UA’s numbers proved today why it trades at the multiple it does (65x earnings, 29x EBITDA, 4x sales). Revenue and EPS grew +30% and +62%, respectively, which is pretty much bullet-proof. Cash flow from operations was down 5%, but no one will care about that with this kind of Brand Heat and P&L momentum. Our call on this name is simply to do nothing. We won’t buy it here. Yet on the flip side we think it’s foolish to argue a valuation short – as UA is earning the hype, and the only justifiable fundamental short has to do with rising cost pressures as Nike flexes its wallet and makes it tough to grow in footwear and International – but Nike is clearly focused on bigger and better things. So in the end…we’re a ‘do nothing’ on this – and we’re fine with that.
But we can’t hold off from commenting on Kevin Plank – and just a warning, this is not going to be pretty. In recent quarters we’ve commented on how far Plank has come as CEO. Not just in his self-given title, but how well he has grown into it and matured as a leader both inside the organization and out. Note, I think we all know that being a CEO, a Manager, and a Leader are all very different things. A select few people can do all of them well. We’ve been growing into the mindset that Plank is, in fact, one of those people. That may still be the case. It probably is. But to be analytically honest, we need to call out that today’s conference call definitely serves as an argument to us against it. Here goes…
1) Overall, his tone throughout was just extremely brash and “in your face”. It was reasonably intimidating at times. Is that what people inside the organization see – only more intense? We gotta wonder.
2) It probably started off with his discussion of Steph Curry. Yes, we get it…Curry is unlike anything the NBA has seen in forever. He’s the man. But Saying how the company grew 30% to match Curry’s #30, and his average points for the season was odd. Maybe it was something of a joke, but it came across as flat-out weird.
3) He was more focused on calling out (almost yelling out) athlete victories than talking about what UA is doing to build emotional connections with the athletes REGARDLESS of whether they win or lose. Is UA building these connections? Of course, to a degree. But what happens when Steph Curry loses one day? This reminds me a lot of when Reebok had Allen Iverson under its belt 15 years ago. All Reebok talked about was AI. Then one day he became less relevant. Then it had to merge with Adidas. That won’t happen here. UA is a much better company. But it should never lose sight of what it could become.
4) Case in point, I really can’t stand Kobe. He’s one of the most disliked players outside of LA by the general public. Most basketball players really don’t like the guy. But Nike managed to take the fact that most people hate Kobe and turn it into a “I Hate Kobe” campaign upon his retirement – that actually is helping his popularity. And yes, Nike is backing it with hundreds of millions worth of Kobe product in its direct channels (check out SNKRS app). Don’t be so focused on the wins. Those are not monetizable. Emotion is.
5) Was I the only one who thought it was weird when Plank cut off an analyst who was asking an otherwise thoughtful question? It’s as if he knew what he wanted to say before he even heard the end of the question and ran right over the person on the other end of the phone.
Look…we all have our good days, and we have our bad days. Lord knows I have my fair share – likely more than Plank. But I’m not CEO of a $21bn company – yet. Heck, maybe he just worked out with Dwayne “The Rock” Johnson and was still amped up.
We’re giving him a pass on this. The market obviously doesn’t care. But we’re looking for a more grounded, somewhat humble, and commercially-focused Kevin Plank next quarter.
Go Warriors.
