Under Armour (UAA) (UA -0.16%) likely faces dark days ahead due to its peaking sales growth, lopsided overseas growth, crumbling margins, and lofty valuations. I examined those four points in a recent article, but I believe there's still more to be said about management's recent streak of bad decisions. Let's take a look back at four of the company's worst moves this year, and what they tell us about the athletic apparel and footwear maker's future.
1. Kevin Plank's praise of President Trump
Back in early February, Under Armour CEO Kevin Plank praised President Trump during a CNBC interview, declaring that "to have such a pro-business president is something that is a real asset for the country." That controversial comment sparked an immediate backlash among the company's spokespeople and consumers.
Image source: Under Armour.
The hashtag #BoycottUnderArmour started trending on Twitter within 24 hours, while Steph Curry, The Rock, Misty Copeland and other endorsees denounced Plank's comments on social media. Plank clarified his comments by taking out a full-page ad in The Baltimore Sun about a week later, but plenty of PR damage was already done. Susquehanna analyst Sam Poser issued a rare "negative" rating to Under Armour after the debacle, citing the "reputational risk" caused by Plank's statement.
2. Sinking more money into connected fitness
Under Armour has sunk hundreds of millions into fitness apps and wearable devices over the past few years. That sprawling ecosystem now includes apps like MapMyFitness, MyFitnessPal, Endomondo, and UA Record; and products like the UA Healthbox -- which includes a fitness tracker, smart scale, and chest strap.
These efforts are aimed at collecting data from customers for analytics purposes, and to challenge Fitbit (FIT) in the wearables space. Unfortunately, the business faces the same slumping sales growth and declining margins that crushed Fitbit over the past year.
Image source: Under Armour.
Last quarter, UA's connected fitness revenue grew just 2% annually to $18.9 million and accounted for less than 2% of its top line. However, the unit also posted a whopping operating loss of $9.6 million -- which partly caused its operating income to plummet 78% annually to $7.5 million and resulted in the company's first-ever net loss. But despite those setbacks, Plank continues to tout connected fitness as a "real product opportunity" for the company.
3. Missing the "athleisure" market shift
As UA invested in wearables, it missed the "athleisure" shift in apparel, in which athletic apparel became more fashionable and less utilitarian. This trend was easy to spot, with Lululemon, Nike (NKE 1.20%), and Adidas all pursuing the growing market.
Back in January, Plank acknowledged that UA had missed that shift, noting that its products needed "to become more fashionable". UA tried to crack the high-end athleisure market last year via a partnership with designer Tim Coppens, but the line's $1,500 trench coats badly missed the mark in terms of style and pricing.
If UA can't get its act together in the athleisure market, sales in North America -- which accounts for nearly 80% of its sales -- could continue to fade.
4. Partnering with Kohl's and DSW
Under Armour has repeatedly stated that it plans to boost its shrinking margins with "premium" footwear and apparel. Yet the company's actual moves don't fully reflect that strategy.
First, it's been boosting its dependence on lower-margin footwear instead of higher-margin apparel, which leaves it more vulnerable to Nike and Adidas -- which both have superior scale, brand appeal, and marketing budgets. Second, it flushed out excess inventory from the Sports Authority bankruptcy last year with steep discounts.
Lastly, UA partnered with Kohl's and DSW earlier this year. Both retail chains already sell Nike and Adidas products, but they're also known for offering steep discounts -- which completely contradicts UA's "premiumization" strategy. UA seems to believe that it can sell products at multiple price tiers like Nike and Adidas, but it's unclear if UA still has the brand appeal to pull that off.
So what's next for Under Armour?
The past few years have been brutal for Under Armour. An exodus of top executives, a controversial stock split which triggered a shareholder revolt, and the widely ridiculed Curry 2 "nurse shoe" tarnished 2015 and 2016.
2017 doesn't look much better so far, with its Trump drama, connected fitness money pit, sluggish response to fashion shifts, and partnerships with discount retailers all casting a long shadow over its business. I'm not saying that Under Armour won't ever recover, but the company must stop inflicting wounds on itself to win back cautious investors.
