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Under Armour issues new shares, underlying concerns persist

On March 16, 2016, Baltimore-based performance apparel giant Under Armour announced it was to issue new stock in the form of new Class C shares. The new shares, which do not carry voting rights, became ‘live’ on April 8, effectively halving the share price.

These shares are traded under the ticker UA:C, while the Class A shares continue to float under UA on the NYSE. Both classes of these openly-traded shares exist alongside the company’s Class B shares, all of which are beneficially owned by founder and CEO Kevin Plank, and which carry ten times the voting power of the company’s Class A shares.

The issuance of new stock follows stock splits in 2012 and 2014 (two-for-one Class A splits on both occasions) in what is a tried and tested way of attracting more capital to help the business’s growth aims, the idea being that more available shares at a lower price opens up the stock to greater numbers of potential investors, thus increasing the potential flow of capital into the business. However, it can also be argued that Plank is trying to grow the business using investor cash while refusing to cede any more control. The fact that he is the sole beneficial owner of the Class B stock lends weight to this argument and means that the business is over-reliant on one individual, particularly when it comes to decision making.

This has created some dissatisfaction among investors and before the stock split could go ahead, the company was forced to settle a lawsuit with disgruntled shareholders who sued over the Class C share plan, alleging that Plank was attempting to preserve his personal control while selling shares. Question marks remain, and negative outlook statements from Morgan Stanley raising question marks over the company’s future direction have done little to assuage investor fears.

Morgan Stanley analyst Jay Sole referenced price incentives as a reason for the company’s recent footwear success, but such a strategy is not sustainable in the long-term and uninspiring SportScan data shows weak underlying performance in several key areas, most notably women’s apparel. Furthermore, the bankruptcy of retailer Sports Authority (which owes Under Armour $23m), has also caused concern, although Under Armour is standing by the guide figures for revenue and profit that it issued at the beginning of the year.

Jordan Spieth’s back nine Masters collapse contributed to a share price fall on April 11, showing that fundamentals are not the only driver of share price for Under Armour. The company will hope that its star golfer’s collapse is not a harbinger of things to come and although some worrying signs do exist, Under Armour remains a sound business with great growth potential. Its share price will not be joining Jordan Spieth’s Titleist golf ball at the bottom of Rae’s creek anytime soon.