For those living under a rock the past year, the long overdue maturation of one of America's success stories -- Under Armour (UA) -- continues unabated. Wall Street may not like it, but it must happen.
Several things are playing out at the company. First, some disciplines are being put around expenses in the wake of slowing sales. Don't expect any massive cost-cutting campaign -- it's more along the lines of the company having to better scrutinize where it spends its capital.
Second, Under Armour has been whacked in the head with the reality it can't seriously take on Nike (NKE) without adding immense layers of talent and, to a lesser extent, a stable of athletes to drive buzz. And finally, the company is looking within like never before, assessing whether its product development includes the game-changing technologies that burst it onto the scene years ago via a compression shirt.
To be sure, Under Armour lost sight of the quality of innovation the past year, as it tried feverishly to meet yawning sales and profit goals of Wall Street (which in large part were set by overly optimistic management). Under Armour became more Blackberry (BBRY) (a company that for years has put out sub-par products) and less Apple (AAPL) (the gold standard in product quality).
So it's no surprise that the company moved to hire its first-ever chief innovation officer -- from General Motors (GM) -- on Monday. These are types of high-profile key hires one should expect from Under Armour over the next year. The company not only needs to boost its level of innovation, especially in footwear, but it has to tone down its desire to conquer the world and get highly profitable, impactful products to market faster than ever before. To that end, it's vital the company starts to break from Nike and others and develop a fast-response supply chain in the United States. Doing so is very important right now as rival Adidas (ADDYY) is laying the groundwork to be a fast-fashion like sportswear retailer.
Further, it's critical these types of high-profile hires come from outside the bubble that is Under Armour. The company needs fresh eyes on existing lines of business in order to lay the right groundwork for future lines of business.
"The biggest need we have is that we have a massive innovation pipeline and we want to make sure we are making the right decisions around focusing, editing and speeding up that pipeline," Under Armour president, category management and innovation Kevin Haley told TheStreet in an interview. "There is never a shortage of ideas -- the bigger challenge is, because people bring us ideas from Fortune 500 companies to inventors in garages to VC-backed startups in Silicon Valley, to really edit them and sequence it for a given year and season."
In other words, Under Armour realizes it can no longer just dump product on the market for the sake of doing so. Products need to be scrutinized for their level of innovation, potential in the marketplace and how they all fit into an impactful marketing campaign. Unfortunately for Under Armour, establishing its next chapter will take time and resources, and that may not play out so well in the minds of Wall Street.
It's likely the company isn't done yet with longer-term profit warnings as it goes through this transformation into a more mature sportswear retailer. And it's probable that even in spite of a vicious one-year stock slide, Wall Street continues to underestimate the upcoming challenges for the brand.
The good thing is that Under Armour is unlikely to have reached peak innovation; the bad thing is that it needs to kick it up 12 notches and then get paid for doing so in a challenging retail climate.
"We always say we have not yet made our defining product," Haley said. For the sake of Under Armour's investors, hopefully that proves true.
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