Please ensure Javascript is enabled for purposes of website accessibility

Can Under Armour's New CEO Bring Back the Bulls?

By Leo Sun - Oct 24, 2019 at 6:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Will a new leader adopt fresh strategies to counter Nike and Adidas?

Under Armour (UAA 1.40%) (UA 0.33%) recently announced that Kevin Plank, who founded the company in 1996 and served as its only CEO to date, would step down from the chief executive role. Plank will remain on board as UA's executive chairman and brand chief, and his successor, Patrik Frisk, will take over as CEO on Jan. 1.

UA's stock popped as investors cheered the move. The athletic footwear and apparel maker needed some fresh ideas to revive its ailing stock -- it's lost over 40% of its value over the past three years as the company struggled to keep pace with Nike (NKE 0.21%) and Adidas (ADDYY -1.76%).

But is Frisk the ideal turnaround leader for Under Armour? Let's compare his past accomplishments with UA's current challenges to find out.

An Under Armour ad campaign.

Image source: Under Armour.

Who is Patrik Frisk?

Patrik Frisk spent nearly three decades working in the apparel, footwear, and retail industries. He's been Under Armour's president and chief operating officer since 2017, and his $6.29 million in compensation last year nearly matched Plank's $6.55 million.

Prior to joining UA, Frisk served as footwear maker Aldo Group's CEO. He also held various positions at VF Corp (VFC -0.40%), where he oversaw outdoor brands like North Face, Timberland, JanSport, Lucy, and SmartWool. Frisk also ran a retail business in Scandinavia and held top positions at Swedish outdoor apparel maker Peak Performance and materials science company W.L. Gore & Associates.

By the time Frisk joined UA, the company's multi-year growth spurt had petered out as Nike and Adidas struck back in North America. In response, Frisk launched a multi-year restructuring plan, now in its third year, to cut costs, reduce inventory levels, and stabilize its business.

Frisk and Plank also oversaw changes to UA's male-dominated corporate culture, which was repeatedly accused of marginalizing and demeaning women. One notable practice, which only ended last year, was allowing employees to charge strip club visits and other adult entertainment to their corporate expense accounts.

UA faces a daunting uphill battle

Frisk stated that UA will continue "to lean hard into our transformation" and that he was "honored to lead this great brand toward the realization of its full potential." However, investors who've been tracking UA's decline likely know that that's easier said than done.

Revenue at its core North American market, which accounted for 69% of its top line last quarter, has fallen annually for four straight quarters. It expects that dismal performance to continue with a "slight decline" in revenue for the full year.

UA's headaches in North America are caused by aggressive multi-year growth strategies at Nike and Adidas, which both have much deeper pockets than UA, and waning interest in its flagship Curry shoes.

UA also didn't crack the top five footwear brands in Piper Jaffray's latest "Taking Stock with Teens" survey, which polled 9,500 teens about their favorite brands. Nike, VF's Vans, and Adidas held the top three spots.

UA's international sales continue to grow at double-digit rates, but it expects its overseas sales to only rise by a low-to-mid-teen percentage this year, down from 22% growth last year. That's troubling since UA was leaning on its overseas growth to offset its slowdown in North America.

An Under Armour ad campaign.

Image source: Under Armour.

UA's direct-to-consumer (DTC) revenue (from its own stores, websites, and apps) only rose 2% annually last quarter, which pales in comparison to the double-digit DTC revenue growth at Nike and Adidas in their latest quarters.

UA's apparel revenue -- which was expected to offset its slower sales of footwear -- also dipped 1% last quarter amid tougher competition from Nike, Adidas, and Lululemon (LULU 2.69%). UA's refusal to directly compete with Lululemon in the upscale athleisure market also indicates that it doesn't have much confidence in its focus on "performance" apparel.

UA investors shouldn't get too excited yet

Plank's departure from the CEO role is good news, since many of his missteps -- including costly investments in apps and wearables, an ill-advised decision to praise President Trump, lofty revenue goals which were never achieved ($7.5 billion by 2018), and a failure to maintain consistent shoe designs -- all contributed to UA's downfall.

However, Frisk also oversaw UA during many of its recent struggles, and his strategies under Plank didn't stop the bleeding. Therefore investors shouldn't get too excited about Frisk taking over the CEO role yet. I'd personally prefer for Under Armour to hire an outsider to take over, since the company desperately needs fresh tactics to strike back against Nike and Adidas.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Lululemon Athletica, Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Under Armour, Inc. Stock Quote
Under Armour, Inc.
UAA
$10.17 (1.40%) $0.14
Under Armour, Inc. Stock Quote
Under Armour, Inc.
UA
$9.08 (0.33%) $0.03
Lululemon Athletica Inc. Stock Quote
Lululemon Athletica Inc.
LULU
$330.34 (2.69%) $8.65
V.F. Corporation Stock Quote
V.F. Corporation
VFC
$46.93 (-0.40%) $0.19
NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$116.32 (0.21%) $0.25
adidas AG Stock Quote
adidas AG
ADDYY
$87.94 (-1.76%) $-1.58

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.