Maybe a topic for the LV room but I know it has been a pretty widely used brand by a lot of you here. Watching the business channel and the stock is tanking like a rock with a hole in it. I have watched the company (well how it has faired on Wall Street) and it was a darling at one time, and now a takeover target with no apparent bottom. I haven’t used the stuff but heard that people liked it. Just a case of bad business with a good product?
On the other hand Hoka just gave quarterly results and they are once again up over 30+% year over year and did well over $40 million this past quarter. They were already on a very steep incline before the Ironman deal, has this association put the brand in front of any of you that didn’t know about it already? Guessing no or not many as it has been on this site for 5+ years now, but seems like it is going mainstream now. Looks like they could crack $200 million for 2018 at this rate. I have never seen an Ironman branded company really do well besides Timex, and never bike, shoe, or clothing companies. Will Hoka be the first?
Disclaimer: I am not in retail and know nothing about it.
Phew, with that out of the way, it seems like a huge issue facing the whole retail world is just too many SKUs. Maybe the powerhouses can get away with this (Nike/BMW/Ray Ban), but the upstarts that limit options and focus on making each product great seem to be gaining ground (Hoka/Tesla/Roka).
A quick search shows Hoka having 19 models of men’s shoes. Under Armour has 348. To me rather than a diverse product line, I see a lack of focus.
From what I’ve read, UA put a lot of their products in stores like Sports Authority who went out of business a few years ago. Their running shoes are ok, but they’ve invested a ton in college football sponsorships and Steph Curry basketball shoes which aren’t bearing fruit. I’ve been to their HQ in Baltimore and they don’t appear THAT big to throw the money around they do. The Notre Dame deal alone has to cost a ton!
You may be onto something on the SKU’s theory. I think once a company gets so much momentum and is growing way faster than it can handle, it is the normal thing to do to try and sell more stuff. I remember way back in the day when Trifit just blew up and they opened their own factory with dozens and dozens of sewers to make all their stuff here. But easy to scale up when things are going gangbusters, not so easy to scale down once you build all that infrastructure. So maybe UA is going the way of Trifit? And I know most of you are going what the hell is Trifit, exactly…
Hoka has expanded greatly their brand too, but I think in a more manageable way. Several offshoots have been non starters, but that is ok as long as you don’t completely flood and confuse the growing market you are enjoying. Spend you energies maximizing what is getting you there, and once you have arrived you can add in the Hoka handbags and stripper stilettos.
And yes, old people are finding the shoe too. My father in law got a pair from me and has since probably bought a 1/2 dozen, while probably turning on some of his friends to them too. I said it before, wait until the mailmen, waitresses, UPS drivers, etc. figure out this shoe. Although I do see a lot of copies now from the bigger companies so perhaps that time will just build the category more than the brand Hoka…
I thought Hoka had a lot of SKUs and is a little confusing, but 348! Yikes, that has to bring a lot of overhead in just managing all of them. So, I’m with you on the lack of focus.
Comparing Hoka to UA is not exactly applies to apples. UA is competing against Nike & Adidas for basketball, football, soccer, etc…, etc… as well as running so having 10x more shoe SKU’s isn’t out of line. For the record - I’ve been running in a pair of shoes from them I really like - as well as Hokas and Sauconys in the rotation.
They did lower guidance on the year with latest earnings report, so that is the reason for the stock drop:
Under Armour reduced its full-year sales expectations, "reflecting lower North American demand and operational challenges."The company also slashed its 2017 earnings-per-share forecast.Under Armour shares have fallen more than 50 percent in 2017.UA was started by a guy from my alma mater at Maryland, so I have always pulled for them. I bought some of their first running shoes ~8-10 years ago and they were not good, but I’ve been very pleased with the latest pair.
they’ve invested a ton in college football sponsorships and Steph Curry basketball shoes which aren’t bearing fruit. I’ve been to their HQ in Baltimore and they don’t appear THAT big to throw the money around they do. The Notre Dame deal alone has to cost a ton! //
The other half to the ship sinking coin, spending money before you have actually made it. Cant tell you how many smaller business’s I have seen fail because of the disconnect from the money that goes into the cash register and the pile of bills in the back room. Have a 30k day, buy a new truck with a company wrap!! We got 120 days on those little bills in the back, we’ll pay those later…
348 sku’s for a global market isn’t that many. On a National level this many sku’s begin to cannibalize on each other’s overall sales and margins. This is why you see items rated as top seller (based on units sold) which is severely discounted compared their top tier products (highest margins).
