UA(A). This is the most defensive restructuring program I’ve seen in Athletic since Reebok in 2003. Plank just set the company up for another one – or a good old fashioned ‘top line melt.’ #3 on Best Idea short behind only HBI and KSS (UAA is the only non-bagel).
Oh and by the way, UA’s stock is down 40% since the ticker change to UAA (w S&P +12%). Can it really be that simple? This company just guided to flat 3Q revs and it still has the growthiest of growth multiples. The sell side will point to ‘the company just sandbagged and set up for a 3Q revenue beat’. That’s such a bad call. When growth decelerates and the earnings algorithm eroded, the sandbag factor becomes far less relevant.
The only way out is to go on offense, which cuts earnings negative and cuts cash flow in half. We need a new structure and new CEO.
Here’s the problem with this UA print…the restructuring program is far too defensive for an otherwise aggressive company like Under Armour.
- It’s about severance, cost cuts, lease terminations and writing off inventory (did this company actually just charge off inventory? I need color there from CFO).
- I’d get bullish if Plank invested the $130mm in building an organization that could and create product in a way new consumers actually want it. That’s not enough $$$ -- probably needs $400mmm – but it’d be a huge step in the right direction.
- Instead UAA just set itself up for another restructuring – or its top line turning into a melting ice cube. I hate picking a ‘magic multiple’ for a stock. So I won’t.
- But there is nothing about the trajectory – and ultimate ending point – for this business that warrants a 40x multiple.
- I said it before and will say it again, UA will need to tap capital markets closer to $10.
- Maybe this is the problem with an organization in transition that has such a ‘win win win’ culture – in that it will never admit defeat until the game is over.
