Lululemon (NASDAQ:LULU), which is now more than twice as large by market cap, sells “performance wear” too. It’s just athleisure by another name. You can’t make bank selling exclusively to professional athletes. You make bank by selling to ordinary schlubs who then pretend they’re athletes.
The Bottom Line on Under Armour Stock
Plank is selling his home in Washington, D.C. but he’s not going anywhere.
To use a football analogy, instead of being John Harbaugh, who coaches the Baltimore Ravens football team, Plank is becoming Steve Bisciotti. Bisciotti owns the club. Bisciotti can fire Harbaugh, or anyone else at the Ravens, tomorrow. When the Ravens won the Super Bowl in 2013 it was Bisciotti who got the trophy.
The bottom line on Under Armour is the same today as it was a week ago. This is Plank’s company. This is Plank’s strategy. Earnings are due Nov. 4, with 18 cents per share expected on revenue of $1.4 billion.
Even if Under Armour hits those numbers don’t be fooled. Under Armour is Kevin Plank. I’m taking a hard pass on it.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
