Under Armour yesterday announced the sudden departure of Patrik Frisk, the company’s CEO for the last two years.
Frisk will also step down as a member of its board of directors. The company has initiated an internal and external search process to identify a successor, and has appointed COO Colin Browne as interim president and CEO until a successor is named.
The news comes amid an already turbulent time for the Baltimore-based athletic giant, which reported disappointing earnings in its most recent transitional quarter due to ongoing supply chain challenges and a hit to the company’s business in China. Under Armour reported a net loss of $60 million in the quarter, with an adjusted loss of $3 million. Revenue was up 3% year-over-year to $1.3 billion.
Shares of Under Armour were down almost 10% on Thursday morning following the news of Frisk’s departure, which is effective June 1. However, while analysts agree that the move adds an element of uncertainty in the short term, it also represents an opportunity for more incremental growth for the brand.
In April of 2020, Under Armour rolled out a restructuring plan with the goal of adding between $475 million to $525 million in pretax charges and reduced its expenses further with temporary layoffs for retail and distribution workers, reduced compensation for top executives, and other cost cutting measures.
“Under Armour’s decision to pivot CEOs presumably signals a desire to push past restructuring and reignite growth,” wrote BMO analyst Simeon Siegel in a note, in which he gave Under Armour an “Outperform” rating. “Although COVID-19 helped companies focus on profits over growth, it seems the board is ready for growth.”
Cowen Equity Research analyst John Kernan similarly described the announcement as a “reset” for the company’s narrative in the wake of a weak quarter. Other analysts also pointed to the company’s potential to improve margins and revenues with the right person leading the charge. Under Armour’s turnaround plan has already seen significant success throughout 2021, and analysts say they see potential for a new, capable CEO to continue this progress.
“We see Under Armour at an interesting juncture with the stock now valued on tangible earnings power vs. structural potential for margin improvement,” said Stifel analyst Jim Duffy in a note. “Accordingly, we see value creation more dependent on revenue growth and believe Under Armour’s CEO search should prioritize global brand leadership talent with a proven track record for unlocking incremental growth.”
Overall, analysts praised Frisk’s perfomance since he assumed the role of CEO in January of 2020 after company founder Kevin Plank stepped down. (Plank remains at Under Armour as its executive chairman and brand chief.) Prior to Under Armour, Frisk was CEO of Aldo Group for more than two years, and before then spent almost 11 years in various leadership roles at VF Corp. Analysts also praised the choice of Browne as logical and suitable interim successor.
“We are hopeful UAA can attract a new leader to build upon existing progress behind strengthening brand/operations, and to reestablish investor confidence in the brand’s profitable growth potential following a recent setback,” said Baird Equity Research
analyst Jonathan Komp in a note.
Under Armour said it expects revenue in fiscal 2023 to increase 5 to 7 percent versus the comparable baseline period of $5.7 billion, reflecting a mid-single-digit growth rate in North America and a low-teens growth rate in the international business. And while current challenges somewhat cloud visibility, the long-term expectation is for the company to reach these targets.
“We have been impressed by the progress being made at Under Armour to protect its house,” wrote Williams Trading analyst Sam Poser. “We do not believe that the pending CEO departure means that UAA will miss its FY23 guidance, but it does mean that the uncertainty as to what’s happening makes it difficult to step up and buy the stock at its current level.”