Whether it's on the football field, the basketball court or the ski slope,
since the early 2000s, elite athletes like Steph Curry, Tom Brady and
Lindsey Vonn have sported the same brand in preparation for game day:
Under Armour. The company says its state-of-the-art products have been
engineered to help athletes solve problems, and up their game.
If it's Under Armour, then what's to do?
So like that idea of innovation, everything we do, that's the DNA of the
brand. That's what the consumer knows when they buy Under Armour, that
it's something that's actually making them better.
So that is...that's what and who we are and that's what drives through.
With a roster of sports celebrities in less than two decades, Under Armour
grew to become one of the biggest sports apparel brands in the world,
alongside Nike and Adidas.
But the company that urged athletes to fight on together has fallen on
tough times. As of 2020, sales growth at under armor has slowed on its
home turf of North America, and its stock has fallen from its all-time
highs. The coronavirus pandemic has only added to the company's woes.
In October 2020, the company announced third quarter revenue was flat.
And overall 2020 revenue is expected to decline compared to 2019 results.
One bright spot—footwear revenue in the third quarter of 2020 increased 19
percent from the year prior.
But with COVUD-19 wary consumers spending more time at home, ditching work
clothes and suits for yoga pants and sweats, analysts say the latest
athleisure boom and a newfound interest in health and wellness could
propel Under Armour and its rivals for years to come.
What we're going to see in the post COVUD world is people wearing their
athleisure and their comfortable dress, whatever they deem that to be,
everywhere. The beauty of the space with athleisure is there's not a lot
of competitors. It's a growing category and it shows no signs of stopping.
So the question is, can Under Armour rebuild its momentum and catch the
athleisure wave before it's too late?
Or will rivals Lululemon, Nike and Adidas take over?
Under Armor got its start in Washington, D.C.
in 1996.
Former University of Maryland football player, Kevin Plank, wanted a
solution to the sweat that built up in his cotton T-shirts during
practice. In his grandmother's basement, using a stretchy synthetic
material, Plank's fledgling company engineered a shirt to wick away sweat
from the body, keeping athletes cool, dry and light.
I would say this: Under Armour was a very important brand
for paving the way for a huge change in how we dress, for playing sports
and for how we're working out.
If you go back before the IPO, and you go back to the 90s and the 80s,
effectively what people were doing to work out in, they were working out
in a cotton T-shirt which absorbs sweat.
And if it absorbs sweat, it becomes heavy.
And if it becomes heavy, it impacts negatively your performance, either in
the gym or especially on the field.
The company got its big break in 1999 when it was signed on to supply
athletic apparel in Oliver Stone's gridiron film, 'Any Given Sunday.' The
company only made about $40,000, but athletes everywhere took notice.
Within five years, Under Armour had revenue of $5 million.
Under Armour went public in 2005 at $13 a share.
And by September 2015, shares had risen to a peak closing price of $53.
And it was rolling out new products beyond T-shirts as well, including a
line of HeatGear apparel designed to be worn in hot temperatures and
ColdGear products engineered to maintain a body's core temperature.
I'd say in a year, about 2006 or so, Under Armour went public.
That gave, you know, renewed force to the athletic apparel craze, if you
will, followed thereafter by Lululemon.
And you know, ever since we've seen the demand for suits go down
and rise for casual wear go up.
In 2006, Under Armour went head-to-head with sneaker giant Nike, jumping in
to the footwear space.
But instead of moving directly into the competitive gym shoe market, the
company launched a line of football cleats, capturing 23 percent share of
the market in the first year and becoming the official footwear supplier
of the NFL. When they came out with cleats back in 2006, they came out
with that great ad with the 'Click Clack,' and if you were a football
player, you said, "Oh, that's, that's cool.
That's what it sounds like when I go on the field.
They really understand what it's like to play.
I'm going to go try their cleats."
In 2009, the brand launch a line of running shoes as well as soccer cleats.
By 2010, overall revenue soared to a billion dollars.
And in addition to selling products, the company also made a big push into
acquiring athletes training data.
In 2013, Under Armour acquired MapMyFitness for $150 million.
And two years later, purchased fitness tracking apps, MyFitnessPal and
Endomondo for a combined $560 million.
At the time, the company was signing contracts with some of the biggest
names in sports, including New England Patriots quarterback Tom Brady, and
Golden State Warriors Steph Curry.
In 2016, Under Armour and UCLA announced the biggest college sponsorship
deal ever: a fifteen-year, $280 million contract for footwear and apparel.
Though it's worth noting that amid falling sales, Under Armour announced
in the summer of 2020 that it wanted to end the deal just a few years into
the 15-year agreement.
By 2015, the company had a peak market cap of $22 billion.
But
even as its share price peaked, in the mid 2010s, the company was starting
to lose its luster and net profit was taking a hit.
Critics said the brand was losing its unique appeal. One of the big
problems with the Under Armour garments is that they're visually very
specific and you instantly associate them with exercise, and that doesn't
really engender itself to a versatility that American consumers want.
