Under Armour has turned into a disaster for Dick's Sporting Goods
- In its most recent earnings call on Tuesday, Dick's Sporting Goods specifically called out Under Armour as a brand with "significant weakness."
- Under Armour is now selling its wares at more retailers but without much difference in product, which the company has said it's working on fixing.
- Ultimately, Dick's CEO Ed Stack said he thinks Under Armour will "come back."
Dick's Sporting Goods specifically called out Under Armour in its latest earnings call on Tuesday.
While the retailer saw growth in brands like Adidas and Patagonia, it was "offset by significant weakness in the Under Armour brand," Dick's CEO Ed Stack said in a call with analysts.
Dick's reported revenues of $2.66 billion in the fourth quarter, slightly missing Wall Street's expectations of $2.74 billion.
Under Armour's sales were hindered by "expanded distribution" of the brand in discount retailers like Kohl's, which created a "highly promotional environment" and impacted margins for Dick's, Stack said.
"The broader distribution ... definitely had an impact and I think it's going to continue to have an impact until segmentation is done," Stack said.
"Excluding the impact from Under Armour's broadened distribution we were pleased with our apparel business," Dick's CFO Lee Belitsky said on the call.
Stack also mentioned potential upsides for Dick's further into 2018, as new products and innovations start to get rolled out. He explicitly named Adidas' and Nike's product pipeline, but did not reference Under Armour in this conversation.
Analysts have for months been concerned about segmentation as Under Armour has expanded the stores it sells in, including Kohl's, DSW, and Famous Footwear.
Kohl's was a particular sticking point. While sales are up, the fear is that the same kind of product being offered at a discount at Kohl's negates the reason to go to a more high-end store like Dick's.
Sports-focused retailers like Dick's are now planning on stocking less Under Armour product, Sam Poser of Susquehanna Financial wrote in a note to investors earlier this year. According to Poser, they'll instead be prioritizing stores' own private-label brands.
Dick's is one of Under Armour's biggest partners, but it's also undergoing changes in its position at the top of the sports retail food chain. As Dick's introduces new private-label brands like the training-focused Second Skin, the women's-focused Calia, and a forthcoming outdoor apparel brand, Stack said the stores will be allocating more premium space to those new offerings.
Most of that will likely come from the 20% of underperforming vendors it cut in 2017, a process that Stack said is now "basically" complete. But some of this prime real estate could conceivably come from bigger brands like Under Armour, if the brand continues to not perform well with consumers.
Still, Stack said he has confidence that Under Armour will "come back," and is aware of the issues plaguing the brand.
"[Under Armour CEO] Kevin [Plank] and his team are really focused on fixing the business," Stack said. "They have to work on their segmentation, which they are working on."
Under Armour COO Patrik Frisk said in its February earnings call that the company is "strategically managing" to better segment its products.