Walker & Dunlop, Inc. (WD) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to another Walker Webcast. It is a real pleasure for me to have my friend, Stephanie Linnartz, join me once again almost 3 years, as Stephanie pointed out to me as we were coming on almost 3 years to the day that the 2 of us did a Walker webcast to talk about Marriott and how Marriott International was, if you will, faring working through the pandemic and what was happening in the travel and leisure industry. And obviously, to all of you who have joined us today, you all know that Stephanie now has an incredible job, not that our old job at Marriott wasn't an incredible job, but she has an incredible, incredible job at Under Armour, leading that great consumer brand and I'm very excited to dive in to, if you will, life between Marriott and Under Armour, what Stephanie is doing with Under Armour and where she is taking the company going forward. Stephanie, let me do a quick bio on you, which is extensive, try and move through it here, but you've got such incredible work in your background, that I want people to understand that and then we'll dive into where we are today. So Stephanie Linnartz is President and Chief Executive Officer of Under Armour. One of the world's leading athletic performance brands. Under Armour does business in more than 100 countries and has over 1,800 Under Armour branded stores around the world. The brand has partnerships with over 3,000 schools, universities and clubs and with some of the world's most influential athletes, which we will talk about later. Stephanie is leading Under Armour through its next phase of growth centered on driving global brand heat, delivering elevated design and products and growing sales globally. Prior to joining Under Armour, Stephanie was the President of Marriott International, the world's largest hospitality company with a portfolio of more than 8,500 properties across 138 countries and territories, 31 brands including Ritz-Carlton, St. Regis, Marriott Hotels, W Hotels and Westin. In a role as President of Marriott International, she was responsible for developing and executing all aspects of the company's global consumer strategy, including brand, operations, marketing, sales, revenue management, customer engagement, technology, emerging businesses and loyalty strategies, including the Bonvoy program, which you were very involved with. She began her career at Marriott in 1997 as a financial analyst. Stephanie has been recognized for her industry leadership. She was named one of the Fortune 100 most powerful women in business in 2023. She was named to the Forbes CEO next 2021 list of up and coming leaders set to revolutionize American business. She was honored by brand innovators as one of 2018's top women 100 women in brand marketing and she has been a speaker at the World Economic Forum and is a sought-after conference panelist at global industry events. She graduated from the college of Holy Cross with a degree in political science, hold an MBA from William and Mary and has completed additional graduate studies at the Norwegian School of Economics and Business Development. She's on the Board of the Home Depot, the world's largest home improvement retailer, sits on the Board of Trustees of the College of Holy Cross. She's also on the Board of the Economic Club of Washington and is an advisory board member of both FairChance and Teach the World Foundation. Finally, she is passionate about fitness and wellness and resides in Washington, D.C. area with her husband and 2 children, all of whom I know. That's quite the bio, Stephanie.

Well, thank you for having me, Willy. It's so nice to see you. And again, it's been a little while, but Happy New Year.

Happy New Year to you. And since the last time we spoke, although you and I have texted an e-mail a lot, happy new role at Under Armour and congratulations for all that you are doing and accomplishing there. I guess I'll start with kind of the transition from the past to the present. What was it that attracted you to lead Marriott in such a big role and doing such a great job at such an iconic global brand and move over to Under Armour.

Well, first of all, it was -- I had an absolutely spectacular career and time at Marriott International, one of the best companies in the entire country, entire world as far as I'm concerned, and I loved every moment of it. That being said, when this opportunity presented itself to me to take the CEO role for a company I had long admired, also started off in Washington, D.C., similar to Marriott, which started off as a [indiscernible]. Under Armour started out in Kevin Plank's Grandma's basement in Georgetown, across the street from where I went to high school Georgetown visitation. So I've known the company for a long time. And when this opportunity presented itself, I had to go for it. I really wanted to be a CEO. I love the idea of a new challenge. I love the idea of learning a new industry, I've always been passionate about sports. I think sports is something that unifies us and brings us together just like travel. So something very similar at the core and heart of the business in the industry. So I decided to take my own advise that I've given to myself and many other people over the years, particularly women, to bet on yourself, take a chance and that's what led me to take on this new job, and it's been great. It's in about 10 months.

