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What Risks Should Under Armour Investors Be Watching?

By Motley Fool Staff – Jul 15, 2016 at 4:14PM

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Industry Focus host Vincent Shen and Seth McNew talk about how Sports Authority’s bankruptcy could affect the company, and other long-term concerns investors should be aware of.

In this clip from the Industry Focus: Consumer podcast, Vincent Shen and Seth McNew discuss a few of their concerns about Under Armour (UAA -0.84%) (UA -1.55%) -- from Sports Authority's recent bankruptcy, which will eat into some of the company's sales this year, to longer-term issues like what might happen if CEO Kevin Plank were to step down.

A transcript follows the video.

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This podcast was recorded on July 12, 2016.

Vincent Shen: Obviously, Sports Authority is going to be a big retailer for Under Armour products. How much of an impact did that seem to make? It seems to me like you think it was maybe a little overstated.

Seth McNew: Yeah, that one hits a little bit close to home. I'm a Coloradan, and Sports Authority is a local company. It started here in Colorado, and that's where they're headquartered. Sports Authority closing, I'm sure that's going to be a hit to them this year, and we're probably going to see that that takes a little bit of a hit in sales. But, I think it plays well into the story that what they're really looking for is direct-to-consumer growth anyway, which was massive. It was 30% growth in 2015 over 2014, to $1.2 billion, which is a huge part of their revenue. When you can get direct-to-consumer, that increases your profit margin, increases your control, especially when you're talking about how much you want local-for-local manufacturing. I just don't think that this Sports Authority closing is going to have as big of an impact in the next year or two years as the market thought it would.

Shen: Fair enough. I agree, it's definitely much more of a short-term speed bump than anything else. But, what about longer term? When you're looking at the stock as an investment, is there anything that concerns you in terms of a bigger picture, a longer-term concern? For example, some people have mentioned the idea of [CEO Kevin] Plank potentially leaving. That would be a huge hit. This is one of those companies that is very much driven by its founder. But at the same time, I see this being a relatively small risk, especially with the recent [stock] split and how he was able to maintain the founder control. Any other challenges or risks that you see that you think maybe our listeners and investors should consider?

McNew: Yeah. If Plank were to leave, I think that would be a huge risk. But you're right, he really just doubled down on the company recently by doing the split where he kept all control of the company. He's putting a huge investment into Baltimore itself with the new headquarters. He has a bunch of little side projects to build up the city to make sure that's a great place for Under Armour to be. 

I would say, one thing to look at is their debt level. Under Armour really started with not wanting to take on any debt. That was a big thing for Kevin Plank when he first started the company. So I just watch that. They have a lot of acquisitions, a lot of big investments. I would be hesitant if the debt started to get too high for such a small company. But I think right now, it's at really reasonable levels.

the_motley_fool has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Under Armour (A Shares). The Motley Fool owns shares of Under Armour (C Shares). 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.

Stocks Mentioned

Under Armour Stock Quote
Under Armour
$9.43 (-0.84%) $0.08
Under Armour Stock Quote
Under Armour
$8.27 (-1.55%) $0.13

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