There was a thread on here that gave Warren Buffets explanation on the retail sectors decline; it had to do with attracting customers by slashing prices, otherwise no one has an incentive to walk into a store.
IMO, Hoka is going mainstream despite the deal with Ironman. That deal put them in front of their core consumer, so not really sure of the strategy. What I believe to be working for Hoka is they’re making more relevant footwear that can be worn by more people. Meaning, styles that look less like the original version(s) and are more in-line with traditional styling without sacrificing their comfort story.
I can’t begin to explain what’s going on with UA. A few years ago, they seemed poised to compete with the big 2 but, somewhat inexplicably, they’ve lost their cool factor with the kids. I find this really interesting considering their stable of athletes and influencers (Curry, The Rock, Lindsey Vonn, etc) and collegiate sponsorships. Most analysts will suggest it was aggressive expansion into categories they had little to no reason to be in.
Comparing Hoka to UA is not exactly applies to apples. UA is competing against Nike & Adidas for basketball, football, soccer, etc…, etc… as well as running so having 10x more shoe SKU’s isn’t out of line.//
But I think this is part if not all of their problem, why are you competing with Nike and other big players before you have any traction on your shoes? Hell, I hardly knew they even made shoes, they were an advanced technology clothing company. For years I would see the CEO on Cramer or other business channels touting the future of smart clothing, almost never a mention of a shoe. Only when they brought on Currie did I even know about their shoes. So seems like they tried to force a brand of shoe on the market that just was not ready, and tried to compete with heavily entrenched players.
Hoka on the other hand has grown organically and as they get bigger they do bigger deals. I really don’t like the Ironman deal, but it is a drop in the bucket compared to any of UA ones. I think Hoka will survive the Ironman deal, not thrive on it like they would hope. Problem for them will be how will they actually know? Growing at such a high% before the deal is going to make it really hard to know if you got any bump at all.More likely things slow down(as they always do as a company matures) and then have to wonder if they just wasted all that money( they did)…
Would also consider for Under Armour some reaction by folks over a Company everyone expected to grow like a weed over the next couple years. The lowering of guidance obviously speaks to that and hurts them. Retail in general has been bad over the last year / year half.
Who would’ve ever thought Adidas would make such a crazy strong comeback on the heels (heh) of the UltraBoost.
Would also consider for Under Armour some reaction by folks over a Company everyone expected to grow like a weed over the next couple years. The lowering of guidance obviously speaks to that and hurts them. Retail in general has been bad over the last year / year half.
Who would’ve ever thought Adidas would make such a crazy strong comeback on the heels (heh) of the UltraBoost.
THIS ^^^
UA grew at something like 20% annually over the past decade. Everyone cheered for it and the Wall Street rewarded it with a generous valuation.
Over the last couple of years the growth has slowed down, and now it is seen like any other mainstream sports apparel company (Nike/Reebok/Adidas). The valuation adjusted accordingly to account for slower growth.
Just one humble triathletes opinion who works in finance at a major retailer: Comparing the two is really apples and oranges.
Hoka, owned by DECK, is a small company so sales growth in the 30% off of a small base is not newsworthy. DECK’s total revenue (which includes other brands like Teva) is $1.7b vs UAs $4.8b. Hoka is a niche player in a massively competitive and crowded market. I don’t know what their market share is of athletic shoes but as soon as Nike et al start loosing noticeable sales to Hoka, Hoka will be crushed.
