The top priorities for returning Under Armour CEO Kevin Plank

Shares of Under Armour (UA,UAA) are trading lower as the company announced that previous CEO Kevin Plank, who stepped down in 2019, will once again take up the mantle of chief executive. He will replace current CEO Stephanie Linnartz, ending her three-year turnaround plan. Questions around what Plank can do to turn around what is perceived by some to be, in part, the mess he made, now arise.

Morningstar Equity Analyst David Swartz joins Yahoo Finance to discuss the change in leadership, the challenges the company faces in the market, and what Plank needs to do to turn things around for the sports apparel brand.

Swartz elaborates on what the top priority for Plank should be: "I think the number one top priority has to be to try to build the brand into something a little bit stronger than it is today. That could be done through differentiation of product by channel. Right now, Under Armour does not do a very good job at all of differentiating its products so that the stuff that Under Armour sells at Kohl's (KSS) is not that much different than what it sells at a store like Dick's Sporting Goods (DKS). And Under Armour needs to have stronger products, especially in footwear."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

JARED BLIKRE: Just thinking about the broader challenges that Plank faces now as coming back to Under Armour, how does he-- is this something you write about-- you're writing about in your most recent research report, that how do they broaden-- how does he broaden Under Armour appeal, especially internationally in certain locations where they've really flagged.

DAVID SWARTZ: Yeah, Under Armour still does about 2/3 of its sales in North America, which is quite a bit higher than competing companies like Nike and Adidas and Puma. Under Armour just does not have the geographic diversity. And it's missing out on growth and markets like China, where it's still relatively small, and which is really supposed to be a high growth area for sportswear. And so Under Armour does need to expand outside of North America.

I don't know, though, that Kevin Plank really intends to do that. I think he's probably more concerned right now about trying to get the sales up in North America. Besides geographically, Under Armour also needs to expand in other categories. The women's sales that Under Armour lagged men's by quite a lot.

And as we've seen with the success of brands like Lululemon, it's definitely necessary to have a very strong women's business to be competitive in activewear anymore. It's a bit disappointing that Under Armour just released one of the few female CEOs in the industry. You wonder then, will they have the same commitment to the women's business that we've heard from the company in the past. So Under Armour really does need to expand from its traditional roots in football into other sports, other categories, and other geographies.

SEANA SMITH: David, you just listed a long line of improvements that maybe it would make sense for Under Armour to make here in the coming years. What would the number one top priority be? Or should it be?

DAVID SWARTZ: Well, I think the number one top priority has to be to try to build the brand into something a little bit stronger than it is today. That could be done through differentiation of product by channel. Right now, Under Armour does not do a very good job at all of differentiating its products, so that the stuff that Under Armour sells at Kohl's is not that much different than what it sells at a store like Dick's Sporting Goods.

And Under Armour needs to have stronger products, especially in footwear. Under Armour's footwear business lags the other major competitors by quite a lot. It's only about 25% of Under Armour sales. And it just simply does not have the distribution in stores like Foot Locker and specialty running stores that really a premier sportswear brand needs to have. So I think it really needs to build that footwear business a little bit better.

JARED BLIKRE: Just thinking broadly here about the role of these founder CEOs-- as you said, Plank really never left. He retained 65% of the company's voting shares. We've seen other CEOs fall into the role of executive chairman over the years. Disney, Schwartz at Starbucks come to mind. We've seen this happen before. Is it a case that the founder just can't let go but really should? How do you solve this seemingly intractable problem?

DAVID SWARTZ: I definitely think that he never really wanted to leave. He was basically forced to resign as CEO, because there were a number of embarrassing press scandals involving his personal life. Then there was the issue with the SEC and the over distribution and the declining results. And so I think he was kind of forced to step back, but he never really wanted to. And so I'm not really surprised that he came back.

As far as fixing the problem at this point, there isn't any real easy way to do that, because he still has supervoting stock. So it doesn't seem to be much potential for an activist campaign, for example, or something like that. If things don't improve over the next couple of years with him as a CEO, then I think he's going to be under a lot of pressure to go outside and bring in an outside CEO again, even though it didn't work out so great the first time.

JARED BLIKRE: All right, well, we might be asking you to come on our program and talk about the fifth CEO in four years' time. Or I might have lost count there, but we really do appreciate your time here. Morningstar's David Swartz, thank you.