Under Armour (NYSE:UA) (NYSE:UAA) delivered a mixed quarterly report Tuesday, and its sales performance in North America was again the laggard. The company appears to be getting its house in order, but it's unclear how long it'll take for CEO Kevin Plank and his team to translate those efforts -- and its still-significant brand strength -- back into the sort of growth that rewards shareholders.
In this segment of the Market Foolery podcast, host Mac Greer and senior analysts Andy Cross and Jason Moser give their views on the current state of the athletic gear company, its management, and its investment thesis.
A full transcript follows the video.
This video was recorded on Feb. 12, 2019.
Mac Greer: Some of that cash today going into Under Armour. Shares up on better-than-expected earnings. Jason, international sales seem to be one of the highlights, but still some concerns about how Under Armour is doing in the U.S.
Jason Moser: The market's receiving the report, it looks like, fairly well to me. Going through the call and the release, this is ultimately a mixed bag. It seems like they're on the right track. But my biggest problem is they've yet to fully convince me that they've got North America turned around.
Greer: It's a big market.
Moser: It is a big market. If we want to compare it to one of their competitors in the space, Nike just reported not too long ago, and North American sales were up 9% for the quarter. Under Armour sales were down somewhere in the neighborhood of 6%, actually. So, clearly Nike taking some share, Under Armour losing some share. The nice thing in the call, Plank did note that he feels like North America has stabilized. The guidance for 2019 is for relatively flat, possibly a percentage or two of growth there. That's encouraging. We know internationally they're doing very well. A lot of good things going on. Their gross margin up for the quarter, projected to be up for 2019 as well. Inventory levels coming back down. They are doing a lot to get this business back in lean operating order like they promised they would do in 2018.
Greer: You mentioned Nike. What's the argument for investing in Under Armour over Nike? I don't own either of them, but if I were to buy one, I'd be very, very tempted just to buy Nike. It seems like a much safer bet.
Moser: I would say you're right. Nike would be a safer bet. Perhaps that's the argument for buying Under Armour. There's a risk-reward scenario there where you potentially could see outsized returns with Under Armour if they're able to right this ship, get North America back in order. We've come down pretty hard on them. Kevin Plank's made some pretty good blunders here over the past couple of years.
Greer: He's kind of bombastic. Has he toned that down at all?
Moser: He has. When you go through the call, you see that David Bergman and Patrik Frisk are playing bigger roles on those calls, able to temper him a little bit and really talk more about the business itself. For investors like us, that's what we really care about. I'm less about the bombastic speech and telling me how you're going to change the world and more about, show me the numbers, show me the business, tell me how you're going to execute.
It sounds like they've got this thing in order. They've hired a chief culture officer, Tchernavia Rocker, who spent 22 years at Harley Davidson. A great track record there.
Greer: Have to love that!
Moser: To me, that tells me Plank is serious about really building a long-term, sustainable company where people want to be. If you can do that, Under Armour's brand is still extremely powerful in this space.
One final point, we talk a lot about connected fitness and how they'll probably eventually write this off. Connected fitness is not going away for Under Armour. It was $30 million in revenue for the quarter. It was profitable for the full year. It really is going back to the point of those acquisitions in the first place, to figure out what their customers really want and make new products so they can sell more stuff to their customer base.
There are reasons to be optimistic. I think, again, we're seeing signs of things stabilizing. I'd say cautiously optimistic, and that's about as far as I'm going to go with it.