The Bottom Fishing Club: Under Armour Left For Dead, Founder Again CEO

Core Viewpoint - Under Armour is currently experiencing a significant downturn in stock price and sales, with a restructuring plan aimed at repositioning the brand towards a premium market status, which could present a potential investment opportunity as valuations are at historic lows [5][7][17]. Business Overview - Under Armour's wholesale sales accounted for approximately 56% of total business in FY 2024, with apparel making up 65% of sales, shoes 24%, and accessories 11% [4]. - The company operates 1,900 physical stores across 100 countries, with North America representing 61% of sales [4]. Financial Performance - The stock price fell below $7 in June 2024, marking the lowest valuation since its IPO, with management downgrading expectations and anticipating $70-90 million in restructuring charges [5][11]. - Despite projected revenue contraction, a gross margin improvement of 75 to 100 basis points is expected due to reduced discounting activities [10]. Restructuring Efforts - Kevin Plank has returned as CEO to lead a restructuring plan that focuses on enhancing brand image and reducing reliance on discount sales through wholesale channels [7][8]. - The strategy includes selling higher-priced exclusive products and reducing discounted merchandise to wholesale clients, similar to Lululemon's approach [8]. Valuation Metrics - Under Armour's current valuation metrics, such as 0.53x price to trailing sales and 1.75x tangible book value, reflect a 75% to 80% discount to long-term averages [17]. - The enterprise value to revenues is at 0.48x, and EV to EBITDA is at 7.3x, both near historic lows for the company [20][24]. Cash Flow and Financial Health - The company reported $858 million in cash against $676 million in financial debt, indicating a strong balance sheet [11]. - A free cash flow yield of 6.76% is noted, providing room for financing the turnaround without additional debt [27]. Market Sentiment and Technical Analysis - Investor sentiment has reached a low point, with a significant short position indicating bearish expectations for FY 2025 [5][6]. - Recent trading patterns suggest a potential stabilization in stock price, with indicators showing improved supply and demand dynamics [29]. Future Outlook - The restructuring efforts are expected to take 12-18 months to yield results, with potential for significant price appreciation if the turnaround is successful [34]. - Analysts project a return to typical sales and margins by the end of FY 2026, assuming no major economic downturn occurs [11].