And when you think about hospitality and the brand and the multiple brands inside of Marriott and then you think about Under Armour and its global brand, but then if you will, distinct skews of shoes and apparel and all that goes inside of the Under Armour brand. Talk for a moment, Stephanie about either the similarities or the differences between running a big global hospitality brand and running a big global consumer products brand?

I really think, Willy, that there's more similarities than differences. I mean at the heart of both Marriott International and Under Armour and Home Depot for that matter. It's all about building consumer love, brand loyalty, stickiness. They're all consumer-facing brands and it's all about just really putting the consumer at the center and figuring out how you can build that loyalty. In the case of Marriott and Under Armour specifically, there are many similarities in not only in the regards to kind of that focus on the consumer but the whole concept of building out a loyalty program. One of the things I'm most proud of in my career at Marriott was we built Marriott Bonvoy after the Starwood Hotel acquisition, where we combined SPG, Marriott Rewards and Ritz-Carlton Rewards into what is now the beloved Marriott Bonvoy Program. And on a similar note, this past summer at Under Armour, my team and I launched UA Rewards, a loyalty program for Under Armour. And it's at the heart of the loyalty program, just like at Marriott at Under Armour, it's about consumer stickiness and it's about experiences and brand love. So it's not just about points for merchandise, just like it wasn't just about points for hotel rooms at Marriott. So when we launched UA Rewards at Under Armour, I took the page out of my Marriott playbook and we did it with a big sweepstake. For all the people who signed up, they could win a chance to spend the day with Steph Curry at Under Armour's headquarters in Baltimore. And it was a fabulous day. We had a lucky winner, got lots of sign-ups for the loyalty program, but it's -- that's the kind of thing we're doing with UA rewards, access to our athletes, early drop to new products, all about like making it very special and unique. And that was very similar to what we were doing at Marriott over the many years I led that program. So just one example. Another similar point is you think about a hotel, it's all about service, right? That warm smile, that friendly knowledge that you get from an associate at a hotel, same thing when you walk into an Under Armour store. You want to see a warm smile. You want to see a knowledgeable teammate is the word we use at Under Armour, so another similarity.

So in the hospitality space, even though Marriott didn't own many of the physical hotels. You had a couple of legacies that you held on to, but most of them were owned by real estate developers and you were operating it. But when there's a decision to put a hotel in Shanghai or in Cleveland, it's a pretty long-lasting investment decision. You've done the analysis to say consumer wants to be in Cleveland, we -- this is the brand we're going to put there. And then now let's go and try and drive usage of that asset and use the loyalty and the brand to get people to come to it. The lifecycle of the products you're building at Under Armour is -- well, let's just put it this way, significantly shorter than a building that's going to sit in the ground for 50 to 100 years. How has that been as it relates to just the overall decision-making as CEO, Stephanie, when you were at Marriott where yes, at the margin, you're trying to find that incremental customer, but the product for all practical purposes is pretty static, whereas in Under Armour, consumer tastes and the products you're building change almost daily.

Yes. I mean you're right. That is a difference between my previous role in industry and in Under Armour, although I will say what's similar is some of the real estate decisions, the leases aren't as long for an Under Armour store, but there's certainly a physical store and you're doing the same type of feasibility analysis and catchment analysis to figure out where should I put that Under Armour store, just like where should I put that hotel. But the shoes, the shirts, the apparel, the footwear, the sneakers, the accessories there is -- we have season after season, we come out with new items based on what the trends are and what our athletes are really needing to be the best at their particular sports. And so there is a whole new world for me in that regard. And we're actually manufacturing shirts, shoes, uniform. So that is another thing that's quite different. I just got back from a fabulous trip to Asia, where I was meeting with dozens of our factory partners, both on the apparel side and the footwear side. And that's a whole new world. And the lead time for apparel and footwear is quite long, anywhere from 12 to 18 months depending on what you're building. And so there is a real difference on that front. But it is, I think -- again, I go back to the similarities. It's putting the consumer and in the case of Under Armour, the athlete at the center of the table and figuring out what are their needs, what do they want? How we best going to serve them. And so that, again, is quite similar to the previous approach. But there's plenty of differences, as you pointed out.

