In this video from "Beat & Raise" on Motley Fool Live, recorded on Oct. 6, Fool.com contributor Brian Withers shares his perspective about the upcoming earnings report from Under Armour (UA +2.00%). (UAA +1.89%). Brian outlines its growth opportunities, and profit challenges, as the apparel giant looks to the key holiday shopping season.
Brian Withers: If you didn't know, Under Armour is in the middle of a multiyear transition, focused on upgrading its business. I just wanted to step back and talk a little bit about where Under Armour is in their journey.
A few years ago, Patrik Frisk took over as CEO and from the longtime founder, who's now Chairman, Kevin Plank. When Patrik Frisk came in, he had been in clothing industry and even the high-priced performing clothing industry segment. Coming into Under Armour, he had a great background and was well-suited to.
What they're focused on is what they call the focused performer. Which is a serious athlete who trains a number of times a week and really cares about what they wear. Obviously focused performer is focused on their success and getting every edge. He was a good one to bring in and [laughs] initially when it came in, he was like "This company is exceeding through sheer will."
I think was the quote. A lot of the different processes across the company to release products, release new products, create new products were disjointed and they were all competing for time and resources and going through this long process. He set up a series of what they call seasons.
They have a Fall season and a Spring season and they may even have one in between where they release a set of products all at once and they all go through the process at the same time. Everybody knows that you have to be at certain deadlines and meet certain places. Through that process, not only are they more organized they get more customer feedback and are more focused on this specific customer set. As soon as they started getting this thing running and the innovation engine humming, the coronavirus came and hit them. They also have a ton of owned stores, both for full-price retail, these super destination stores, as well as off-price retail factory outlet stores.
They had at one point they closed all their stores due the coronavirus. That's a major part of our revenue, they had to shut that down. It's coming out of a couple of things, it hits coming out of the coronavirus, it's coming out of getting this innovation engine really humming.
What I would watch this quarter more than anything else is risks, comments on how the transformation is executing. They talked about improving their operating model, they talked about amplifying DTC, what DTC is direct-to-customer. It's their online sales, their sales through their stores, and actually getting more sales through those stores without alienating their wholesale retailers.
The North America business doesn't need to grow by leaps and bounds it just needs to maintain and slow and steady, I'd say single-digit growth, but international is where the key is. Watch for the comments on the international growth and the regions. They separate all their regions out now, rather than just one big fund for international. The last piece is this restructuring plan.
They've committed $550-600 million for restructuring, whether it's layoffs, rejiggering the business, product write-downs, whatnot. My hope is that that number doesn't get bigger.
They've done this a few times and a couple of times the number got bigger as they got into it, which is something that hopefully Frisk has been able to get his arms around and keep that number, not getting out of control.
