CASE
8
Under Armour’s Strategy in 2020: Can It Revive Sales and Profitability in Its Core North
American Market?
Arthur A. Thompson,
The University
... [Show More] of Alabama
Going into 2020, Under Armour was headed into its fifth consecutive year of sales
difficulties in its core North American market which accounted for over two-thirds of
the company’s annual sales revenues. The troubles began in 2016 and undermined
Under Armour’s reputation as an up-and-coming growth company in the sports apparel
business. Starting in the second-quarter of 2010 and continuing through the thirdquarter of 2016, Under Armour achieved revenue growth of 20+ percent for 26
consecutive quarters. In announcing the company’s 2016 third-quarter financial
results, Chairman and chief executive officer (CEO) Kevin Plank said:1
Over the past 20 years, we have established ourselves as a premium global brand with
a track record of strong financial results. Looking back over the past nine months, it
has never been more evident that we are at a pivotal moment in time, where the
investments we are making today will fuel our growth and drive our industry
leadership position for years to come. As a growth company with an expanding global
footprint and businesses like footwear and women’s each approaching a billion dollars
this year, we have never been more focused on the long-term success of our Brand.
But despite Plank’s optimism about Under Armour’s future prospects, he went on to
announce a reduced sales and earnings outlook for the fourth quarter of 2016 and
weakening demand for Under Armour products in North America. So far in 2016, UA’s
quarterly revenue growth in North America over the same quarter of 2015 slowed from
25.7 percent in Q1 of 2016 to 21.5 percent in Q2 to 15.6 percent in Q3.
But in January 2017, Under Armour’s report of its 2016 fourth quarter and full-year
results rang louder alarm bells, despite record annual revenues of $4.8 billion for fullyear 2016, up 22 percent over 2015, and record net profits of $259 million, up
10.5 percent over 2015. There were some obvious cracks in Under Armour’s recordsetting 2016 performance:
• Fourth-quarter revenues rose only 11.7 percent over fourth-quarter 2105 revenues,
by far the lowest percentage fourth-quarter increase since 2010, which had ranged
from a high of 35.5 percent in 2010 to a low of 25.5 percent in 2012.
• Fourth-quarter 2016 income from operations dropped 6.1 percent from the same
quarter a year earlier and fourth-quarter 2016 net income dropped 0.67 percent.
• Fourth-quarter 2016 revenues in North America were up only 5.9 percent and
operating income in North America dropped 15.0 percent.
• Full-year operating income in North America dropped from $461 million in 2015 to
just $411.3 million in 2016.
• make matters worse, Plank said the company’s outlook for full-year 2017 was
gloomy—expected revenue growth of 11 to 12 percent (the lowest annual growth
rate since the company became a “C” corporation in 2002) and a $97.5 million
decline in operating income to approximately $320 million, attributed mainly to
“strategic investments in the company’s fastest growing businesses.”2
Nonetheless, Kevin Plank reiterated his confidence that the company’s resources
and capabilities would enable it to cope with the challenges ahead:3
• are incredibly proud that in 2016, we once again posted record revenue and
earnings; however, numerous challenges and disruptions in North American
retail tempered our fourth quarter results. The strength of our Brand, an
unparalleled connection with our consumers, and the continuation of
investments in our fastest growing businesses—footwear, international and
direct-to-consumer—give us great confidence in our ability to navigate the
current retail environment, execute against our long-term growth strategy, and
create value to our shareholders. [Show Less]