“To begin with, on a broad basis, we are simply doing too much stuff. There are too many products, too many initiatives, too much of too much. To reconstitute this brand, we must be highly focused and prioritize what needs to get done so that our teams know exactly what to do with a clear definition of success for them.”
That statement from Under Armour President and CEO Kevin Plank during the company’s fiscal Q4 conference call with analysts summarized the situation with the brand and what the company needs to focus on to start moving in the right direction again. It’s back to basics, and Plank is firmly back in the game.
Plank spent much of the call talking about a reset, or turnaround plan, similar to what the market has heard from VF Corp. and Wolverine World Wide as they have struggled over the last few years as brand aggregators and are now on a path to narrow their brand stable and focus on what makes money.
Under Armour will take a similar path, according to Plank’s prepared remarks, but the focus on “too much stuff” has been building for his one brand instead of a multi-brand issue. However, based on his comments, he also feels he has the team to move the company and brand back in the right direction.
Nothing appears to be off the table. It may sound like a familiar tune with other companies in a turnaround phase, but Plank is clearly looking to lower near-term expectations for the next 18 months as he works to execute the plan that will get Under Armour back when he built it—at the top of the pyramid. That team had fewer promotional products in owned retail stores and the internet and more premium products that told the UA story. Quality, not quantity, is a thread here.
“We are eliminating products that do not meet our standard, to sell much more of much fewer products, accomplished by editing more intentionally led by our chief product officer, Yassine Saidi; we are committed to this vision,” Plank shared. “But it requires having one point of view with considerably improved design language, a reduced but more intentional fabric library that includes a clear good, better, best segmentation for our distribution, trend-right colorways and standardized fits across all the athletes we serve. Dissecting our execution further to many areas of our product strategy have been designated as priorities.”
Plank added that this had caused operational inefficiency and a strain on resources, which diluted the company’s ability to have a consumer-centric point of view, consistent storytelling, and an effective go-to-market process. Everything, from product to marketing messaging to operations, was said to be siloed in the company, with different teams competing against each other instead of working as a team.
“Over the past four-plus years, the company has become overly siloed and bureaucratic with competing internal agendas,” Plank admitted. “We now have just one agenda, as I’m describing it to you today. And communicating that to internal and external stakeholders is my immediate priority, to build complete alignment. Given these changes in iterative evolutions, we are working quickly to disband these silos and drive a more productive, collaborative culture.”
Plank said the company is reorganizing its product and marketing teams around the brand’s largest revenue sports categories of training, running, sportswear, golf, and basketball while ensuring that the authenticator of team sports is still on the brand’s front porch in every region where they compete.
“Here in North America, United States, that means our presence in American football, soccer, baseball, softball, volleyball, lacrosse—as a core sports we will speak to and solve problems with our amazing performance innovations,” he said. “Over the past few years, it’s also evident that we have taken our eyes off of our core men’s apparel business, which, particularly in North America, has permitted this business to become more promotional and commoditized, which has significantly impacted our brand’s perception,” he noted. “We will rectify this,” he committed.
“This focus does not mean we are de-prioritizing our footwear or women’s business per se, but from a sequencing perspective, men’s apparel will be our highest priority,” he added.
Explaining the 18-month timeline for progress, Plank noted that given the newness of the leadership and product lead times, the critical mass of elevated offerings will not fully come to market until the brand’s Fall/Winter 2025 collection, which is the second half of fiscal 2026.
“However, as we work through this in-between period, I’ve challenged the team to adjust our operating go-to-market models in three actionable ways,” he said.
“First, refine the product assortment and reduce our SKU or style count by roughly 25 percent over the next 18 months, intentionally decreasing the “good” level of the product mix while scaling the brand’s “better“ and “best“ offerings to drive balance into the segmentation; this will significantly reduce workloads for our teams, and allow them to focus and prioritize on making any product that comes from our engine excellent with a product and story that we will be proud of,“ he explained.
“As a podium brand, one of just three or four global brands that have the credibility of being recognized worldwide, as an authentic on-field, court and pitch athletic performance brand, we have an incredible foundation from which to reconstitute a winning culture,“ Plank said. “And while I have no delusions that this has to be a repeat of how this brand was built the first time, there are certainly parts that will run, and I plan to use every tool or resource or experience available to me and UA to make us successful.”
Second, Plank pointed to today’s go-to-market, which he said has only one year and an 18-month process to get a product from an idea to the selling floor.
“This is just playing uncompetitive in a 2024 landscape,“ he said. “That said, we will pursue a faster 6- and 12-month go-to-market capability, recently demonstrated with the release of the world’s first true performance headwear that immediately sold out to StealthForm Uncrushable Hat, which debuted on Jordan Spieth at this year’s Masters golf tournament, delivered in just six months and is now on preorder for athletes at a $45 price point.
“The StealthForm Uncrushable is also a good metaphor for who we expect to be in our industry: innovative, premium, stylish, and nothing else like it in the market. A product that truly helps you perform better with this comfortable fit, technical material cooling and stretch that feels like a secure hug for your head and delivers it to the market quickly.”
Lastly, Plank talked about building a direct-to-consumer (DTC) line of exclusive products for Under Armour’s owned stores and e-commerce.
“Wholesale is about 60 percent of our business and will be hyper-critical for our success and how we will achieve the elevated position and vision of the UA brand I’m describing. Yet, it has been far too long since we have shown retailers our vision. So, using our own physical and digital stores as a proving ground, we will demonstrate what excellence can look like for the Under Armour brand. Whether through a more premium price point or meaningfully amplified storytelling to drive success, we want our partners to call us because they are inspired by the innovation they see us building and not just what they sold from us before,“ he explained.
