Under Armour's new CEO says women will be a key target customer

By Steve Gelsi Ciara Linnane

'At less than a quarter of our revenue, we are still not cutting through enough to realize the growth available in the (female) marketplace,' says Stephanie Linnartz

Under Armour Inc.'s new chief executive is planning to make women a key target customer for the athletic apparel and footwear maker.

"At less than a quarter of our revenue, we are still not cutting through enough to realize the growth available in the marketplace," Stephanie Linnartz told analysts on the company's earnings call Tuesday.

Linnartz, who has been in the role for 70 days, said Under Armour (UAA) has had some success with bras and bottom products, "but we have yet to make our definitive must-have-it product so that it is top-of-mind as we work to drive more significant growth," she said, according to a FactSet transcript.

Women, along with footwear and sportstyle, are part of Linnartz's three-pronged "Protect This House 3" strategy that aims to drive "global brand heat." The company aims to build out the top of the product pyramid by creating more elevated products, with a focus on footwear, she said.

Under Armour is viewed differently in its home market of the U.S., than it is in Asia, where it's deemed to be a professional sports brand; and Europe, where it's held to be more of a premium brand, she said.

In the U.S., product, marketing and distribution have created what she called a "legacy of higher-than-desired promotional activities," centered around a profitable outlet business that accounts for 90% of the company's direct-to-consumer business.

"That leaves only 18 full-price brand health stores in our whole market -- not many places where we can showcase our brand in the best presentation possible," she said. "So compared to the roughly 75/25 split that many of our competitors have working for them, this is an opportunity for premium growth. "

The company will focus full-price stores on the consumer experience, opening smaller, easier-to-navigate stores that appeal to young athletes with strong customer service, she said, adding they would always be fully stocked.

"Nearer term, based on learnings from our Flatiron New York City pop-up as part of the SlipSpeed launch, we are working to identify additional ways to support critical moments like sporting events, competitions and festivals," she said.

For more, see:Under Armour launches new $150 SlipSpeed sneaker with a heel that collapses to turn it into a slide

In the e-commerce business, the company will also work to cut back on discounting and improve the digital experience and checkout times.

It aims to push U.S. sales as a key priority.

"Improving our U.S. business is critical to growing our global business. As the most profitable region, growing faster here means more future dollars to invest in product, marketing and our international business, as well as increasing returns to shareholders," she said.

Wedbush analysts said that while the Protect the House plan makes sense, "some of the core tenets have been in place for a long time (e.g. footwear/women's/sportstyle opportunities, premiumizing the North American market, etc.), so it remains to be seen if she will have a shooting touch as deft as spokesperson Steph Curry."

See also:Lululemon keeps driving customers to its stores despite tough economy, research says

And while the stock is trading at a major discount to athleticwear peers, its long-term risk/reward is positively skewed -- if they can execute, said analysts led by Tom Nikic.

"In the near-term, we think investors will remain in 'wait and see' mode and the stock likely trades sideways for a while," they said. Wedbush had an outperform rating on the stock -- or the equivalent of a buy rating.

The company posted net income of $170.55 million, or 38 cents a share, for its fiscal fourth quarter to March 31, after a loss of $59.61 million, or 13 cents a share, in the year-earlier period.

Related: Nike share-price targets lifted as analysts cheer third-quarter results

Adjusted per-share earnings came to 18 cents a share, ahead of the FactSet consensus of 15 cents a share.

Revenue rose to $1.4 billion from $1.3 billion, also ahead of the FactSet estimate of $1.36 billion.

Looking ahead, Under Armour expects fiscal 2024 earnings of 47 cents to 51 cents a share, which is below the analyst consensus estimate of 61 cents a share.

On the analyst call, Chief Financial Officer David Eric Bergman said fiscal 2024 revenue was expected to be flat to up slightly, while the FactSet consensus implied growth of 3.4%.

The company expects gross margin to improve by 25 basis points to 75 basis points, driven by tailwinds related to lower freight costs.

Related: Dick's Sporting Goods set to continue 'outperformance,' says analyst

"These tailwinds are expected to offset negative impacts from channel mix, as we anticipate revenue from the off-price channel to increase yet still remain within our 3% to 4% of revenue operating principle and higher promotions primarily in our DTC channel as we continue to work through inventory," Bergman told analysts.

The first quarter will be the toughest, with revenue expected to be down in the low to mid-single-digits, while margins are expected to decline 75 to 100 basis points, as higher planned promotions are expected to outpace freight tailwinds.

That's expected to lead to a small loss of 3 cents to 5 cents for the quarter, while FactSet expects a profit of 5 cents.

The stock fell 6.3% and is down 18% in the year to date, while the S&P 500 has gained 8%.

-Steve Gelsi

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05-10-23 0700ET

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