Under Armour Loses Its Footing

(Bloomberg) -- Under Armour Inc. was betting it could dance with Nike and Adidas at the hot sneaker prom. It was not to be.

The sports clothing label reported a 2 percent decline, to $237 million, in footwear revenue for the quarter, compared with a 58 percent jump over the same period in 2016. Those numbers are a bigger disappointment than they sound, since in recent years the brand has sought to sharpen its image with a sexy sneaker lineup that would draw shoppers away from rivals. Looking to regain its swagger by finding growth—especially in its important sneaker business, Under Armour has been left humbled.

“Footwear slowing is a big deal,” said Simeon Siegel, an analyst at Instinet. “Because footwear slowing, if not a one-time blip, [it] does essentially cap how large the company can be.”

Under Armour announced a restructuring plan and cut its annual sales forecast on Tuesday, eliminating around 2 percent of its workforce amid sagging sales. The company said it plans to shore up back-end efficiencies under its new chief operating officer, Patrick Frisk, including the speed at which it can get new shoes and other items to market. Frisk previously ran the Aldo Group, a privately held shoe seller.

Even before Tuesday's earnings news, it's been a rough year for the company. Chief Executive Officer Kevin Plank triggered consumer ire with his public support of President Donald Trump and admitted to various missteps when the company posted its first-ever loss back in April.

Shoes are the key to Under Armour's growth and why it's considered in the same league as much larger competitors such as Nike Inc. and Adidas AG. The question becomes whether Baltimore-based Under Armour can regain traction for its sneaker business, whether through new athlete endorsements or the resurgence of an existing one. Plank said he knows that footwear is Under Armour's biggest opportunity and that it remains a focus.

“We're not sitting here tone-deaf saying we're just going to make cleats,” he said on a conference call with analysts, pointing to the newly released training shoes under NFL quarterback Cam Newton's name, expanding his line from on-field cleats to signature shoes for the gym and sidewalk. “Like, we understand what the market's asking for.”

The NBA's Stephen Curry is Under Armour biggest sneaker star, and the company hopes the next iteration of his kicks can spur its shoes along. The Curry 4 doesn't hit store shelves until this fall, although the basketball star introduced the style during the NBA finals in June. Curry and his brother Seth have been on a tour

Still, Under Armour lacks the big-name arsenal of Nike, especially on the basketball court. Nike boasts sneaker-selling powerhouses such as LeBron James, Kevin Durant, and Kyrie Irving. And of course, Nike has its dominant Jordan franchise.

Other than Curry, Under Armour's bench boasts such middling names as Greivis Vasquez and Kent Bazemore. But not all shoe news for the brand has been bad. This June, the company signed Josh Jackson—the former University of Kansas standout and fourth overall pick in this year's NBA Draft—to a multiyear endorsement deal. Under Armour hopes he'll evolve into the brand's next big pitchman. It was the first time Under Armour had ever signed a top NBA prospect.

Also this summer, Under Armour introduced a customizable footwear platform called Icon, which allows shoppers to pick their own colors and patterns or use limited-edition prints. Sneakerheads can also emblazon their own pictures or images on shoes.

“We're going to make a meaningful number of pairs of shoes this year that'll give us the attention and the scale that we need in order to be a long-term player in this space,” said Plank. “And so a lot of what you're hearing today is how Under Armour's positioning for long term and I think that plays out in no category more so than footwear.”

To contact the author of this story: Kim Bhasin in New York at kbhasin4@bloomberg.net.

To contact the editor responsible for this story: David Rovella at drovella@bloomberg.net.