Under Armour reported third quarter earnings that beat expectations due to strong footwear sales. Under Armour CEO Patrik Frisk joins Julia La Roche to discuss.
Video Transcript
JULIE HYMAN: Welcome back. Under Armour reported earnings this morning. And we are joined now by the CEO Patrick Frisk as well as our Julia La Roche. Julia, take it away.
JULIA LA ROCHE: Thanks so much, Julie. And, Patrick Frisk, thank you so much for joining us live on Yahoo Finance today. Before we dig into the third quarter earnings, I’d like to bring up the deal news today– you all are selling MyFitnessPal for $345 million. Talk us through that. And why now?
PATRICK FRISK: Sure. You know, we’ve owned these platforms– Map My Fitness and MyFitnessPal for the last four to five years. And we’ve learned a lot during that time in terms of how to integrate data and companies. And we have also seen as we’ve dug deeper into the focus around our target consumer going forward, that they were really two very different platforms in terms of what they could do for us.
And MyFitnessPal has certainly been a growth engine to some extent for Under Armour. It’s grown during the time that we’ve had it. And it’s been able to really do a good job on the nutritional side. But when it comes down to our target consumer, the consumer we call the focus performer, we’ve also seen that app specifically not skew as heavily onto the focus performance as the Map My Fitness app. Map my fitness app has also been the platform that we’ve used for our connected footwear.
And we’re very excited about the recent achievement of having about a million pair of shoes actually connected onto that site. So that aligns more with the Under Armour strategy of one ecosystem going forward– the Map My Fitness. So we’re going to keep Map My Fitness and make that the core of our Under Armour ecosystem going forward. MyFitnessPal has a great future. I think they will do better on their own and driving their strategy going forward. So I think this is truly a win-win in terms of what’s next for both of these two different apps.
JULIA LA ROCHE: Well, we’re going to dig into the focus performer in just a bit in this conversation. But I guess to follow on to MyFitnessPal, going back to 2015– in February of 2015 when Under Armour first acquired it for $475 million– that was the reported number at the time. It had about 80 million users. I noticed in the press release today it said 200 million users, yet a lower price here. What happened?
PATRICK FRISK: Well, I think the way that we were thinking about our business back then and what we could actually do with all of the consumers and data that was on the platforms and how to use it, you know, the core thought was that we could use all of these consumers and convert them into selling shirts and shoes. Of course, the space around, you know, apps in general and how this part of the business works has evolved over time.
We’ve learned a lot, as I said, in terms of what we can and can’t do with data and how it works. We just feel that at this point in time, to be able to really maximize any app or any digital ecosystem, it needs to be focused. You need to truly understand what you’re going after and what you’re offering. We think that MyFitnessPal is a great platform. I think it has legs. It will grow going forward, absolutely, but not in terms of how we’re thinking about our digital strategy.
So our digital strategy hasn’t really changed. It’s all about focus, and it’s all about one ecosystem. The reality is with MyFitnessPal and Map My Fitness, we’ve had different ecosystems evolving. And we want to now focus on one– make it simple for our consumer.
JULIA LA ROCHE: Let’s turn to the earnings results. You said in the release today that the results were, quote, “considerably better than expected performance.” So I just want to kind of step back for a second and understand what’s driving that. Is this kind of the macroeconomic picture that we’re seeing? Are we seeing a recovery? Or is it something else as it relates to your strategy? What’s driving that for you?
PATRICK FRISK: I think it’s a combination of both things. And when I say that, I mean part of it is this strategy that we’ve been working towards now for three years. We’ve really rebuilt ourselves and, let’s say, re-engineered our house for the future. We have a much more deliberate go to market. We have an innovation pipeline and product pipeline that’s now coordinated with what we do with our marketing.
And we have a singular message of a platform– a brand platform, if you like– that we launched this year. And we’re being consistent with our messaging. And I think that’s what you’re currently seeing is our ability to break through. We also have the wind at our back to some extent, right, in terms of what’s happening with the pandemic and the fact that people are taking care of themselves a little bit better.
They’re also dressing a little bit differently. So I think for us, it’s a combination of both things. I think after the pandemic allowed us to open doors– and not just us, but also our wholesalers. We’ve seen the consumer come back. But it’s certainly at a slower pace as it relates to traffic. But when they do come back, they do shop and convert better. So it is an interesting dynamic in the marketplace right now, and I think Under Armour has two things going for it.
One is the transformational work that we’ve done over the last three years. We’re ready. We’re able to actually capture the opportunity when we get it. And secondly, we’ve got a little bit of wind at our back right now.
JULIA LA ROCHE: Yeah, I was going to ask you, Patrick, because you were announced as CEO in the fall of 2019. You took the helm officially in 2020. Of course, we got hit with the pandemic. So it’s interesting to hear your playbook here. I do want to talk about the consumer. I want to talk about retail, distribution, because you all just kind of knocked it out of the park when it came to the e-commerce. So it kind of begs the question– do we actually need physical retail stores for the distribution here? And I know you all are exiting– would love to hear your thoughts there.
