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UA(A) | This is Hubris on ‘roids
Takeaway: “The consumer has a short memory.” Yes, Plank actually said this. Last time I heard such arrogance was Ron Johnson.
Just hopped off UA call. I’m much more bearish than I was 3 hrs ago. Not a Best Idea short, but I’m elevating it to the top of my list of 10 shorts after my top 3 Best Ideas. This will go ‘Best Idea’ if it hits $25.
Here’s what I liked and didn’t like on the call.
I liked how Plank acknowledged that he is #3 in the market. Used to not even acknowledge Nike and Adidas. Did not mention DKS moving to private label compression (Second Skin), and that’s bad, but I like the humility regarding the big boys.
Unfortunately, the humility stops there – and then reverses course.
- Plank ACTUALLY said [we’ve had misses, but] “the consumer has a pretty short memory.” The hubris embedded in this statement is unlike anything I’ve heard since Ron Johnson blew up JCP. I could literally stop typing here…but my fingers won’t let me.
- Project Rock (Dwayne Johnson)…not an athlete, but rather an actor who has admitted using steroids – check out a before and after pic online. But I agree that the product will probably sell.
- The company is starting a ‘performance sleepwear line’. I did not know – for a minute – if I was listening to the Carter’s call or UnderArmour. Some would argue (check online) that the best way to recover from working out is to sleep naked – nt wear performance apparel.
- The talk about the Curry is problematic. Any company that can be made or broken by a single shoe simply places too much stock in a person as opposed to a commercial opportunity. Curry is so likable. But he does not sell product outside of the Bay Area. Most ‘good guys’ simply can’t sell. Here’s another fact, basketball shoe sales accelerate more often than not after an athlete is arrested for something. Not intended to be a snarky comment there, but Adidas, Reebok and Nike (though not a part of their strat plan!) would likely agree with this.
- Remember Reebok’s “The Answer”? Fireman talked ad nauseum about Iverson’s The Answer 1. Then The Answer 2. Then 3, 4, 5…This is simply replacement product. It is not growth. That’s why the product ultimately was margin dilutive.
- Plank said “more people want our product this year than last year.” A company that grows sales by 0.0001% could truthfully say that. Growth companies don’t say that.
- Growth companies also don’t say ‘tough retail climate’. Great Brands don’t have to be worry about ‘the promotional climate’.
- UA does have some great athletes. But the only ones that are great ‘crossover athletes’ are Lindsay Vonn and Misty Copeland. Good mojo for the Women’s biz. That’s a bright spot.
- Nike would be cheering if was listening to this UA call. Too bad it’s not. Nike ignores competitors more than NKE Bulls (like me) would care to admit.
- UA is not a lifestyle brand, though Plank argues otherwise. Nike went heavy in ‘sports lifestyle’ in 1999. That’s when it blamed the 56% implosion in the stock on i2 implementation. That only accounted for 30-40% of the issue, imo. The rest was lack of product focus, like we see w UA today going lifestyle.
- LULU did not make the ‘wear to the gym and then the club’ collection. I don’t buy it here, either. If LULU can’t make that work, no one can.
- Remember mid 2016 when Plank said “We’re beating Nike in Connected Fitness”? If having the best fitness app in the business is so great, why did you fire two dozen people at EndoMondo earlier this month in that division. You get cool data about athletic activity, but it’s not relevant to driving sales and profits – and as Kevin would put it “selling more shoes and shirts”.
Here’s my first blush from today’s RetailDirect
- UA/A: I can’t find anything to like in this print.
- Fine…$0.03 beat. Only lost a penny.
- Sales anemic. +6.6%.
- US revenue down 1%. Only second time down EVER (last was in Great Recession).
- Footwear only grew 2%. And now doing a deal w DSW. This includes Int’l. US Footwear likely down.
- GM down 68bps. Not horrible.
- But inventories still too high.
- DTC only +15%. Similar trend to Nike.
Not a grow story – anymore. Not a value story – yet. #valuationpurgatory.
Call starts now. Be back w more deets later. Let’s see if Plank has a dose of humility on this one.
UA Preview From HRD Earlier this week:
There are better shorts out there than UA. But longs need to see REAL growth acceleration (not channel stuff). That’s not likely…yet.
There’s a lot of bad news baked into UA expectations after the guidance last quarter – that’s obvious with the stock losing a third of its’ cap ytd.
- The point to be wary of is UA guided before Gander Mountain filed for bankruptcy, perhaps that could mean even more downside.
- It also printed before Academy (close to 10% of UA men’s apparel sales by my estimate) felt material pain – or at least communicated it in full to vendors.
- Since the print, UA did a footwear deal with DSW. Let me get this straight, UA occupies at best 10 slots on a 550-shoe footwear wall at FL, and it does a deal w DSW? That’s after doing an apparel deal w KSS? For the life of me, I do not understand...this is simply very poor quality growth.
- Maybe I’m oversimplifying this…but if I’m a growth manager, I need to see the top line accelerate, and am probably looking to see high quality growth. By high quality I mean ‘Consumer pull’ instead of ‘company push’. I have a very hard time modeling that this quarter.
- I could go through the whole “if I’m a value manager” shtick…but let’s face it, no value manager will touch UA with a 20-foot pole without severe style-morph.
UA has a balance sheet, but no CFO. It needs $600mm in cash to invest to fix the brand, but now has a Junk credit rating.
Is it the best short out there? Not by a long shot. This is a great brand, and could very well evolve into a great company. Plank won’t fail. But he’ll have to spend up (more than UA’s balance sheet can comfortably afford) while he tries.
