Under Armour Can't Live Up to Own Hype

Stock Pummeled as $25 Million Footwear Push Fails to Generate Growth

By Published on .

CHICAGO (AdAge.com) -- When introducing its new footwear line, Under Armour thought characteristically big with an audacious $25 million campaign breaking in the 2008 Super Bowl: "The future is ours!" But its pumped-up ego deflated fast last week as investors pummeled the stock after being greeted with future shock -- word from management that the line would not grow next year.

The announcement was a major disappointment for a pricey launch that had been expected to drive the company's growth, and experts blamed marketing bombast for inspiring overly grandiose launch plans. "They tried to go big because that's who they are and that's what they do," said Matt Powell, a veteran footwear analyst at SportsOneSource, but "they would have been much smarter to start small."

There was nothing small about UA's dive into non-cleated footwear, following the company's aggressive and successful moves into the less-competitive cleats segment in 2006. In 2008, it announced the launch of its first non-cleated shoes, a line of cross-trainers, with the 60-second Super Bowl ad that came nearly three months before the shoes were in stores. That ad -- which featured the company's signature images of grueling athletic training in a bleak, urban landscape -- climaxed with company spokesman Eric Ogbogu screaming "The game has changed. ... The future is ours!" to a throng of assembled UA athletes. (It also sent UA's stock tumbling as investors fretted over the wisdom of a company blowing perhaps as much as 10% of its media budget on a single ad for a product that wasn't yet available.)

In January of this year, UA announced a major ad blitz for a new line of running shoes, an aggressive foray into arguably the most competitive footwear category, dominated by the likes of Nike, Adidas and Reebok. The push featured spots that, like the running category itself, were notably less testosterone-fueled and more geared to women than anything the company -- which tended toward selling equipment for more hard-core athletic pursuits had done previously. They were backed by ads during the NFL playoffs and in a broad array of cable channels and magazines the marketer had never advertised in previously.

"When we speak, we speak loudly," CMO Steve Battista said at the time, summing up the company's approach to, well, pretty much everything.

But, as Mr. Powell noted, the company might have been better served by starting at a whisper. While its footwear sales continue to rise vs. the year prior, much of the growth is driven by aggressive markdowns, and the company is forgoing any footwear launches in 2010 as it tries to clear shelves ahead of improved product it hopes will be more successful in 2011. The hope, executives said, was to sell shoes better aligned quality and pricing.

In a research report, Morgan Stanley analyst Kate McShane labeled the launch "weak."

The company broke the no-footwear-growth-in-2010 news on a conference call with analysts Wednesday, when it was discussing a largely positive third quarter that saw a 16% increase in revenue and better-than-expected earnings, thanks to robust sales of apparel, accessories and licensing. But the fact that a supposed key cog in the company's growth engine wasn't going to grow next year was not well-received.

As of Friday afternoon, shares were trading at $26.56, nearly 20% below where they'd closed the day before the earnings announcement.

Under Armour CEO Kevin Plank stressed to analysts that he believes the company will post footwear growth in the future, but urged patience while the company works its way through the 18-month cycle necessary to bring new models to market. Patience, of course, was a new request from a CEO who'd steered a company to $725 million in revenue in 12 years and who, barely a year earlier, was buying Super Bowl ads for products months away from being available for purchase.

"I just want to drive home the point, we couldn't have greater confidence in the upside of our long-term potential in footwear," Mr. Plank said. "But ... we have the luxury, because of the growth model that we have with these five [categories], I think to be more patient on areas where we want to ensure that we can put a great product in the market, ensure that we can deliver great value to the consumer at the same time."

In this article:
Most Popular