PATRICK FRISK: Yeah, I think for us ultimately, our entire drive now, it’s about being even more consumer-centric than we’ve been in the past. And we’re enabling that through better tools than we’ve ever had before in terms of our understanding of the consumer monitoring what happens in the marketplace, and also in terms of our transactional platforms– our omnichannel strategy, if you like, like our e-commerce site that we went live with in July, enabling us to actually execute and do a better job of merchandising.
But I do believe as we move into the future for us, being focused around an understanding of where we’re going to compete, which for us is the athletic performance space, who we’re for, which is a consumer mindset that we call the focus performer, and then ultimately our brand positioning– and then being consistent with that over time certainly helps in terms of your ability to break through.
But you’ve also got to be able to deliver against it. So you’ve got to have the right product in the right place at the right time. And that is one thing that we’ve been able to do really well in Q3 specifically, and also one of the things that we feel really good about going forward.
JULIA LA ROCHE: You all plan to remove the brand from 2,000 to 3,000 stores in North America. That’s what I heard on the earnings call. Do we need stores going forward? I just kind of want to kind of double click on that and focus on that for a sec.
PATRICK FRISK: Yeah, I do. I think we do. I think experience is going to be important. I think the role of the store, I think, will evolve as we go into the future. There’s certainly going to be less stores in general, I would say, especially in North America, because I believe that North America has been over-skewed from a retail footprint perspective in terms of the square footage that’s available out there. So you’re going to see a decrease in physical retailing.
But I believe that what we see right now from our consumers, they want to go shop. But they want to be able to do a lot of things in the store, right? They want to be able to pick up stuff, they want to be able to return, they want to be able to feel and see. So there is a combination. There’s a role that the physical store has.
The question is, to what extent? And the question is also, where? And there’s no question in our mind that the digital marketplace will continue to grow. But we still believe that a combination of the two– and also in our case, wholesale is important, because there are certain places where we can’t reach, but the consumer expects us to be. So by being consumer-centric, we’ll understand where, when, and how we should be meeting the consumer’s expectation. And that is really a lot of the work that we’ve been doing over the last three. And that’s the playbook that you’re now seeing starting to put into action.
JULIA LA ROCHE: Why is the focus performer the sweet spot for you all? And you know, I guess, when you see your typical dad wearing the golf shirt with the Under Armour logo– would you see that going forward? And why the focus performer?
PATRICK FRISK: Yeah, I think, you know, as a brand, you know, it’s important as a brand to stand for something. And as we’ve done a lot of, you know, soul searching as well as a lot of consumer insights over the last three to four years, it’s become very clear to us that, you know, Under Armour is a performance brand. Under Armour is understood as a performance brand. The consumer believes us as a performance brand.
So it’s been really important for us to then understand where in the marketplace do we actually have whitespace to grow? And we believe that being a performance brand means to Under Armour that we can grow going forward, because we’ll be focused, and we will be easy to understand. That will also, then, generate a halo into other categories.
So you will see that person playing golf, for sure, in an Under Armour golf polo, because they believe in Under Armour as a brand because we’re clear. And we’re fine with that. So it doesn’t mean we’re not going to sell to a broader audience necessarily, but it really is important when we talk about our innovation, when we talk about our communication that we’re very clear to the consumer what we stand for and what we’re trying to solve for.
And remember, our mission as a brand is Under Armour makes you better. It’s very clear positioning around making sure that anything we do and everything we do has purpose in terms of making you better.
JULIA LA ROCHE: And I hear you on the purpose and having focus. I guess just kind of take us into the strategy here and your own playbook, Patrick. Are you all aggressively trying to, I guess, narrow and slim down so you can get back to growth? Is that part of the strategy? Would love to kind of dig in on that too.
PATRICK FRISK: I think shorter term I would say, yes. What I mean by that is that, you know, the pandemic certainly accelerated some of the work that we already had planned to do. And as we roll forward here into Q4 and into next year, just by the sheer fact of where we’ve been in 2020 and how that plays out, especially in the first half of the year, next year is going to be an interesting year.
So I think for us, we’re going to grow next year. We’re going to grow both top line and we’re going to be profitable again. That’s something we talked about today on our earnings call. But again, it is deploying our strategy. We’ve also talked about some of the headwinds in terms of that growth, right– in terms of selling MFP, in terms of constraining demand to some extent by exiting a number of wholesale doors over the next couple of years in North America specifically.
So there’s certainly things that are balancing out, you know, the acceleration of our growth. But make no mistake– you know, Under Armour is a growth company. Under Armour will grow going forward. We’re going to compete again in a major way in 2021. And that’s something we’re looking forward to.
JULIA LA ROCHE: Well, Patrick Frisk, CEO of Under Armour, it’s something that we’ll also be watching, and we welcome you to join us again. Thank you so much for your time today.
PATRICK FRISK: Thank you, Julia.
