In the wake of a truly stellar partnership with Virgin Galactic, we look at how and why Under Armour is changing things up amid a time of uncertainty.
Its revenue growth may be in, or near, the gutter, but Under Armour (NYSE: UAA) is looking at the stars. On October 16, the apparel company and Richard Branson’s space tourism enterprise Virgin Galactic jointly unveiled a line of chic Under Armour-produced spacesuits.
The suits, which will be worn by Virgin Galactic’s lucky few passengers, were inspired by the costumes in science-fiction shows such as “Star Trek” and “Battlestar Galactica.” Fashioned from a special material that can regulate body temperature, they’re the product of months of collaboration between an eclectic team of pilots, astronaut technicians, and designers. Branson himself called the clothing “ridiculously comfortable.” Needless to say, for a company better-known for its sportswear and footwear, the Virgin partnership is somewhat left-field.
“Going to space presents an entirely new challenge for us,” commented outgoing Kevin Plank, Under Armour’s CEO, adding that the company had employed a “dedicated team” to work full-time on the designs. With tickets for Virgin’s space adventure starting at $250,000, it’s fair to say that the market for the suits will be very small indeed, at least until space tourism becomes a mainstream economic activity – if it ever does. This begs the question: why would Under Armour take on, and devote so many resources to such a project?
It’s not hard to conceive of a purely financial answer. The sleek designs have been praised by fashionistas and techies alike and could allow Under Armour to snatch up big-money contracts in the space travel industry, including from the likes of the U.S. government. But the more likely answer is that the collaboration represents a big publicity win for the company, allowing it to bask in positive press attention as well as potentially secure a place in history, as Virgin Galactic CEO George Whitesides suggested during the launch event. Meanwhile, space exploration has historically led to huge unanticipated innovation (in fact, there is a long Wikipedia page devoted purely to NASA spinoff technologies), and the project will offer the company a unique lab in which to test products for use down on earth.
If we were to be less charitable, it might be said that the alliance resembles a mere media stunt designed to redirect attention away from some of the company’s more serious ailments. Under Armour has gone ten quarters now without seeing double-digit year-on-year revenue growth and a full two years since investors were informed of a company-wide “transformation.” The impending departure of Kevin Plank (following revelations that the company is under federal investigation for improperly recording sales) will only intensify these woes.
While CFO David Bergman has cited cost structure improvements and a streamlined supply chain as signs of a tighter financial ship, the slow revenue growth combined with the relatively high share price is proving underwhelming for investors. A near-literal moonshot such as the Virgin partnership came right at a time when Under Armour needed a dose of inspiration to keep its true believers on board.
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