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Is ‘Connected Fitness’ Generating Enough ROI For Under Armour?

Under Armour’s streak of 26 straight quarters with a 20% revenue increase snapped this week in a big way: the athleticwear brand saw only a 12% revenue growth rate in Q4.

The poor quarter inflicted significant damage on Under Armour’s 2017 outlook, with the company now expecting annual revenue to rise 11%-12%, to $5.4 billion. This forecast is a far cry from predictions made in October, when CEO Kevin Plank said he expected the brand to continue growing in the low 20% range throughout 2017 and 2018. To make matters worse, Plank now said he expects Under Armour’s operating income to fall by $100 million for 2017.

The lackluster Q4 also sparked a major casualty within the C-suite with the resignation of CFO Chip Molloy. He had only served in that role for a little over a year, joining Under Armour early in 2016 after stints as a CFO at PetSmart and also as an advisor for private equity firm Roark Capital Group. David Bergman, Sr. VP of Corporate Finance, will serve as acting CFO starting Feb. 3.

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Competition in athleticwear is certainly high, as powerhouse Nike and resurgent Adidas have forced Under Armour to discount excess inventory throughout the holiday season. But the biggest drag was the loss of momentum for the brand’s “Connected Fitness” model in Q4. Under Armour relies heavily on digital and mobile experiences to fuel growth. This segment saw 7.6% revenue growth in Q4, but that number represents a steep holiday season decline compared to the full-year growth rate of 50.6%.

The data-driven Connected Fitness segment’s decline is a troubling sign for the brand because Under Armour has invested a massive amount of capital into it — employing 300 engineers to its Connected Fitness team. The company spent approximately $700 million to acquire three fitness apps that they later integrated into its UA Suite, and built out an ambitious innovation and product design lab in Baltimore.  

Yet the segment drove only $18.2 million in Q4 2017, 1.4% of the company’s $1.3 billion combined revenue. Connected Fitness has been Under Armour’s primary differentiator from Nike and Adidas, with the company selling apparel, athleticwear, heart monitors, wristbands and other wearables that monitor consumers’ health, fitness, sleep and nutritional data. The retailer has integrated this data from 175 million users into a personalized mobile shopping app.

While the digital-shift was an innovative pivot for the Under Armour brand, the need to sell products is still a priority. While Connected Fitness may produce “soft” benefits as a differentiating factor, the fact that product sales have declined at such a steep rate means the investments haven’t yet paid off.

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