What Will We Need To See For Under Armour To Beat Its 5-Year Plan?
With Under Armour (NYSE:UA) facing competitive issues in the past 3-4 years, the company revealed its 2023-five year plan. As it stands, the plan has failed to impress investors, as the strategy, and expectations, as laid out by management, left a lot to be desired. Here is what we know: Under Armour expects revenue to return to the low double digits, improvements down the supply chain are expected to increase gross margins by 275-300 BPS, and operating margins are expected to increase to low double digits. With cash flow expected to come in at $700 million by 2023.
We currently have a price estimate of $18 per share, which is in-line with the market price. You can use our interactive dashboard Under Armour’s 5-Year Plan to modify key drivers and visualize the impact on Under Armour’s price estimate.
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Under Armour has said it will move its focus back to ‘innovative athletic performance products’, thereby making athletic performance the core of their strategy going forward. The move did not sit well with investors, and this was reflected in the recent stock market sell-off.
Consumer trends show that the the Athleisure segment is expected to be a $83 billion market by 2020, growing at annual rate of 20%. The Athletic performance market, on the other hand, is growing at an annual rate of 4.3%, and is expected to garner $184 billion in sales by 2020. We believe, Under Armour deciding that it will significantly reduce its focus on the athleisure market, is a poor decision, and a decision that will impact growth moving forward.
Therefore, we believe the company’s plan does not go far enough, as does the market, and this has led to the recent market reaction, where the stock has sold off, falling by as much as 10% on December 12th post Under Armour presenting its strategy. The stock is now down 26% from its December high of $26. Unless Under Armor comes up with a pertinent strategy that is in line with current trends, we believe that it may not be able to reach its desired goals by 2023.
In conclusion, we believe Under Armour’s five-year plan, is simplistic, in an industry that is increasingly competitive. It continues to focus on past trends, and therefore its 5-year plan may not translate into the high expectations that it has set out for itself. Therefore caution is advised, as we don’t expect earnings to pick up any time soon.
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