Under Armour's newest executive is zeroing in on its biggest problem
- Under Armour President Patrik Frisk is bringing a disciplined approach to solving the company's most pestering issue, an inventory backlog.
- Frisk has put initiatives in place that should enable precise inventory and supply chain management, according to Jefferies analyst Randal Konik.
- Konik is bullish on the stock.
- Watch Under Armour trade in real time here.
Under Armour has been steadily solving one of its most pressing issues. And its new president, a veteran retail executive, has brought on specific initiatives that are bringing order and discipline to the clean-up process.
The sports-apparel retailer began mismanaging its inventory in the third quarter of 2017, leading to a 22% year-over-year increase. When the problem was first made public in the company's 2017 third-quarter earnings release, shares plummeted 15% in a single day. And that inventory problem spilled over into the first-half of this year.
But it finally appears to be ceding. Earlier this month, Jefferies analyst Randal Konik found that the company had indeed slimmed down its inventory. And that is at least in part to Under Armour's president, Patrik Frisk, who has initiated a program to ease the backlog.
"We walked away with a greater appreciation for the operational discipline Patrik Frisk is instilling in the business, transparency in efforts optimize inventory levels, and long-term international market opportunity," Konik wrote in a note out to clients written after his meeting with Under Armour management.
Frisk, named president in July 2017, has almost 30 years of experience running apparel and retail companies, with stints at The North Face, Timberland, and JanSport.
He has implemented an internal company system that ensures Under Armour is managing its inventory and supply chain with efficiency and precision.
"Frisk has instituted a product calendar that mandates collaboration and assigns accountability across functions like design, marketing, and sales with an end result being fewer bottlenecks in the supply chain and shorter lead times," Konik wrote.
Frisk also has in place a "store-keeping-unit reduction initiative," which is designed to put the right products in front of customers at its retail partners' stores, like Dick's Sporting Goods. The plan is "poised to help retail partners convey a clearer distinction between products to consumers," Konik said.
The initiative is supposed to slow inventory growth to under 20% by the end of the second-quarter, according to Konik, with the idea for Under Armour to be tighter and more precise. Management hopes "more strategic demand planning focused on less excess product creation will be the catalyst in second-half to drive inventory growth closer to sales growth," Konik said.
Konik is looking to the second-half of the year for Under Armour to show notable earnings growth. He has a "buy" rating and a price target of $29 a share, almost 30% above its current level.
Under Armour is up 50.03% this year.
