Summary
- After seeing recurring 20%+ annual revenue growth implode two years ago, Under Armour has worked to streamline operations and improve profitability.
- Under Armor expects another year of low single-digit revenue growth as it repositions itself as a premium brand.
- The company views itself as a performance brand that demands high dollars from the consumer.
- Based on five-year projections laid out by the company, the stock looks like a buy if revenue growth and EPS growth plans play out over the next five years.
- Under Armor deserves credit for cutting costs and improving operations, but I am uncertain about its strategy and brand value moving forward. I will remain on the sidelines.
Thesis
Under Armour (UA) continues to show dramatic operational improvements as it attempts to reposition itself as a premium performance brand. Explosive 20%+ revenue growth came to a crashing halt in 2017, and in the last two years the company has engaged in a complete overhaul of its cost structure and revisited its overall brand strategy. Revenue growth remains tepid, but the company has outlined its vision of revenue growth and profitability moving forward.
The company deserves a lot of credit for its operational improvements. As the brand focuses on premium pricing and margins at the expense of hyper growth, it has laid out a five-year plan that shows revenue growth hitting at least 10% by 2023. EPS is expected to grow 40% per year into 2023. If these predictions hold true, Under Amour looks like a buy today.
But I will continue to sit this one out. It remains to be seen if consumers will respond to Under Armour's new premium brand strategy. Direct-to-consumer (DTC) sales continue to contract at a time when other prominent brands have seen DTC revenue growth consistently outpace overall revenue growth. It remains to be seen if the company can improve DTC growth in a meaningful way or if its premium strategy can withstand an economic slowdown.