How do you sustain your own personal taste. So for instance, when you were at Marriott, you traveled a lot and you got to experience the product. In consumer products, there are plenty of things that Under Armour makes that you may sit there and say, "Wow, that's I'd buy that in a heartbeat." There are plenty of other things, I'm assuming they make that they don't fit your own personal likes or taste. How do you -- if you will, dispel your own personal taste as a team comes to you with a product saying, we know exactly what target demographic we're going after here and we think this thing is going to sell. I mean I would find that to be quite challenging.

Well, I think it's -- again, I think it's about putting the consumer first, the athlete first and listening to what they want our target consumer at Under Armour is that 16- to 24-year-old team sport athlete. Well, I'm not 16 to 24 years anymore. I happen to live with 2 people in that demographic, my children. But I have to -- it is similar. I didn't love all Marriott's brands equally in terms of my own personal taste and aesthetic. And so it's similar, I suppose, in many ways to Under Armour, but it really is about figuring out what the consumer needs, the athlete needs. We are performance-based brand. We are designing solutions to meet athletes' needs. We outfit 26 sports at thousands of high schools and colleges. And so we really need to listen to our athletes. And we spend a lot of time with our athletes. I'll give you a few examples. At the highest level, we'll spend a lot of time with the likes of Steph Curry and figuring out what does he need to excel. He is at the top of the list in terms of our partners and athletes. What does he need to be better at his sport. So we just launched the Curry 11 with a new technology that our innovation team designed that has taken seconds off Steph Curry's game. And actually, it doesn't need to [indiscernible] nearly as much anymore at all because of these new Curry 11 shoes. So we spent time with him and his team and his trainers. And of course, I'm not a basketball player. So I'm not going to have a lot of input on that personally. But by listening to staff, we're able to design something that's really making him better at his game. I'll give you another example that's fun. We have a lot of designers who are former athletes. And as a matter of fact, we have a young woman who designs a lot of our uniforms including for football teams. And one of the things our football players were saying at the big universities and high schools is they didn't like log handles, hang it over their football pants. So she also designed yoga pants. So she does female and apparel and men's. So she took the technology from the yoga pants and put it on the football players uniform pants, and got rid of the problem that our athletes were having with log handles and they didn't want to admit it, but they loved it. So from anything that's quite technical, like the flow technology and the Curry 11 basketball shoes to what we're doing with football uniform. I mean there are many examples where we're listening to an athlete's problem or challenge and then we're reacting. And the team of innovators we have at Under Armour is remarkable. We have hundreds of patterns for all sorts of different technologies. We're doing a ton in sustainability. We should talk a little bit about that. But it's about listening to athletes. I'll share one more story because I love it and it relates to female athletes. Our female athletes were telling us, particularly basketball players, there's this mesh material in the shirts and the shorts, but some of the women were saying it made them uncomfortable because it's quite see-through. So we came up with a new fabric called [indiscernible] and it's got micro mesh holes, same breathability and same capabilities as the old material, but made the female athletes feel more comfortable. And so we listened to them and we reacted and we delivered a solution to them that met their performance needs, absorbed sweat, wicking capabilities, but it also solved the problem for them. So there's big examples and small examples, but what I'm just absolutely loving is spending time with athletes and hearing what their challenges are, with the team coming up with creative solutions to solve them.

You talked about football and the yoga, which I find to be fantastic in that designer who is looking at an issue in football and taking it down to yoga. Somebody sent me a list, Stephanie, of the top 200 broadcast in America last year, and it was pretty much all football. I think the final round of the masters is it like 132nd position or something. And your athlete, Jordan Spieth was in there, and that's great. But as you think about everything from R&D on products to sponsorship of athletes, what's that -- how do you think about it in the sense of all eyeballs are on football, we really need to just kind of focus on the major market and then add a little bit below it or the U.S. Olympic -- well, the World Olympic Committee is just allowed for lacrosse and skateboarding and a couple of other emerging sports to come to the next Olympics. How do you and the Under Armour team differentiate, if you will, between those big, what I would call, bulge bracket sports? And then the more emerging ones where you might find either a product or a sponsor agreement that really gives Under Armour a unique positioning in the market?