UA, on the other hand, has several problems. First is cost structure. In the last four years, they have added 21 bps of SG&A as % of sales. Nike, in the same time frame, has decreased SG&A as % of sales by 78 bps. UA is 38% SG&A as % of sales vs Nike is 31% SG&A as % of sales. Hard to grow earnings for shareholders if your costs structure is going up.
Second is product and pricing mix. UA has enjoyed gross margins in the past of almost 49%. Nike’s gross margin has hovered around 45%. Hard to be the upstart and take market share if you are also price takers within the market. Usually, the smaller, faster growing company does so because they offer an equally competitive product at a lower price. Or, you can offer a premium product but accept lower volume. But you can not typically do both (maximize volume and margin).
When UA was more focused on compression gear, they could enjoy a higher gross margin and higher cost structure. As soon as they decided to become a lifestyle brand (whatever that is), their financials had to skew towards their competitors (it ALWAYS works that way).
Finally issue for UA is that they are cash flow negative. OK to do when you are a startup but not ok now. Angle investors may accept that but public shareholders typically do not.
How to fix UA:
Crisis - realize they are in crisis mode and act like it.
Cash - Must get cash outflows under control. Capital investment is too high (CAPEX as % of sales has grown from 3.79% in 2014 to 8% last year). Make sure inventory growing slower than sales and payables faster than inventory (they did a good job of this in 2016 but a very poor job in 2015; I suspect this year will be another poor year).
Cost - Need to massively restructure to get their costs at least headed in line with their competitors (if not below). “Painful cuts” like no admins for execs, everyone takes their own trash out, no free coffee, etc.
Concept/Customers - Become very focused. Stop the “life-style brand” strategy and commit to a focused set of sales channels and products you can own/win at (see Steve Jobs at Apple, GE under Jack Welch and P&G under AG Lafley). You earn the right to add additional channels once numbers 1-3 are done.
Culture - No idea what’s it’s like to work at UA. But my experience as a consultant says that companies that are in the downward spiral don’t have amazing cultures.
It is easy for a small company to grow (HOKA) then a large one (UA). Hoka has had nothing but positive press as of lately and apparently - ive never tried - but their shoes are solid and people actually like them so will stand behind them. They are also different and not typical shoes. Most of their revenue is also from shoes.
UA - there is no damn different between their shoes and Nike and Adidas. Also, they sell A LOT of other apparel that brings in revenue. They have also had an 85 million charge for restructuring and have huge marketing campaigns and sponsorship’s. If you went to a store - say Dicks Sporting Goods or Academy Sports. Tried on a running shirt, running shoes, running shorts, running tights, basketball shorts, cross training anything, etc…you could easily go between Nike, UA, and Add. Ford vs Chevy vs GM. Fairly easy to interchange.
You want a shoe like a HOKA…you are specifically ordering it or going to a specific store to buy it. Harley Davidson of shoes
then it is also a brand thing: Have you ever heard anyone say “yo bro - those are sweet under armour shoes”…No, it is usually yo sweet Jordans or sweet And1s or sweet Nikes.
most of this is corporate bullsh*t though. Profit of 54.2 mil 128.2 mil a year earlier. Look what sports they are in, look at the season in highschools, colleges, etc. They had restructuring and that always raises a flag on the street.
I dislike them…I am a On Running shoe guy haha but Nike is my 2nd option. Plus Nike owns hurley. So they literately have EVERY sport covered.
Hoka is staffed with smart and successful running industry folks. From product to marketing they are in good hands. The question is who is funding or in other words buying Hoka today? If they can crack the code and get younger runners in their shoes they should do fine. My data shows that it’s not easy for Hoka or many others for that matter to crack that code.
I studied this exact thing in my masters marketing class. Did a ton of studies.
It all came down to colors they liked (black and then brightly colored), a price that was not high (cant afford it) and not cheap (didnt want to be seen as cheap), huge endorsements don’t really matter as much as you think unless you are a hardcore BBall player.
I haven’t given them a penny since that day, in fact. I never wore their shoes (love my Hokas, coincidentally enough), but UA is dead to me as a company unless and until there’s a major restructuring and change at the top.