Under Armour will depend more on data and less on “gut” as it works to gain a larger share of the $92 billion athletic apparel and footwear market of its target consumer. The entire market represents $280 billion, but Under Armour is focused on the competitive or weekend warrior athlete.
“That’s a lot of runway for a brand at $5 billion,” said Patrik Frisk, president and chief operating officer.
Frisk was one of the speakers at the company’s Investor Day — its first in three years — that was held at its Baltimore headquarters on Wednesday.
For the past two years, the company has been struggling to right its ship as its previously exponential growth slowed. But it has made strides on its restructuring journey and is more confident about its future growth.
Michael Binetti, analyst with Credit Suisse, said the company is now projecting a five-year compound annual growth revenue of 6 percent to 8 percent for the period of 2018 and 2023 and an operating margin in 2023 of 10 percent and 12 percent, up from 3 percent today. He wrote that the “fairly high [corporate] targets make it unclear how easy it will be to deliver upside,” but the company’s North American projection of CAGR of 1 percent to 3 percent “doesn’t seem overly aggressive.”
Founder and chief executive officer Kevin Plank opened the daylong conference by admitting that after 26 consecutive quarters of 20 percent or more growth, Under Armour had stumbled by getting too big, too fast. He said that as the corporation expanded product categories and moved outside of the U.S., the corporation “lost focus” on “keeping the business simple.” He said that by the end of 2016, Under Armour had reached “an inflection point” and it needed to regroup to address its rapid expansion.
The company brought Frisk on board in 2017 and spearheaded a three-year restructuring program to reengineer and streamline the business.
In May, the company reported net losses widened to $30.2 million, or 7 cents a diluted share, from $2.3 million, or 1 cent, a year earlier. Excluding the impact of its restructuring, adjusted income totaled $1 million. Revenues for the three months ended March 31 increased 5.9 percent to $1.19 billion from $1.12 billion.
But Plank said Wednesday that the company is in better shape as it has reduced its product offering to eliminate redundancies, upgraded its systems and has a better handle on what its consumer wants from the company. Its mission is to provide products the consumers didn’t know they wanted and then realize they can’t live without.
“It’s not a god-given right that we get to exist,” he said. ”We have to earn that every day.”
Frisk said the goal is to “correlate innovation with commercialization.” And to achieve that, the company needs to be “laser focused on execution” in 2019 and beyond.
Under Armour recently gained a lot of consumer insight by surveying 22,000 shoppers in the U.S., Europe and China, and the company identified its target is the “focused performer,” or the person who is athletically oriented but has a complete life that revolves around things other than sports.
This consumer is also changing rapidly and to address this, Under Armour’s product development team is working quicker, with lead times dropping from 22 months to 17. This will make the company more profitable, Frisk said.
Looking ahead to 2023, he said the focus will be on being “consumer-centric,” strategically aligned and balanced, structurally sound, more predictive and better tuned into the international market — strategies that will ultimately drive better financial performance.