So great, great question. It's something we talk a lot about. Well, first of all, we do business in many different countries. So the sports differ by country. So American Football is big here, but of course, Global Football is big in our business in Latin America and Europe. So we do a lot with on Global Football, a.k.a soccer teams in different parts of the world. And in many cases, obviously, that blows American football out of the water in terms of viewership and passion for the sport. But it's interesting you should bring up the point about emerging sports because one of the biggest emerging sports is flag football. And it's actually going to be in the Olympics this year. About 6 million kids in this country play flag football and soon to have more women playing flag football than men. So we just signed a new athlete, an amazing young woman named Diana Flores. She is a world-famous flag footballer. She plays for the Mexican national team, and she is on fire. And the viewership of Flag Football, I was just in an event a couple of months ago with Roger Goodell, and we were talking about this and the owner of the Ravens and his team. And he is -- Roger is very focused on flag football because increasing eyeballs for NFL football and actually increasing viewership with women. So he is a big supporter of flag football. And he knows he was really excited when I told him that we had signed Diana Flores as one of our Under Armour athletes. So you're right, it's always thinking about there are so many sports, right? You think about emerging sports like flag football and pickleball on fire and then you think about the sports that basketball. I mean basketball is absolutely critical because basketball is also tied to the zeitgeist in culture. And we're really leaning into designing out not only performance apparel but it will always be performance space, but really leaning into sports style, so we don't want to be the choice for athletes only when they're on the court, the pitch, the field. We want them to choose Under Armour when they are going out to Starbucks to have a coffee or to live their life outside of sports. I just hired a new Chief Product Officer, a gentleman named, Yassine Saidi. He was with Puma and Adidas and then he had his own company. But when he was with Puma, he really built out their lifestyle capabilities and a lot of cool collaborations he did when he was there, just hired John Varvatos to be our Head of Design. John Varvatos is a very well-known designer who worked with Ralph Lauren, Calvin Klein, had his own men's brand. So we have tons of amazing talent at Under Armour that really knows performance in sports and -- but we're bringing in some experts that really know design as we lean more into appealing to women and also building out our footwear and sneaker business. Both women and sneakers and footwear, they're both less than 25% of our sales. So we know that, that's an area where we need to grow and we know really leaning into style is important. I like to saying that without beauty, there is no performance. So -- and it's really important for young people that we're not only meeting their needs, but from an athletic and performance standpoint, but that were stylish and cool too. So we've got a lot of cool things in the works on that front. And a lot of new talent we're bringing in to work side by side with the great talent we already have within the company.

I've heard you talk about the Taylor Swift effect on sports apparel brands. What's the Taylor Swift effect other than showing up the Kansas City Chiefs games and watching her boyfriend play?

She's done a lot for the NFL viewership, that's for sure.

Your friend Roger has got to be thrilled. That was an added shot in the arm to the NFL that quite honestly, the NFL didn't really need, but they've certainly gotten it.

Yes, that certainly I'm sure it's helping. Interesting stat on Taylor Swift. She walks over 10 miles every single concert that she does. So she is an athlete. If you've been to a Taylor Swift concert but she's quite that athlete, but she is a real role model for young women. And I think that there's an inflection point in women's sports that is really important. And last year, you saw some of the highest viewership of women's sports ever. Record attendance, live attendance at female sporting event was last year in Nebraska, 92,000 people at the women's volleyball tournament in Nebraska. The NCAA women's final had record viewership. You're seeing a lot with women's soccer and mentioned flag football. And this is -- I am passionate about supporting female athletes in particular, because sports is so important to change people's lives. And this is another interesting statistic, one that's a little bit, I think, frightening. One in 3 girls drops out of sports when they enter teenage years. Only one in 10 boys drops out. So young boys have millions of more opportunities every year to play sports. And it's not whether or not you become a professional athlete but sports teaches you leadership, discipline, community. Kids are so isolated these days because of social media and all this technology and sports brings people together and community and girls drop out at a much faster rate. They may play little league or Pingry soccer but then a lot drop out in middle school and then even more drop out before college. And so one of the things I'm passionate about and I'm working with our female athletes on is encouraging more young girls to play sports. You don't need to be a superstar. You don't need to be that great and you're going to go on and get a scholarship, maybe you will. But it's more about the life lessons it teaches you when you play sports. And I'm passionate about supporting female athletes. And yes, I mean, Taylor Swift is, I think, the ultimate modern feminist and all that she's teaching young women.

