S2 - Ep 11 Under Armour: Deep Dive via Brand, Biz, Innovation

Mega-Brands: Investing in Mega Trends & the Mega Brands Best Positioned to Add Value to Your Wallet

I spent a week going through Under Armour's website, its app, the quarterly reports and annual reports to try and identify what's wrong with the company and it's stock. Overall, UAA seems to be following the typical trajectory of a brand that becomes irrelevant over time. One of the hallmarks of mostly irrelevant brands and underperforming stocks is having lower margins than peers while still having more revenue than the current market cap of the business. The brand just gets less interesting to people each year. I've seen that happening in UAA for many years now. Consumer stocks that have good pricing power, high brand love, and strong repeat business tend to have stronger returns. Revenue growth is key, smart innovation spending and marketing is key, strong overall operating metrics are key. The most important part of longevity with consumers though, is maintaining or increasing your brand relevancy. Staying relevant needs to happen for companies to continue to thrive. Companies don't always need to sell premium products to stay relevant, witness Costco and Target, but they need to offer a better mousetrap, a better customer experience, and to remove as much friction as possible so consumers can act over and over with buying. That game becomes a high sales, low margin and high recurring revenue business. Generally, that's not ideal in the apparel and footwear business, this is not the grocery and general merchandise business. In the athleisure business, "brand heat" or "brand coolness" is very important. Athleisure as a lifestyle and mentality offers companies enormous revenue and free cash flow opportunities but designs have to be cool and sexy and functional, stores have to be aesthetically pleasing, with friendly and knowledgable staff, and there has to be a buzz about the brand. The digital business needs to engage people and serve people. The data needs to be harnessed for continued innovation. Data on your browsers and customers is the X-factor that can and should drive future engagement. Without all of these things combined, you are just hoping someone transacts with you without the ability to keep them engaging. That drives low multiples permanently. Your buzz can't be that the brand is super cheap and serving a basic consumer staples purpose. Brands that fall into that category tend to be persistent underperforms and ultimately become completely irrelevant.

Under Armour has made huge strides to get back on track from an operational perspective, there's more to do but I'm very pleased at their progress. What they need to focus on next is a complete brand reset. Maybe that's creating a new premium brand, maybe it's making a small acquisition, or maybe it's leaning deeper and more aggressive into the Project Rock brand but it has to happen quickly. For now, UAA is a value stock without a clear catalyst. They have set the bar quite low from a future expectations perspective so it likely has some value around $8.15/share but to make the real comeback which I think can happen, it needs to become a much more relevant brand, make premium and differentiated products, cut the undifferentiated boring skews and spend on a smart branding strategy. They need to connect with people on a deeper psychological level, like they did in their early days. They need to be more than a perceived athletic apparel and footwear brand. They need to move into active lifestyle and street-wear. And most of all, they need to be the edgiest brand in the category. Loud, edgy, opinionated and serving every demographic because we believe what they believe. The Rock and his philosophies are a great first step, now we need a collective of motivators like the Rock, from sports to music to other pop culture categories. Let's find brand ambassadors around the world that stand together with a positive, motivational message to kids through older adults. That's the revolution I want to join. There's no reason UAA can't drive it!