Is Team USA's Loss Under Armour's Gain?

Despite a chaotic news cycle for Under Armour, the company's handling of the Sochi uniform debacle ended up benefiting the apparel leader and its shareholders.

Mar 2, 2014 at 7:00AM

Apparel, footwear, and accessories maker Under Armour (NYSE:UA) made headlines at the 2014 Olympics in Sochi for seemingly all the wrong reasons. When members of Team USA's speed-skating squad hinted that supposed defects in Olympic sponsor Under Armour's uniforms were slowing skaters down and indirectly costing the country medals, investors panicked and sold off shares of the company.

However, the situation was handled perfectly by Under Armour management and even prompted a deal extension between the company and Team USA. Most importantly, the situation illustrated two important points: Under Armour remains committed to its consumers and is run by the best management team currently in the business.

The Sochi incident

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For the first time in a while, Team USA's long-track speedskaters failed to win a medal at the Winter Olympics. The results were especially disappointing considering Team USA won four speedskating medals in the 2010 Vancouver games.

Combine these disappointing results with the fact that the 2014 Sochi games marked Under Armour's first speedskating sponsorship, and that meant to some athletes and investors alike that the apparel company's uniforms were to blame.

However, even after changing to different and already-proven Under Armour uniforms, Team USA's skaters failed to medal, which alleviated much of the concern that the Baltimore-based company's uniforms were to blame.

The Sochi victory
While Under Armour's stock reeled on the day the headlines broke, shares quickly recovered and went on to surpass all-time highs in a matter of days. The reason was simple: Under Armour management handled the incident in the same way it handles every other situation, perfectly.

While never deflecting blame toward Team USA's athletes, even though it is looking increasingly like that's where it should have went, Under Armour CEO Kevin Plank staunchly defended his company and its product.

Plank insisted that the Mach 39 suit was top notch, and that every attempt would be made to improve on it going forward. However, Under Armour obliged the athletes nonetheless and helped them transition to older, proven uniforms.

Plank explained in a recent interview, "In no way, shape or form will we ever point fingers at the athletes. These guys have a ton of things going through their heads. There was no push back from us. We said, whatever will make the athletes more comfortable, we'll do."

On top of that, Under Armour capitalized on the event by reaching an agreement with the U.S speedskating team. The deal, which runs through Dec. 31, 2022, preserves Under Armour's presence in the next two Winter Olympics and came just as the old deal was set to expire.

It's happened before
A similar public relations nightmare happened to Ralph Lauren (NYSE:RL) at the 2012 Olympics in London. Many people were upset that the upscale retailer, known for its signature Americana design cues, chose to cut costs and make Team USA uniforms in China.

While Ralph Lauren management quickly addressed the issue with a statement in which it pledged to make uniforms for the 2014 Sochi games in American factories, the decision caused an uproar nonetheless. However, as is expected with Under Armour's Sochi woes, the situation had no impact on the company's long-term growth trajectory.

Olympic-sized victory
Surprisingly, the hectic events of Sochi probably ended up benefiting Under Armour. The company was the talk of the Olympic village for a few days and ended up being vindicated in the end.

More importantly, Under Armour cemented its place at the next two Olympic games and managed to win some goodwill with consumers like myself who respected the way in which the situation was handled. As a result, Under Armour will now assuredly continue to gain international exposure by way of future Olympic sponsorships.

With an immensely popular brand and the best management team around, Under Armour remains my top pick for growth for the next decade and a stock that I plan on holding forever.

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Philip Saglimbeni owns shares of Under Armour. The Motley Fool recommends Under Armour. The Motley Fool owns shares of Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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