Not for a moment, Stephanie, if you would, about that as it relates to just the underlying culture at Under Armour. I know Kevin, I've spent time with Kevin. Kevin is a guys' guy. He is one of the most hard charging people I know and I think really set a culture at Under Armour, which was emanated from football as it's sort of cornerstone and in making the original Under Armour T-shirts that went underneath shoulder pads at the University of Maryland. And has grown and expanded the brand globally into all sorts of other verticals. And oh, by the way, also sponsoring female athletes and building lots and lots of shoes and equipment for women. But now that you've stepped in over the last 8 months, what have you done beyond sponsoring lots of female athletes in that view on the female, what else have you done as it relates to the underlying culture at Under Armour to keep that, if you will, broadening, I think, of the company that I'm seeing happen under your leadership.

Well, the culture at Under Armour is great. It really is -- it's a culture that is about winning and being scrappy and having grit and it does have that athlete's edge to it. There are a lot of former athletes that work at Under Armour. But it's a wonderful culture also the values of the company are really deeply ingrained. We have lot of athletes, as you can imagine, is one of our core values because that's our core consumer, celebrate the wins. I love that. That's a very sports culture, kind of value to have but it's focused on the positive and celebrate the wins, stand for quality, act sustainably. These are values that are deep in the company and that Kevin embodies. And Kevin is an entrepreneur and a founder and no one loves a company like the founder. I know that from my days at Marriott, no one has the passion just the deep love like Kevin does for Under Armour. And I think Kevin and I make a good team because I'm bringing a different set of skills and experiences to the company. And that's -- and on top of that, I'm bringing in new leadership. I mentioned a couple of new hires I've made on the product and design side but I also brought over an executive who was one of my closest partners at Marriott, a gentleman named Jim Dausch, to be our Chief Consumer Officer. I hired a new woman to run communications, hired a fabulous gentleman to run the supply chain who came over from the GAP. So I'm also bringing in new talent from the outside to bring in a new perspective, a fresh perspective that also honors what makes Under Armour so great in all the internal talent that we have. So I think any company needs to grow and evolve. I think about Under Armour, you know the company well in 3 chapters. Kind of chapter 1s get big fast, the days you're talking about Kevin started Under Armour in his Grandma's basement in Georgetown and it grew like crazy. And then Chapter 2, the company hit some harder times. I think there was a time to reset to get some good operational practices in place, things around supply chain, et cetera. Some good work was done in that Chapter 2, which was about kind of stabilizing. And then I'm leading Chapter 3, which is the pivot back to growth and to expand the business. And that's going to be done through building brand heat, getting the brand really even hotter here in the U.S. It's going to be a lot around building out our product. I mentioned women's sports style and sneakers being a big part of it, so expanding our products pyramid, getting more in that better and best part of the product pyramid and then while we continue to grow internationally, I mean, again, we're in 100 countries around the world, we really need to supercharge growth here in the United States. So I'm very focused on that. So I'm lucky to lead Chapter 3 for Under Armour and I couldn't be more lucky or proud.