So that's probably...the design issue is the number one problem.
The downturn in retail also weighed on the brand.
In March 2016, big box retailer Sports Authority filed for Chapter 11
bankruptcy. Under Armour, reported net income in the second quarter of
2016 of $6.3 million, 57 percent lower than a year earlier.
According to a Q2 2016 earnings call, the decline was likely caused by
sports authorities bankruptcy filing.
And the company was struggling with sales more broadly on its home turf
too. North American revenue in 2019, was $3.6 billion dollars, down two
percent from 2018.
And keep in mind, sales in North America are a huge part of how Under
Armour makes money.
In 2019, 69 percent of the company's overall revenue came from North
America. On June 1st, 2020, Under Armour's Chief Operating Officer,
Patrick Frisk, replaced Kevin Plank as CEO.
Plank moved to the company's Eexecutive Chairman and Chief of Brand slot
and remain involved in the larger direction of the company.
But the coronavirus pandemic may have impacted the company even further.
In May 2020, Under Armour said it was delaying payments to some of its
athletes as a cost-cutting measure, after first quarter sales plummeted 23
percent due to the coronavirus pandemic.
And in September 2020, Under Armour announced it would lay off about 600
employees globally. And the following month, the company agreed to sell
MyFitnessPal to a private equity firm.
Athleisure, the fashion trend, known for sporty gym clothes worn around the
home office or at the grocery store, is a roughly $80 billion business in
the U.S.. You know, looking into the future, you're going to see a lot of
athletic wear, a lot of athleisure, a lot of synthetic fibers, sorry
cotton industry, but that's the truth.
And this is the future of American fashion.
And people need to get on board or remember the good times they had in the
early 2000s. The category is dominated by a few big players, including
Nike, Adidas, Lululemon and of course, Under Armour.
According to analysts, brands offering products with a healthy dose of
performance and fashion are well, well-positioned in the athleisure market
for future growth. I'd say two things, actually.
It's the words function and fashion, but brands start off doing very well
if they show that they have functional prowess or they're much better than
other items of that same category that we saw it with Nike in footwear.
We saw it with running footwear back in the day.
We saw it with Lululemon, with their yoga pants.
We saw with under armor, with their compression shirt.
So it's about function first.
That gets you started with a great brand.
However, fashion is also what matters.
And frankly, you know, that's something that under armor has had trouble
with in the past. Is that fashion quotient something that Nike, Lululemon
and Adidas have gotten right function plus fashion.
Lululemon, known for its trendy yoga pants and pricey leggings, said
despite store closures due to the coronavirus pandemic revenue in the
second quarter, fiscal year 2020 increased two percent from a year earlier
as consumers shifted from office wear to comfier clothes, the stock closed
at an all time high of $398 on September 2nd, 2020, more than double than
what it was a year earlier.
And to capitalize on the country's newfound home fitness craze, the
retailer announced in June 2020 plans to purchase at home workout company
Mirror for $500 million dollars.
Mirror sells a $1500 high-tech mirror that streams live workout classes.
And while legacy athletic apparel companies like Nike and Adidas have been
hit hard by COVID-19, these two brands have seen a big spike in the sale
of apparel in the years leading up to 2019.
And even with the pandemic as a backdrop, Nike's stock is still on a tear.
One of the strongest global brands in retail, the company saw its stock
close at an all time high of $130 in October 2020.
Sales of apparel for Nike brand clothing were $11 billion dollars for the
fiscal year ended May 31st, 2020, almost 27 percent more than in 2015.
Part of the reason? Teens love Nike clothes.
A 2019 study found Nike to be not only teens favorite athletic apparel
brand in the U.S., but also the group's favorite apparel brand in general,
ahead of both Adidas and Lululemon.
And the company sees a big opportunity in women's clothing as well.
As of 2019, Nike's women's line represented less than 25 percent of Nike's
total sales. But with women flocking to comfier clothes and accessories,
the company thinks it can grab a larger share of the market.
Well, as long as there's been athletic wear, there's been this weird, and
sort of hard to define line between what you're wearing on the court, and
what you're wearing to look like you're somebody who likes to go on to the
court. Nike was able to successfully do it because a lot of times they
involved and brought on board really creative people who understood the
market, who understood what it was that the next generation wanted.
It's a similar story for Adidas.
The German based company had apparel net sales of around $10.5 billion in
2019, 28 percent more than 2015.
Well, Adidas is a really interesting company because they have always been
very on the forefront of pushing design elements, right?
They are cool. They're a cool brand.
And, you know, that takes us back into the late 70s and 80s when you have,
you know, you have bands such as Run DMC adopting these, taking this
garment. And when you get somebody as powerful as Run DMC singing a song
about your clothes, like you're on the path.
But while Nike, Adidas and Lululemon are embracing the fashion leisure
trend, Under Armour said the company's focus would remain firmly on
athletic performance.