“While delivering better products and segmentation is central to our ability to drive greater future demand, our products must be married with authentic, inspirational storytelling and technical education about how Under Armour makes athletes better,“ he continued. “Our DNA, reason to buy and storytelling must permeate all consumer touch points. With some of the highest-performing material sciences in our industry, including temperature management, moisture-wicking, sustainable fabrics, cushioning, and compression-based support, to be candid, we’ve done a poor job consistently communicating our product advantages to athletes—this must be fixed as it’s hard to sell something that is a best kept secret.”
Plank said the UA teams are working to overhaul product descriptions and hang tags and how the company’s DTC and wholesale sales forces are equipped to tout product attributes.
“When athletes research Under Armour online or choose our products in-store, it should be clear to them by answering three simple questions: what it is, what it does and how it will make them better,” he explained. “Going forward, a simplistic three-point description of every UA product will be found consistently on our hangtags, point of purchase and website and conveyed by our associates on the floor. Brands are built with consistency, so, make no mistake, we’ll be strengthening our brand in this chapter.”
So, how does this all come together? Well, that’s the tricky part.
“Amid a confluence of factors including lower wholesale orders, proactive decisions to restore brand health to our e-commerce business and lead times to bring new products to market, we are at crossroads of defensive necessity and offensive opportunity,“ Plank noted. “Therefore, before driving forward, we will take a larger step back in fiscal 2025 with an expectation that our revenue will be down at a low-double-digit rate; this includes an approximate 15 percent to 17 percent decline in North America.”
In the International regions, Plank said UA expects revenue to be down at a low-single-digit rate due to conservative macro consumer trends the company sees and applying lessons learned in North America to ensure that the company protects brand strength built in the EMEA, APAC and Latin America.
“From a channel perspective, we see our wholesale business down at a low-double-digit rate, and DTC down approximately 10 percent due to proactive actions to significantly reduce the discounting level within our e-commerce business,“ he said.
Plank said this reflects some foundational steps in the company’s ambition to create a more premium stance for the Under Armour brand.
“By product, we expect apparel and footwear sales to be down at a low-double-digit rate and our accessories business to remain essentially flat year-over-year,“ he continued. “Even with this revenue contraction, we expect a gross margin improvement of 75-to-100 basis points due to the material reduction in promotional and discounting activities through our DTC business and proactive product and costing initiatives.”
Plank said he anticipated operating expenses to be down 2 percent to 4 percent in fiscal 2025 as UA works to streamline the business further, and he said the company will streamline across the organization.
“We will reduce the number of agencies, consultants and outside experts across the brand, which has reached unacceptable levels, especially in functions like marketing,“ he suggested. “We are building the talent, and they will be empowered to run with their expertise and ability to drive our vision.”
Plank said the company is also working to reduce the number of reports generated, unnecessary meetings and the number of fabrics designers will have to select from when creating collections.
“In the overall bureaucracy that occurs when the business scales from being small to midsize to large, in short, we will be much more intentional everywhere,“ he committed. “This includes activities that may have had a reason to exist at one time or another but no longer serve the brand; this includes a Board-approved restructuring plan to help strengthen and support additional financial and operational efficiencies.”
Plank noted that the company “expects to incur a total estimated pre-tax restructuring and related charges of approximately $70 million to $90 million. Excluding the midpoint of this restructuring range, he said UA expects $130 million to $150 million in adjusted operating income, representing 18 cents to 21 cents of adjusted diluted earnings per share.
“This is not where I envisioned Under Armour playing at this point in our journey,“ Plank pondered. “That said, we will use this turbulence to reconstitute our brand and business, giving athletes, retail customers and shareholders bigger and better reasons to care about and believe in. Under Armour’s potential is backed by nearly 1,900 retail stores and a worldwide presence in almost 100 countries, which athletes respect as a podium brand with a distinctive positioning of innovation and performance that is truly unique.”
From a product perspective, Plank said the company is not just chasing the low-hanging fruit of sportswear.
“We’re reinvigorating our culture of blowing athletes’ minds with a consistent drumbeat of innovation,“ he explained. “We must become a brand of launches creating products that solve athlete problems while communicating the story of how and why our products deliver. The good news is that we’re already doing this. For example, we delivered six new footwear drops in February alone: Infinite Pro and Infinite Elite, SlipSpeed Mega, Curry Color Drops at the NBA All-Star game, the Apparition from UA sportswear, and the Drive Pro in golf.”
He said the more significant problem is that those on the call probably have yet to hear about any or most of them.
“We will make sure that if a product is important enough for us to make and release, it’s also important enough to celebrate with storytelling or we just won’t make it,“ he committed.
With some apparent and understandable aggravation of what the brand has become, Plank noted that Under Armour has become a brand that competes primarily on price versus what should be its core competency—performance and technical innovation. He said this is the aspect of the brand that has “frankly gone untold for too long.”
Plank said that to correct this, the company must reprioritize its innovation agenda by reminding athletes that UA products perform like no other in the industry, a flawless balance of science, function, and style made to empower them to be the best at whatever they do from Monday to Sunday.
The bottom line?
“We are now prioritizing to ensure that anything we do or have our teams doing is only the activities that directly contribute in one way or another to our simplest of job descriptions—selling more shirts and shoes,“ the renewed CEO said.
Image courtesy Under Armour, Inc.
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See below for additional SGB Media coverage regarding Under Armor’s Fiscal 2024 fourth quarter and full-year results.
Under Armour Issues Tepid FY Outlook as Company Resets Weak U.S. Business