Something tells me Chapter 3 is going to be long and it's going to be really good. You've mentioned supply chains a couple of times, Stephanie. Just given all the supply chain challenges that our country and many, many companies such as Under Armour faced when the pandemic hit and then when the economy started to kick back, this is maybe a little bit too wonky question, but how are you all as it relates to those supply chains freeing up? Are we still waiting for ships to arrive at the Baltimore port and unload and they're behind schedule? Or have you all gotten back online as it relates to supply chain. And as you're answering that, if you would, just for a moment, you said you were just over in Asia meeting at a lot of your manufacturing facilities. Is the lion's share of your manufacturing all still done in Asia? Or have you brought any of that back to the United States given what happened with supply chains during the pandemic?

Yes. No. Actually, from a supply chain perspective, we did a very small percentage of our supply chain of our manufacturing is in Asia, is in China. And we do a lot of our apparel manufacturing in the Middle East, actually. It's interesting because now we are more apparel-heavy than footwear heavy. So as we pivot to do more footwear, I'm sure that mix of where we manufacture things will change. But I mean we do manufacture throughout Southeast Asia and China. But we have a relatively small percentage of our supply chain coming from Asia. But I mentioned the gentleman I just hired from GAP. This is a new world to me, manufacturing apparel and footwear and sneakers. So just like I did at Marriott, I need to surround myself with people that know more than me and our experts in areas where I'm not. So the gentleman that I hired to run supply chain, Sean Curran, is his name is a fantastic supply -- he's a great executive. He used to be the COO of GAP actually for all 7 of their brands. But now he's heading supply chain management for us. So to the first part of your question, the supply chain things have normalized a bit back to normal. I think there was all sorts of challenges during COVID and I'd say we're having some slight challenges, nothing that we can't manage through. You see it in the news with what's happening in the Red Sea, some of the shipping challenges there. But for the most part, I'd say, our supply chain, our inventory, things are starting to normalize back to a level that's manageable. I mean during COVID, no one could get inventory but after COVID, everyone was flushed with way too much inventory and you saw everybody discounting extensively, which has its own set of problems. So I'm gaining an appreciation for the criticality of inventory management in this job, too. And of course, that's all inextricably linked to supply chain.

We talked at the top a little bit about your role in launching Bonvoy at Marriott and how important the Marriott loyalty program was to the -- not only the growth of the brand, but if you will, repeat customers, which is key to any successful business. You mentioned that you've just launched Under Armour's loyalty program. What are sort of, if you will, early returns? What's -- how different is it? I mean, clearly, all of us know, I fly an airline or I go to a hotel room, I get my points and I kind of go back because I'm going to get some free stuff there. Talk for a moment about the Under Armour loyalty program and what one would get if they become a member of it?

Well, we're just getting started. But similar to what you experienced with hotels and airlines, it's a point for merchandise program. So you spend money with us and you get UA rewards points that you can use to either redeem to get money off of future purchase or for depending on how many points you have free stuff, but again, back to my earlier point, I think it's about and that's part of it. It's the points for merchandise, just like you see with other retailers, Sephora, Home Depot has a loyalty program for Pro customers. This is not unheard of in retail either. But I think what's going to be the magic sauce for us is how we link in community and experiences with it. So it's about access to special product, it's access to games and come to a notating football game, meet Steph Curry, spend time with Kelsey Plum, our fabulous WNBA Superstar. But it's about experiences. So we're at a couple of million members and growing. But the early metrics on the financial side are very encouraging. Just like we saw, the whole point is to stay more pay more. We're seeing more repeat customers, the people are coming back at a much higher rate within 90 days that they sign up for our loyalty program. It also allows us to have data and information on our consumers that with their permission, we use for marketing purposes. So part of data is oil in today's day and age. And so part of what's very important about a loyalty program and this was true at Marriott as well, it's about data and information on your consumers. Again, with their permission, you use to meet their needs and to make sure that you're sending them offers for things that are meaningful to them. So we're actually doing a lot with our college athletes to get them involved in the loyalty program. So we've re-signed with Notre Dame last year, one of our top schools. And part of the deal with Notre Dame besides outfitting all their teams and selling stuff in their bookstore is access to their athletes so that we can -- they can help us with thoughts on style trends and what they want to buy but also help us with ideas on how we can make the loyalty program super cool and interesting and sticky for young people.