market folly

We're posting up notes from the Capitalize For Kids 2018 investment conference.  Next up is Evan Hornbuckle of Wellington Management who pitched a long of Under Armour (UA).


Evan Hornbuckle's Capitalize For Kids Presentation: Long Under Armour

Brand turnaround, trough sentiment, under-earning and unloved

•    Many successful consumer turnarounds – LULU, Nike, Adidas, Puma
•    New management not “growth at all costs” ROIC, gross margin oriented
•    Extremely high short interest
•    Cheap if you look forward 3 years, put normalized EBIT margin (9%) and historical earnings multiple (30x)
•    UA overbuilt opex and inventory to prep for $10bn in sales, Sports Authority went bankrupt and didn’t downsize fast enough. Tried to grow into it
•    Liquidating excess inventory, beating 2018 guidance. Has a large markdown reserve account ($144mm) which once released is ~2018 EBITDA.
•    Another $80mm in gross cost savings announced, unclear if it will be used to reinvest in business

Base case – 3 year outlook

•    Sales – 8% CAGR [assumes modest global share gains in the category]EBIT Margin 9% [ 6-7 year average] 30x Multiple [ very rarely traded below this multiple before the recent blow up]


Be sure to check out the rest of the presentations from Capitalize For Kids 2018.