Under Armour, Overconfident?

Is Kevin Plank so impressed with his stock price, that he's overlooking his shareholders' best interests?

That's the question that came to mind last week, when Bloomberg touted Under Armour's (NYSE: UA  ) plans to conquer the basketball shoe market. On Saturday, UA launched its latest foray into the shoe wars, aiming to unseat Nike (NYSE: NKE  ) as king of athletic footwear, and make UA "the biggest, baddest brand on the planet." (Coca-Cola (NYSE: KO  ) and IBM (NYSE: IBM  ) , currently ranked Nos. 1 & 2 on Interbrand's "Best Global Brands" list, are reportedly quaking in their hi-tops.) In pursuit of this goal, Plank has hired away three "Nike veterans" to help make his goal a reality, but ... I have my doubts that even coach's three poaches will do the trick.

After all, it's been more than two years since UA first attacked the shoe market, declaring war on Nike, Adidas, and Reebok with a Super Bowl ad that even Plank admits was "cocky." Over these two years, UA has spent over $600 million on selling, general, and administrative expense and R&D, increasing this spending 64% over 2007 levels. And what does UA have to show for it? Total sales lagged the increase in marketing costs, up only 52% in three years. At last report, UA had captured all of 1.1% of the athletic shoe market. Instead of lending arch support to UA's sales efforts, the foray into shoes is tripping up the company. Last quarter, footwear sales declined almost 5%.

I have to say, it's not a propitious start, and it lends little confidence to Plank's boast that he will eventually make UA "No. 1" in basketball shoes.

Why bother?
But enough with the trash talk. Let's talk strategy, because I think the real question is why UA would even bother tackling the basketball shoe market. I mean, sure, it's $2.5 billion in annual revenues. Yeah, Nike's got 95% of that today. Chances are UA can chip away at that if it tries.

But should Kevin even want to "be like Mike? UA already does a fabulous job making athletic sportswear, but profit margins have always been slimmer in shoes. Footwear specialists Timberland (NYSE: TBL  ) , Wolverine World Wide (NYSE: WWW  ) , and Deckers (Nasdaq: DECK  ) all sport gross margins inferior to UA's clothes-centric 49% -- and even Nike, king of athletic footwear, falls short.

My question for Plank, therefore, is simply this: When you're already the best, why be like the rest?

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

Coca-Cola is a Motley Fool Inside Value recommendation. Under Armour is a Motley Fool Rule Breakers pick. Nike and Timberland are Motley Fool Stock Advisor choices. Under Armour is a Motley Fool Hidden Gems recommendation. Coca-Cola is a Motley Fool Income Investor pick. The Fool owns shares of Coca-Cola, International Business Machines, and Under Armour.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.


Read/Post Comments (0) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 1343810, ~/Articles/ArticleHandler.aspx, 7/25/2014 12:22:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement