Under Armour Cuts Sales View on Softer Demand Around the World

0:00When your options are limited, so are your opportunities. At SIBO, the global exchange that pioneered options trading, we offer more ways to move with the market. From VIX and SPX options to global market data solutions, SIBO helps investors diversify, manage risk, and stay ahead of whatever the market does next. SIBO. Life is better with options. Your investments could be too. There are risks associated with SIBO Company products. Review the disclosures and disclaimers at SIBO.com slash US underscore disclaimers. Our hometown is not a test tube. 90 miles northeast of Nashville, a battle for the future of America plays out in one small town.

0:39Developers with right-wing ties have purchased hundreds of acres of land. We need cities on a shining hill. This is Our Town, a podcast about what happens when a small town becomes the site of a social experiment and fights back. Guess you didn't move in on a bunch of dumb hillbillies now, did you? Listen to Our Town on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

1:07Scarlet Fu:Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. All right, well, let's talk about one of the big businesses or one that aspires to be a big business, and that would be Under Armour. It's the athleisure company, athletic wear company. Maybe athleisure is pushing it a little bit. Poonam Goyal is a senior U.S. e-commerce and retail analyst here at Bloomberg Intelligence.

1:44Scarlet Fu:And Poonam, Under Armour, it feels like it's been this reorganization, restructuring story for a while now. Where are we in that reorganization, restructuring story for Under Armour? Because the stock performance today shows that there's still some way to go.

2:03I've been through this turnaround story several times over the past two decades. So clearly it's happening once again. Now, what I'd say for them, you know, I think they are focused on the right things. The question is, will the consumer respond? Right-sizing inventory was down just 3 % in line with the sales decline. It's a positive sign. That said, it was interesting that they called out that the consumer is actually weak, because when I look at competitors, some of the larger ones like Adidas and Nike, they're actually doing pretty fine in North America. And I think that may have to do with just their bigger boat and also the World Cup and their bigger presence there.

2:43Yeah, I was wondering about why demand was softening with Under Armour. I know Under Armour is kind of a middle of the market brand. Is part of what's happening here maybe that the demand for kind of middle of the road brands is softening while maybe demand for higher end brands is gaining ground or is it something else entirely? Yeah, I think it's a mix of a few things. So first, I do think that it has to do with the higher end customer is doing better than the mid or the lower end. So we do see that across the spectrum. That said, Under Armour, while it is middle of the class, you know, it's not Nike or Adidas, but it is still a strong brand when you think of athleisure, especially compared to like some of the other brands that are up and coming.

3:27I think Under Armour does still in North America have across the board, not just in metro cities, a name. That said, I do think the last quarter weakness does stem a little from just when you think about what was going on, especially in the U.S., it was all about the World Cup. And Under Armour doesn't really have a meaningful presence there. So when consumers are shopping the stores, when they're going online, it's just not the brand that comes front and center. that said under armor is largely apparel right with the exit of steph curry so that differentiates it from where nike and adidas sit which are predominantly footwear brands with an apparel

4:06Scarlet Fu:offering i'm so glad you brought up steph curry because i feel like that's how a lot of people encountered uh under armor if they weren't wearing you know the cold tech or heat tech shirts that the company made what do we know about what happened there and how how under armor is thinking about maybe replacing or finding another celebrity endorser or celebrity partner to work with it? So I think replacing Steph Curry isn't an easy task because when they signed Steph Curry, Steph Curry wasn't the Steph Curry that we know today, right? It was a younger talent and it was also probably more in line with what they could afford as Nike and Adidas have deeper pockets and Under Armour to support some of these brand collaborations.

4:50That said, I think the focus now is on just developing the right product. They're going back to their DNA. They're going back to the basics, which is can we develop a product that speaks for itself and it doesn't need a brand ambassador? It's a hard task. And yes, you can do that for some things, but in atleisure, you do need that brand endorsement, that athlete credibility to really rise further along. For them, I think the one product that they've been talking a lot about, and they actually talked about it several times on the call, was a bouncy T-shirt. which is an it's a really cool product that they've developed and it's innovative where you can wear this t-shirt you can wear it to the gym you can wear it to the bar and you can wear it every day and it kind of fits the whole spectrum of your lifestyle so that t-shirt is doing really well and they're looking to use that as a stepping board to kind of launch more products

5:45Scarlet Fu:and really drive customer interest okay the bouncy t-shirt i'm looking online 65 dollars and it has a 4.9 star rating. This is just a plain t-shirt that looks good enough to wear. But it bounces. I don't understand how a t-shirt can bounce. I'm not sure why it's called bouncy. Come on, get on board. When you wear it to the gym and then wear it out, does it deal with your sweat? Or is it just that its style is such that you could wear it to the gym and then out? Yeah, is this a performance wear? It's everything. It's performance, it's going out, and it's every day, which is what makes it so versatile.

6:24And that's what they're basically saying, that this is a versatile T-shirt that you can go to the bar on Friday nights, you can wake up and go to the gym Saturday morning, and then you can wear it throughout the day. It works for everything. And it's done really, really well for them. It is, I would say, you know, something that's working. And if they continue to innovate in this manner more extensively, they could start to gain some traction. But that's not going to happen overnight. I think there's still, to your original question, a long way to still go from here before we can say that we see a straight line up.

6:56At this point, it's still very mixed.

6:58Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. When your options are limited, so are your opportunities. At SIBO, the global exchange that pioneered options trading, we offer more ways to move with the market. From VIX and SPX options to global market data solutions, SIBO helps investors diversify, manage risk, and stay ahead of whatever the market does next. SIBO. Life is better with options. Your investments could be too. There are risks associated with SIBO Company products. Review the disclosures and disclaimers at SIBO.com slash US underscore disclaimers. Our hometown is not a test tube.

7:3790 miles northeast of Nashville, a battle for the future of America, plays out in one small town. Developers with right-wing ties have purchased hundreds of acres of land. We need cities on a shining hill. This is Our Town, a podcast about what happens when a small town becomes the site of a social experiment and fights back. Guess you didn't move in on a bunch of dumb hillbillies now, did you? Listen to Our Town on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

8:10Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Matt Shunhelm. Matt, you're joining us because the FCC has removed nationwide cap, limiting local TV ownership. That's quite a headline. What does this mean in your world? Yeah, so the media environment has changed a lot over the past couple decades, but FCC rules haven't. And so broadcast TV station owners for years have been stuck with this limit on how big they can grow.

8:53The FCC rule said no company can reach more than 39 percent of U.S. households. And what the FCC did yesterday is scrap that rule and say, look, we're not going to have this numeric limit on companies anymore. So this presents a really big opportunity for companies like Nextstar, Sinclair, that own the TV stations across the U.S. to grow larger because they're not hamstrung by this long existing FCC rule anymore. What does this mean for media consolidation? I feel like there's always this statistic we hear that there are these six conglomerates that now control 90 percent of U.S. media. Is that likely to get more extreme?

9:39I mean, that doesn't seem like necessarily a great thing for voters. Right. So this, you know, when you listen to FCC chairman Brendan Carr, he said this is really about empowering local TV stations so they can compete with those big national media companies. Right now, those stations really have very little leverage when they negotiate with ABC, CBS, NBC, and with cable companies when they have to get their media distributed. So in Brendan Carr's view, this is about sort of empowering a new set of entities in that media ecosystem. The owners of these local stations that right now are, you know, they're limited or previously were limited by this FCC rule that could only get so big.

10:29So they had no leverage. This gives them more of a voice in Brendan Carr's view against those national media companies. So maybe it leads to to a little more competition in that space.

10:42Scarlet Fu:So this is deregulation, essentially, and the broadcast industry has been waiting for it for a long time. Which companies are going to jump on this and make a move? So Nexstar has already jumped on it with its acquisition of Tegna. But there was sort of a legal cloud around whether they could do that. You know, by acquiring Tegna, they went way beyond the 39 percent U.S. ownership cap. And the FCC at the staff level said, you know, we'll waive that requirement. Don't worry about it. That was sort of legally questionable. This is the right way to do it, to do it through a rulemaking to actually change the rule.

11:21So it's an opportunity for Nextstar to get past legal hurdles on its Tegna acquisition. A company like Sinclair could also look at this. It featured prominently in the company's earnings call a couple days ago. So there could be opportunities to grow much larger, go way beyond the 39 percent. But one big and important footnote, there's going to be a legal challenge to all of this. That's coming next. It's not totally clear the FCC can do what it did or whether only Congress can do it. That's going to be the fight that plays out next. What is the legal challenge exactly? So in 2004, Congress told the FCC, let's set that limit, that ownership limit at 39%.

12:05And it said, FCC, change your rule to make it 39%. The question is, when Congress did that in 2004, did it mean that the FCC can't update that rule later? Is it only Congress's call? And there are strong arguments on both sides that, you know, the FCC says, look, we still have our power to modify our rules. Congress didn't take that away. The other side said, no, Congress was pretty clear. We want 39. And it said that five times in its statute, 39 percent. So it's not clear that the FCC can can use its general modification power. That's going to have to play out in appeals court and in the Supreme Court.

12:43Did Congress give the FCC its general discretion to update its rules? or was this a call that Congress reserved for itself?

12:52Scarlet Fu:All right, Matt, one final question before we let you go. From where you sit, Paramount Skydance, Warner Brothers Discovery, is anything going to happen in the next couple of weeks? Yeah, I mean, so lots of moving pieces on that on the antitrust side, and Jen Rhee is really our go-to on all of those questions. So, you know, really interesting questions there as state antitrust enforcers have stepped up when the federal regulators have taken more of this deregulatory approach. Stay with us. More from Bloomberg Intelligence coming up after this. Our hometown is not a test tube. 90 miles northeast of Nashville, a battle for the future of America plays out in one small town.

13:38Developers with right-wing ties have purchased hundreds of acres of land. We need cities on a shining hill. This is Our Town, a podcast about what happens when a small town becomes the site of a social experiment and fights back. Guess you didn't move in on a bunch of dumb hillbillies now, did you? Listen to Our Town on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

14:05Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. All right. Stacey, you know, a thing or two about Grand Theft Auto, the video game franchise, right? Yeah. Yeah. I mean, I know it's really huge. I actually had a cousin who sold a song to Grand Theft Auto. So it was one of the songs that you might hear on the radio in a car inside of the game. And it was a really big deal for them. They actually made quite a bit of money.

14:39It's a huge, very wealthy universe. Yeah, it's a cultural, I mean, totem, basically.

14:46Scarlet Fu:So many people live in that universe. And we're going to get a new update, Grand Theft Auto 6, GTA 6, for those in the know, at some point. Nathan Naidoo is Bloomberg Intelligence Technology Research Analyst. And Nathan, I say at some point because it feels like we've been waiting for the release of GTA 6 for months, if not a year. I remember talking about this quarter after quarter after quarter. Yeah, actually, people have been waiting, especially fans. You say cultural totem, I think it's more like a cult at this point. Fans have been waiting for 13 years. That was how long ago the GTA V was released.

15:23And there's such a strong pent up demand for this franchise. 13 years. Yeah, exactly. And even in the last 13 years, still 18 million people play it every single month across PC and console, and it remains the third most played game of all time as of March. This just tells you how much there is a demand, and you can see the shares of Take-Two, the parent company actually is trading up today. And it tells you that even though the guidance, which we think is on the conservative side, people still believe that the games might actually perform better than what the company is saying. So this might sound like a naive question, but why did it take them so long to get this new version of the game ready.

16:03I am seeing here that the CEO has said that the expectations around this are, quote, terrifying. Yeah, it is quite terrifying because there is a lot of estimates pointing to, I mean, as many as 85 million unit sales at a top end based on sales side estimates, but I'm a lot more conservative on that front. And why it takes the company so long? It's a huge production. It takes more than a billion just to develop the game. And for context, I think a Star Wars or the Avengers movie costs like half a billion. And there's a lot of aspects that go into the game. It's not just selling it up front. It's also sustaining recurring sales for more than 10 years.

16:54I mean, because GTA V continued to perform in the last 13 years. And every year it continued to churn out, you know, 300 to 400 million in revenue to take to. And Rockstar, the maker of the game, even after upfront sales was captured in the first year. And GTA 6 should prove to be able to do the same. And actually, we can see in the online mode of GTA 5, which is the current version, like people still spend about 60 bucks a month to play the game. And that's for Context 3X, the standard ad-free Netflix subscription. So there is actually, for those who pay, there's a cult following and people continue and they just can't get enough of this game.

17:39And, you know, it's high budget. I guess the company just want to make sure they get it right because it's literally their make or break game of the century.

17:50Scarlet Fu:Nathan, we only have like 20 seconds left, but I'm curious. I'm sure they make this game available to reviewers. Do they make it available to analysts early? No, there's no early access, so you, but there's pre-orders momentum that we can engage some early wins. Yeah, yeah, there's pre-orders. And pre-orders apparently is blowing past expectations. Like NewZoo is estimating that pre-orders is at 200 or more million globally. And, you know, they are expecting upward of 5 billion by end of November in gross sales. I mean, consensus is only pegging this at$4 billion or below. So that tells you how consensus even is being a bit conservative on that front.

