I would like to start by thanking you for an overall positive ownership experience of Under Armour shares. Over the past several years I have fared quite well being long your stock in varying amounts.
For the record, myself and my wife currently own 1,682 shares of Class C common stock and 1,400 shares of Class A common stock combined. I am aware that this doesn’t represent a large percentage of the company’s available equity, but I can assure you that it represents a significant investment on our part, albeit diminishing by the day.
Mr. Plank, you have built a global brand from nothing in just over 20 years, an amazing achievement that only a handful of people in this world will ever accomplish. With this, you earned the trust of many people, including myself. I am writing today to let you know that you have violated this trust. I believe you to be a man capable of and wanting to earn that trust back.
Like many investors I was concerned when Under Armour announced the most recent stock split that included a separation into Class A and Class C shares. After struggling for several weeks over whether to remain invested, as a founder/CEO I thought you deserved the benefit of the doubt. Your track record spoke for itself.
My belief was, and still is, that your efforts to secure land for a new Under Armour headquarters justified you selling some of your stake in the company to compensate you for your financial commitment in Port Covington. Why should you be stripped of voting power when your sales were likely to cover this investment in the company’s future?
I was also concerned that the new class of shares would be used to fund acquisitions and be given away liberally to endorsers. I’m very happy to see that share count has NOT grown significantly. That being said, the stock has been in a decline ever since this decision was made. I won’t even address the manner in which the A and C shares were recently renamed to the bewilderment of many with little explanation. The lack of clarity on decisions is becoming an alarming trend.
While on the subject of your ownership and sales, I would like to draw attention to one particular transaction that has gone unexplained by the company. I have previously contacted the Investor Relations department about this and have not received a response.
On August 31 of last year the company filed a sales plan on your behalf. I wish I could say this was the first such plan announced, but it was in fact the second announcement in as many years. One week before this announcement it appears as though your Chief Revenue Officer sold a LARGE amount of his holdings, selling 54,632 A shares on August 24 and 55,019 C shares on August 25. The price of these sales occurred at $43.33 and $38.99, respectively. NICE TRADE!!!!
Let me be blunt, I find the timing of this curious. It appears as if Mr. Maurath liquidated a very large portion of his overall holdings just before the announcement of your sales. I’m sure you would agree that the optics of this are not good and deserves an explanation.
Recently you were asked if you would be willing to buy your shares on the open market as a sign of strength. Given your filed plan to sale, may I simply ask if you are willing to suspend this plan?
The timing of Mr. Maurath’s sale could certainly be coincidence, people sell for various reasons but I think it’s fair to ask for an explanation.
Perhaps your CRO realized the difficulty you might have replacing the sales generated by 450 Sports Authority stores? When you justifiably lowered your revenue guidance last Spring from $4.95B to $4.925B, I was pleasantly surprised. You, yourself have noted the distribution advantage your competitors have. Under Armour was uniquely reliant on TSA and its 450 doors. I took it as a huge sign of confidence that sales would be affected only modestly. That doesn’t appear to be the case today.
When you announced a new relationship with Kohls last year I thought it was an effort to compensate for those sales but Tuesday, while on CNBC, you seemed to indicate that decision was made BEFORE The Sports Authority bankruptcy. Obviously you and your management team can not be expected to predict such an event or the other smaller bankruptcies that have affected the industry as of late. Sill, the question remains what is to blame for the recent sharp decline in North American apparel? Can you clarify this. Will North America sales reaccelerate when Kohls comes online later this year? Is it solely from competitors discounting? (I know you’re referring to Adidas, by the way)
I find it troubling you were not more in tune to the short term disruption to your business reiterating 2016 FY guidance in October as well as the $7.5B goal in revenue for 2018. It appears at the current trend you will fall woefully short of the 2018 goal while while still ramping spending.
Mr. Plank, we can’t decide when it will rain, but we can choose when to deploy an umbrella. I have never had a problem with reinvesting in the company and would never ask to focus solely on an EPS number, but it does seem prudent to curtail the growth of spending (and debt) while the company transitions to a new reality of mid teens revenue growth vs. mid 20’s.
On this note it should come as no surprise that the company is currently in the midst of a CFO transition. While I respect a person’s privacy, given the guidance recently is not safe to assume that the CFO departure was more than just for “personal reasons”? I find it a little troubling that the company did not choose to “warn” before announcing this last quarter. Was that even discussed? What is the status of the 2018 guidance?
Finally, you have said many times that in your office on your white board you have “Don’t forget to sell shirts and shoes.” You forgot to sell shirts and shoes in 2016 focusing instead on a Connected Fitness business that seems to be enjoying mixed results at best.
The advances in the footwear line have been stellar. Each iteration of shoes whether it be SpeedForm Gemini, Charged Bandit, or many others has been superior to the previous version.
This is clearly demonstrated by the growth of footwear which is surpassing most expectations. I do think more focus needs to be in this areas as well as apparel vs the “Health Box” which I can only assume explains a -$20m recent cash loss on Connected FItness. It’s a dud. No one wants a smart scale. Please focus on your unique offerings that make Under Armour truly special like the Fat Tire collection, X Storm and Infrared Technology, but don’t be distracted by $100 pajama pants.
I find the investment in manufacturing in Baltimore to be a huge positive and the women’s line improves daily. May I suggest the spending focus on this area as opposed to some form of wearable technology made by HTC or JBL?
I notice the share you are taking in boutique running stores, the long term investment with University tie-ins is smart, these are just two things that still have me bullish on you and your company. Direct to consumer sales growth of 40% and growth internationally are two others, investment in these areas makes a lot of sense.
During your latest interview you hit on your usual talking points, even checking your notes periodically, but I think I speak for many investors when I say we’d like some more concrete answers on the plan going forward. With all due respect, “Trust Me” is not good enough anymore. Under Armour is an amazing company and will be for many years to come under your leadership, but if you want investors to trust you again, you need to start giving answers instead of talking points.
I appreciate your time and thank you again for the financial benefit ownership in your company and stock has provided for me and my family. I look forward to hearing a more detailed plan and explanation of recent events in the near future,
Sincerely,
Carmine Pirone