Under Armour: Good Pick For The New CEO (NYSE:UA)

Introduction

After broadcasting on May 18, 2022 that a CEO transition was underway, Under Armour (NYSE:UA) finally announced on Dec. 21, 2022 that Stephanie Linnartz, President of Marriott International, Inc. (MAR), would become CEO on Feb. 27, 2023. In her current role, Ms. Linnartz has been responsible for developing and executing MAR’s global consumer strategy. Notable aspects of her duties include managing brands, marketing & sales, revenue management, customer engagement, technology, and more. MAR is the world’s largest hospitality company with almost 8,200 properties throughout 138 countries under dozens of brands.

At a first glance, it seems like Ms. Linnartz was chosen due to her deep background in technology operations and her successful oversight of MAR’s comeback post-COVID, which has seen the stock outperform peers this year and post stellar results, above the S&P500. I think the selection is interesting – because while it acknowledges some deficiencies for UA (notably on digitization), it provides the company with an opportunity to refresh the brand and its strategy.

It will be intriguing to see if Kevin Plank, founder and Chair of UA, will relinquish some control to allow an executive from a different industry to truly shake up the company. UA also mentioned that interim CEO, Colin Browne, will become COO, which implies the strategy won’t change much. In the near-term, I re-iterate a Hold rating and an $11 USD price target until the total strategy can be clarified in 2023.

CEO Background & Fit

Prior to Ms. Linnartz’s appointment as president of MAR in February 2021, Ms. Linnartz led the Consumer Operations, Technology and Emerging Businesses Team and started with the firm in 1997 as a financial analyst. She is also on the board of Home Depot (HD), which showcases that she has a strong retail background and an understanding of a medium-high income consumer. She has some experience in sports, as Marriott has completed partnerships with several sports leagues, including with the NFL, NCAA, and Formula 1. Ms. Linnartz has also assisted in key digital transformation plans, including tipping through an app and even experimenting with VR. This unique background leads me to believe that Ms. Linnartz is a very capable pick to lead Under Armour and should be able to improve the brand strength.

When reviewing the fit with UA to Ms. Linnartz, I believe there are key synergies that can be activated. UA has several key strengths that Ms. Linnartz can build upon, including being one of the most known sports brands globally, which is similar to Marriot’s standing in the hotel industry. UA also has a diverse product portfolio and Ms. Linnartz oversaw dozens of brands at MAR, so she should be able to sift through and/or reduce spend on the underperformers and generate outsized growth in the company’s top segments. While the wholesale business has continued to generate global growth, e-commerce sales remain only 36% of the revenue mix, and her digital transformation experience at MAR should allow UA to develop this part of the business. Improving e-commerce sales will be critical to compete on a global scale, and bringing in fresh blood from a consumer-oriented executive with proven experience in successful digital transformations is positive.

Risks

Surprisingly, I don’t think this appointment comes with many risks from the new CEO. Ms. Linnartz is more than qualified and brings experience from various sectors that should allow UA to improve its connection with customers. The key risks are the macro environment and Kevin Plank’s influence. Retail sales are slowing in the U.S. and a small recession seems imminent in 2023. Being able to strengthen the brand in specific areas will be critical to weather the storm. While not a deal breaker, it would have been helpful to acquire an executive who has experience in specific sports/categories that could have helped tailor UA’s strengths to its offerings and become a leader in select categories. As of now, it seems likely that UA will remain a competitor, but not a leader, in several athletic apparel and footwear categories.

The other key risk is Kevin Plank’s influence. While still an impressive executive that helped grow the brand since he founded it decades ago, the company has been plagued by numerous scandals and he was forced out of the CEO perch in 2019 amid lagging results. Mr. Plank told CNBC that he will remain the brand chief and that this appointment is a “partnership. She and I will be partners“. This explicit clarification is glaring, and I worry UA may bring unique ideas to the table that may die on arrival. Patrik Frisk only lasted about 3 years and did not have much success as CEO in this “partnership” arrangement at UA.

Conclusion

UA announced a new CEO that is capable of leading the firm into the future. Ms. Linnartz has proven experience in consumer brands and in the retail sector. Overall, she looks like a strong choice for the CEO perch. However, sluggish macro and retail economic trends and outsized influence from an embattled executive may slow progress for UA to right the ship. The stock has a chance to outperform, as in my recent model, I forecast an $11 USD price target, which is supported by a low EV/EBITA of 10. Let’s see if UA will revamp their product offerings and I await their refreshed strategy, if applicable, in the new year. Keep an eye on UA, as this appointment at a first glance is a net positive. However, until more details are provided, I am sticking with a Hold rating.