Listen. We've heard all the reads on athleisure, what that means, are you
in it or not? Let's be crystal clear.
We've identified our consumer, something we call the focus performer, and
that is a mindset that the consumer has.
And it means that when they're, when they're thinking about what they
wear, and what they do with Under Armour is that there's no, 'here's
performance and then here's athleisure.' It is all performance.
We say that with without beauty, there is no performance.
As of September 2020, Under Armour reported a net loss for nine out of the
last 15 quarters.
While Under Armour's hesitancy to fully embrace athleisure may have hurt
the brand's sales, recent controversies may have done even more to damage
the company's image long term.
In 2017, the company came under fire from sponsored stars after Plank
referred to President Donald Trump as a real asset for the country.
I think he's highly passionate.
He definitely it's you know, to have such a pro-business president is
something that's a real asset for this country.
I think people should really grab that opportunity.
He loves to build. I don't think there's any surprises here.
You know, when you look at the president, so he wants to build things.
We want to make bold decisions.
He wants to be decisive. And I'm a big fan of people that operate the
world of publish and iterate, you know, versus, you know, think, think,
think, think, think. So there's a lot that I respect there.
Following the interview, ballet dancer Misty Copeland wrote on Instagram
that she strongly disagreed with the comments.
Steph Curry, the face of Under Armour basketball, went on to criticize
Trump even more harshly.
And there were other troubling news reports, too.
In November 2018, the Wall Street Journal reported that Under Armour
executives and employees, including Plank, went with athletes or coworkers
to strip clubs on company paid visits.
The company told CNBC at the time of the report that it would continue to
address inappropriate behavior as it strives to create a respectful and
inclusive workplace.
The sportswear maker is under investigation by federal authorities too over
its accounting practices.
Under Armour said it was cooperating with federal investigators and
believes its accounting practices were appropriate.
The company was also sued by UCLA in August 2020 for breach of contract
after the apparel company announced it was ending its deal with the
university. CNBC reached out to Under Armour, but it declined our request
for an interview. In January 2015, Under Armour unveiled the Curry 1, the
first signature shoe from NBA star Steph Curry.
The shoe was loaded with tech, including a new cushioning system that
absorbed impact and converted it into a responsive burst.
After the launch, Under Armour's first quarter 2015 footwear revenue shot
up 41 percent to $161 million from the previous year.
And by June, Curry's Warriors were NBA champions.
They also did a good job, at least early on, with their Steph Curry
product line. It was the number one basketball shoe for a year, the Curry
1. By 2019, footwear made up 21 percent of net revenue at Under Armour,
along with apparel at 66 percent.
And sales of accessories, including performance, gloves, bags and headwear
at eight percent. But like its apparel line, Under Armour's footwear just
might not be resonating with consumers the way it used to.
In 2019, Under Armour's footwear sales were one billion dollars, only two
percent higher than 2018.
The problem, according to analysts: Under Armour shoes just weren't a hit,
and the company's focus on performance was hurting the brand.
Under Armour has been has really, is really doubling and tripling down, in
my view, on performance consumer.
And as I said, you know, the you know, if you ever go out and watch the
New York Marathon, which I hope we'll get to do this next this year, maybe
next, there are 50,000 runners running and there's about five million
people lining the streets of New York cheering.
And, you know, it feels like Under Armour has been solely focused on those
50,000 runners and not on those five million
spectators. And, you know, you've got a very narrow market when you solely
focus on performance.
The problem with the footwear side of things that Under Armour reflects the
problems, or mirrors the problems, that companies seen in the apparel
side. And that's the fashion quotient of their footwear.
You know, if you think about their function, it's great of the footwear.
The fashion is not. So, again, that's what's helped back the footwear
business in terms of growing the volume and as strong as the growth rates
you've seen out of competitors like Nike and Adidas.
And like Nike and Adidas, the brand is also facing pressure from fashion
forward companies like Puma and Fila who raise their profiles, making
sneakers that are stylish but not necessarily designed for the gym.
In April, 2020 Lululemon said it's planning to get into the footwear
business in a bigger way.
The company said it would start making its own footwear after seeing the
success of its collaboration with Los Angeles based sneaker company
Athletic Propulsion Labs.
In August 2017, Lululemon started selling APL sneakers, which costs upwards
of $200 a pair in some stores in the U.S..
Despite these issues, analysts say, with the country's newfound interest in
health and wellness and with more people working out, the coronavirus, an
unlikely accomplice might just be the solution to the company's problems.
The good news is that if you think about the category of health and
wellness fitness, clearly people are afraid of the corona COVID virus.
And one thing we know about the virus is that, you know, to prevent
preexisting conditions, you want to be a healthier person.
So people are working out more.
And if people are working out more, it means that they're likely to go
back more towards a performance esthetic with the clothing of their
athletic apparel. And that's something that could help Under Armour going
forward, since they're sticking with their athletic or performance
esthetic with their clothing.