Will Under Armour’s Gambit To Revive Its Brand Work?

Under Armour (NYSE:UA) has spent most of 2018 trying to recover from the debacle it faced 2017, which was a result of slowing sales, rising inventories, eventually leading to the company being forced to sell products at a discount. This meant Under Armour found its margins shrinking, and left its stock trailing.  Since then it has attempted to re-position itself, and get back to growing consistently, while recouping lost margins. It fired employees, cut costs,  pared back its product line, and consolidated its business in order to get the company back to profitability.

But has the recent attempts to turn the business around worked?

We currently have a price estimate of $18 per share, which is 13% lower than the market price. You can use our interactive dashboard Under Armour’s Revival Outlook  to modify key drivers and visualize the impact on Under Armour’s price estimate.

Initial evidence points to the company not achieving its desired results. Despite attempts to revive profit margins, Under Armor has not seen the turn around that it expected. Currently the stock trades at 25x forward earnings, which is high if you consider the relatively moderate success Under Armour has had in recovering margins.

Consumer preferences, and tastes in the athletic-apparel space, tend to change quite quickly, as trends come and go. What was seen as a darling of the market a couple of years ago, is now no longer in the purview of customers. So what does that mean for attempted revival? A lot of it depends on how the brand re-focuses its product mix, and how it overcomes what is seen as an identity crisis.

The company recently hired Alessandro de Pestel, to head up its marketing department. This hiring is in view of Under Armour’s strategy to shift away from its traditional brand image; which it believes is not in line with current trends. A key part of that strategy is moving away from being seen as a pure athlete focused brand, to being a more flexible consumer friendly brand. Pestel’s experience previously with Tommy Hilfiger is expected to be key in this change. This will have to go hand in hand with merchandising, as consumer trends increasingly point to preferring flexible clothing, e.g athleisure.

This will have to be further backed by moving into the right sales channels. Under Armour has lagged its peers in making a change to focus on e-commerce, where the current younger demographic increasingly prefers to shop. A lack of online availability has clearly hurt its sales and margins, both of which are showing high growth as competitors rush into the digital space.

The coming quarters will be important for Under Armour if it wishes to remain competitive. Failure to implement the right strategy could mean that the brand may continue to face long term decline.

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