18:35Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Our hometown is not a test tube. 90 miles northeast of Nashville, a battle for the future of America plays out in one small town. Developers with right-wing ties have purchased hundreds of acres of land. We need cities on a shining hill. This is Our Town, a podcast about what happens when a small town becomes the site of a social experiment and fights back. Guess you didn't move in on a bunch of dumb hillbillies now, did you? Listen to Our Town on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

19:17Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts. Or watch us live on YouTube. You know, on a day like today, what would be better than a Frosty? Very little. Have you ever had one? Of course. Of course I've had Frosties. You know what? Nothing better than a Frosty on a day like today. But I might be the only one thinking that. Stacey and I might be the only ones thinking about that. Wendy's pulling its outlook, also cutting their dividend.

19:54Dave Thomas is probably rolling in his grave. Oh, I loved those ads. He was great. What was the other one? Where's the beef? Oh, where's the beef? Michael Hanlon, Bloomberg Intelligence Senior Restaurant and Food Service Handler is joining us now. Where's the beef? Or no, what's the beef with Wendy's? Listen, I'm going to take the other side of that trade. I bet you Dave Smith is somewhere smiling. And Dave Thomas, wasn't it? I'm sorry, Dave Thomas. Yeah. Is some up there somewhere smiling because new CEO Bob Wright, who had previously worked for for Wendy's for quite some time, you know, has a really good plan to bring this brand back to glory.

20:36And he and his new CFO, Steve Cerullis, they did a phenomenal job turning around pot bellies. And I think it was a great first call for both of them. Yeah, sure, they cut the dividend and they retracted 2026 guidance. But that's really just to give them some time for their turnaround plans to start gaining some traction. So what is the turnaround plan? Because I feel like this is such a tough moment for food companies. I mean, beyond just Cyclospora, but, you know, prices are going up, margins are getting thin, consumers are getting pickier. What is the plan? Yeah, there's a lot of low-hanging fruit here because this brand has been severely mismanaged for some time.

21:20And so, number one is going to be revamping the menu and making sure that there's everyday value on that menu. And what I mean by value isn't necessarily price. It's what you get for what you pay. You know, Bob Wright on the call mentioned that, you know, people come away feeling that the experience was worth it, you know, and being happy about their overall experience when they leave a Wendy's restaurant or drive-thru. There's also a lot of low-hanging fruit in terms of operations. Operations have slipped. We see this when chains are struggling, right? When franchisees aren't making money in a restaurant, you know, they're going to pull labor.

21:55And then this ends up causing, you know, operations to slip further, right? And so there's an opportunity here for some retraining, adding labor back to the restaurants and marketing. I mean, this chain had done such a good job with marketing for so long. You know, to your point, you're talking about the old where's the beef ads. But even, you know, more recently, like they had a great online presence with social media, a very snarky Twitter account that got a lot of attention. You know, I remember some years ago when Fortnite was in its heyday, they had a collaboration with Fortnite and they had the Wendy's, you know, a Wendy character in the game that you could find in the kitchen of a restaurant.

22:44All sorts of cool stuff. And that's really fallen off. Right. And so, you know, there's a lot, you know, digital, improving the digital marketing and the digital experience, loyalty, things like that are going to be another point of emphasis. And then the last one is like making the franchisees money, right? You have to make your franchisees money so that they're motivated to build new stores. So those are the five primary points for this turnaround plan. Okay, so they're telling the franchisees at this point, be patient. I guess that's the same message to investors at this point. um, when does it start to take hold?

23:20How patient do they have to be? Well, listen, first of all, you know, uh, I don't know. I, I, I bet you franchisees that listened into that call were very happy with it, right? Like what Bob said was, you know, this chain is not run by private equity groups. Um, the franchisees are family owned people that he knows personally. Right. And so what he said was turning this brand around was personal to him. right and so um you know i i think the enter the the franchisee base is going to be energized right by having a guy in there that they know that has had a lot of success turning around potbelly um that did a great job when he was with wendy's when wendy's was you know a pretty solid competitor in the quick service space so i i think franchisees are happy with the change at the top you know how long is it going to take it's going to take time the good thing is they're lapping really really weak comps in the second half.