Under Armour’s Good, Bad and Opportunity

Under Armour announced good news yesterday. Revenue grew, gross margin grew, and inventory levels were down. That’s normally a trifecta of responsible health. But underneath the covers Under Armour still has significant work to do.

About the good; revenue was up slightly, driven by international strength and the wholesale business.  Simultaneously, inventory was down 24% – a trend in stark contrast to previous year-over-year growth. And finally, UA was one of the few brands to see success in the performance sector of shoes, with its HOVR platform driving footwear revenue up 8%.

But UA’s headwinds remain substantial. The company’s commitment to Performance may pay benefits in five years. But UA is not going to grow in the near future in its women’s business – or its men’s business – relying on performance.  Sports fashion and athlesiure rule the day.  Throw in the continued commoditization of performance garments – led by the continuing rise of private label (Dick’s) or mass-market players (Target, Old Navy) – and growth for a higher-priced brand will be tough. Even under the cover of the wholesale growth – presumably through Kohl’s – there are issues.  Kohl’s is the preferred retailer if you need volume now.  Moms shop their regularly as opposed to their infrequent trips to Dick’s triggered by the start of a new sports season.  But it is a value play that is not brand positive.

Leading indicators reveal that stormy clouds are still approaching. Direct-to-Consumer sales were down.  Backpack sales were unexpectedly soft. Both of these speak to a need to reinvigorate the brand as it has lost some of its cool, the site isn’t drawing traffic and kids don’t want to feature the brand. Additionally, the international growth strategy needs refinement. Walking through Seoul we found two Under Armour stores virtually across the street from each other. This location strategy will lead to inventory challenges and shows that UA’s overseas partnerships can be improved.

Image Credit: Under Armour

Did you know about recovery sleepwear?

And finally, the company has work to become truly a brand and not a sales-team driven organization that focuses on revenue at the expense of brand health and margin. An example of a miss in marketing: did you know Tom Brady is a key endorser? Maybe, maybe not.  UA has never had the marketing chops Nike has.  Although Brady’s latest pre-season collection kit is sold out in brand house stores and online, the inventory commitment was small and there wasn’t a coordinated, 360-degree marketing effort to promote the association with the G.O.A.T.  The same goes for an innovative product that hasn’t been commoditized – recovery sleepwear, again, featuring Brady.  But the brand has not been loud about the product.

This article first appeared in Forbes.