Case Study Abstract Under Armour, Inc. develops and distributes branded performance apparel, footwear and accessories for men, women and youth. The company’s product portfolio includes sweats shirts, socks, performance bags, baseball batting gloves, football glove, slides, shoes, sandals, and other products. It also offers products for outdoor activities, such as hunting, fishing, and mountain sports. The company markets these products under various brands, including Heatgear, Coldgear, and I WILL, among others.
Overview of financial performance: • Revenues of (US Dollars) US$5,193.2 million for the fiscal year ended December 2018 (FY2018), an increase of 4.1% over FY2017. • Operating loss of the company was US$25 million in FY2018, • Operating profit of US$27.8 million in FY2017. • Net loss of the company was US$46.3 million in FY2018 • Net loss of US$48.3 million in FY2017. • Reported revenues of US$1,204.7 million for the first quarter ended March 2019, a decrease of 13.3% over the previous quarter. (Data taken from Marketline Under Armour Report)
A SWOT analysis identified the following key threats (external) and weaknesses (internal) within Under Armour: Weakness Threat • Lower inventory turnover ratio • Lower inventory turnover ratio could affect its operating performance Declining Profitability • Competitive market • Foreign exchange risks • Dependence on third-party suppliers and manufacturers
Under Armour’s operations (Net Revenue) are broken down into the following regions:
Region % of Under Armour’s total Revenue Net revenue by region ($USA) % change from previous year North America 72% 3,735,293,00 (1.8%) Europe, Middle East and Africa 11% 588,580,00 25.2% Asia Pacific 11% 588,160,000 28.7% Latin America 4% 190,795,000 5.2% Connected Fitness 2% 120,357,000 18.1% (Taken from 2018 Annual Report)
Assessment - Context Kevin Plank (Chief Executive Officer and Chairman of the Board) has a problem. While there has been considerable growth in Net Revenues ($5,193,185,000 in 2018: $4,989,244,000 in 2017) he is concerned that Net Income is falling. Even if ‘restructuring and impairment charges’ are ignored, Net Income does appear to be on the decline. Coupled with a lower demand within the North America market and an increase in borrowing, Under Armour are facing some significant financial pressures. Under Armour are also concerned by a potential downturn in the economy and its overreliance of sales through its ‘wholesale customers.
Investors note that while “Under Armours international expansion prospects look intriguing, Under Armour's growth remains sluggish in its core North American market. The company's traditional retail partners are struggling as sales migrate to online channels.” Indeed, Joe Tenebruso (Analyst at www.fool.com) argues that they might struggle to attract investment and noted “Under Armour's shares trade at a premium price. The stock is currently changing hands at more than 60 times Wall Street's earnings estimates for 2019. That's a bit rich -- even for a company that's projected to grow its profits by 40% annually over the next five years -- particularly since Under Armour has a history of issuing overly optimistic financial targets.” Assessment tasks As a researcher for Under Armour you have been tasked with writing a strategic report (in no more than 3,500 words) for senior managers that examines the key problems it is facing. The central tenet of this report is to address the problems/issues you identify by proposing possible solutions to the ‘headwinds’ that Under Armour is facing. Throughout your written analysis, emphasize how your proposed strategies will enable the firm to gain and sustain competitive advantage.
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