UA: Mgmt Change Makes More Sense Than You Think

No one likes to see a high multiple name like UA have a high profile mgmt change before the quarter (unless they’re short it). We don’t like the timing either. But the bigger picture context makes a ton of sense. McCreight did what he was charged to do. He’s getting paid big. And Plank wants back in.

 

We’re disappointed to see that Dave McCreight has left Under Armour, as a) he was a valuable part of the building and integration of new regime of management at UA, b) he was effective in his role, c) management transition in a high growth/high multiple company sparks a perception v. reality argument that I’ rather did not exist, and d) and quite frankly, we simply like the guy. 

 

But all that said, he made it no secret (nor did CEO Kevin Plank) that primary purpose was to build the right organizational structure and assemble the right team. He has achieved these goals, and is being paid very handsomely for doing so. It’s no accident that it’s been almost exactly 2-years since McCreight was hired. Per his employment agreement, 50% of his restricted stock vests after 1-year, 25% after year 2, and 12.5% each after year 3 and 4. This was valued at $4mm on grant date, and we’re now looking at a price 33% higher. As far as how the math works out, he gets his full $4mm in 2-years vs. 4. On top of that, there’s $3mm in stock options, but those vest equally over 4-years and have a ‘stay’ feature for 1-year where hurdles need to be met and kept for 1-year thereafter. Our sense is that UA likely was generous with waving many of these restrictions.  The bottom line is that the guy did his job, and is likely walking away with between $5.5 and $8mm in cash. Not bad.

 

So that explains precise timing. But what about the bigger picture?

McCreight’s departure is function of UA’s structural shift towards a business unit organization – period. Over the last 10-months, the company has brought in Gene McCarthy to spearhead Footwear (8/09), Henry Stafford to head Apparel (4/10), and John Rogers to lead the E-Commerce effort (5/10), all under David’s leadership.  The reality is that Plank saw that the organization needed more firepower and that he could not do it himself. But guess what? Now it’s there. Keep in mind that Plank is only 38 years old. I can’t even count the number of times that Phil Knight at Nike came and went (in title) throughout the course of his years at Nike. This smells to me like it’s much of the same. And No, I’m not worried about it.

 

Is this an advance warning of something bad coming down the pike? I don’t think so. Sales look good. Product flow is picking up, and the brand is hot as ever. The bottom line is that UA continues to transition through its growth curve as well as any other company I’ve seen.

 

If people assume the worst here and this punitive market takes this high growth/multiple stock out behind the barn and shoots it, then it’s setting up to be a gift.

 


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