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Why Under Armour Needs To Stop Trying To Compete With Nike

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Why Under Armour Needs To Stop Trying To Compete With Nike
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Under Armour Inc (NYSE: UAA) delivered a surprise earnings beat Thursday, although Q1 marked the first quarterly loss in the company’s public history.

On the company conference call, CEO Kevin Plank finally acknowledged that Steph Curry’s signature shoe sales were disappointing.

"Our success in basketball hasn't been without its learning," Plank said. "As we launched the Curry 3 late last year, our expectations continued to run high. And while the Three played very well on court for Stephen Curry and our athletes, a sluggish signature market and a warm consumer reception led to softer than expected results."

See Also: Under Armour's Q1 Beat Sends Stock Sharply Higher

Under Armour released too many color-ways for the Curry 3 model that ultimately created an inventory imbalance. Plank insisted future shoe releases will be sharper, "with respect to number of color offerings, scarcity, exclusive and cadence of launches to drive more consistent engagement and results."

Problems Still Persist

Despite a shift in strategy, several problems still persist with Under Armour’s footwear segment. The company has gradually increased the price in each subsequent Curry shoe release while Nike Inc (NYSE: NKE) lowered its signature shoe price points to become more competitive with Under Armour.

Now that the Curry 3 failed to move as anticipated, Under Armour has brought prices down nearly 30 percent to remain competitive, taking some luster away from the shoe line. ESPN also noted Curry’s preference to wear a higher profile shoe on the court to protect his ankle poses some style preference concerns - 80 percent of people who wear basketball shoes "do so for fashion," according to ESPN.

Inc. Magazine columnist and sports attorney Darren Heitner believes Under Armour should shift its focus away from competing with Nike and hone in on what it does best.

"I think that a key for Under Armour is to realize that competing head-to-head against Nike and in Nike's strengths is not the most sound strategy for growth and enhanced earnings," Heitner told Benzinga in an email. "Under Armour has made some very interesting data-related acquisitions in the somewhat recent past and has been able to take notable market share in other sectors."

"While it has an enticing endorser in Steph Curry, its basketball product leaves a lot to be considered especially as compared to Nike," Heitner said. "I don't think Under Armour should simply siphon off the business, but perhaps put less emphasis in beating Nike at its game and focus more heavily on other areas."

Under Armour's stock was up more than 9 percent at $21.57 Thursday afternoon.

Posted-In: Darren Heitner ESPN Kevin PlankEarnings News Sports Exclusives General Best of Benzinga

 

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