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First On CNBC: CNBC Transcript: Under Armour CEO & Chairman Kevin Plank and Under Armour President Patrik Frisk Speak with CNBC's Sara Eisen Today

WHEN: Today, Thursday, December 13, 2018

WHERE: CNBC's "Squawk on the Street"

The following is the unofficial transcript of a FIRST ON CNBC interview with Under Armour CEO & Chairman Kevin Plank, Under Armour President Patrik Frisk, and CNBC's Sara Eisen on CNBC's "Squawk on the Street" (M-F 9AM – 11AM) today, Thursday, December 13th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2018/12/13/watch-full-interview-under-armours-ceo-president-kevin-plank-patrik-frisk.html.

All references must be sourced to CNBC.

SARA EISEN: Joining me now first on CNBC, welcome back Kevin Plank, the Founder and CEO of Under Armour and Patrik Frisk, the President of Under Armour -- first time on CNBC. Welcome to you.

PATRIK FRISK: Thank you, Sara.

SARA EISEN: So Kevin, what were you thinking when you saw the reaction? You guys were finally ready to open up to investors and analysts yesterday after three years, and the stocks dropped pretty sharply on some of your guidance.

KEVIN PLANK: I think people took a look very early on. The good news about yesterday is we had a chance to talk to over 100 institutional investors and really lay out a five-year plan of our story, which is -- it's complete, it's transformational and it's something which covers everything from structure to strategy to culture. And I think we're incredibly proud of the progress. And I think when you talk to those who got a chance to see it, to touch the products and have exposure to over 23 of our executives across the organization for a comprehensive review, I think when you look into the fundamentals, I think that they're there. And we've got a very clear play – we've called the play, and now it's a matter of execution. And so, that is on us and we'll let time tell.

SARA EISEN: Yeah, and partly on this guy. So Patrik, I mean two big sources of disappointment that I'm reading about this morning. Number one on the near-term outlook in terms of a turn around and number two, on the longer-term expectation for North America growing mid-single digits which is less than Nike has baked in.

PATRIK FRISK: Yeah I think as we came out of 2016 into 2017, we had an inventory situation that was building. You know, we've been working through 2018 to get that under control and as we turn the corner into 2019, you know we're building back into more of a premium full-price brand. I think what we tried to lay out yesterday is how we were going to go through this – protect this house time frame between '17 and '19 in about a low to mid-single digit range. And as we exit that into 2020, more of a mid to high single-digit range. And then the out years, returning into a double digit range.

SARA EISEN: Were you purposely trying to be conservative?

PATRIK FRISK: I think it was more also about thinking through holistically the entire company. So we're moving from this North American centric company to a global entity where we're going from a 25% share in North America and now moving into 42% international over this time frame. And what we were trying to talk about yesterday was really the EPS, right? I mean, we're giving a 40% cumulative CAGR EPS over this period of this next five years and a 20% RYC at the end of it. You know, generating more than 2.5 billion of cash flow in that time frame. And that was really the story. So yes, we're a growth company and we're turning to stronger growth in the out years and we're becoming more of a global company and we're giving you know, know, much, much better shareholder return.

SARA EISEN: I mean clearly international is the growth story, Kevin, but what was the problem in North America? This was the market you dominated, led to your growth in the early years. Why are you having trouble turning it around?

KEVIN PLANK: I don't -- this isn't about the market, this is about Under Armour. So how do we make sure that we're strong and we have the pieces? So when you look at the transformations we've been through, use two great examples: one would be on product, because we've gone from the head of apparel, the head of footwear, the head of accessories, to now we have nine distinct categories where we can drive and we can say, "How do we get incredibly close we want to get close to the consumer and make sure that we know who they are and what they expect?" And so empowering that with our teams to make sure that this isn't about any one person but it's truly cultural across the organization. We've done the same thing from an international standpoint. We say becoming a global grand, we have to do that in our largest market, like North America is central to that, and so we want to do that through innovation, we want to do that through energy, excitement, it's things like Stephen Curry dropping and wearing you know the new Curry 6 last night that he debuted in Toronto, it's products like the Hover Upgrade that we have. So innovation is going to be the name of the game. The financial metrics are just a by-product of what we do to make sure that we're delivering for the consumer with an expectation of product that -- things that they never knew they needed and once they have them, they wonder how they live without them. That's Under Armour being there.

SARA EISEN: You're declaring yourself on a global company and focused in international growth at a time where you know, we're in a trade war with the second-largest economy in the world. You get 18% of your product right now from China, and I know you're moving some out, but doesn't that make you vulnerable?

PATRIK FRISK: No, I think that – first of all, I think in terms of a sourcing strategy, you know our sourcing strategy that took us to that 18% started five years ago. I think our industry has a whole has you know, been balancing their sourcing strategies for over ten years. So we're going to continue to balance our sourcing strategies --

SARA EISEN: Moving to Vietnam --

PATRIK FRISK: Wherever.

KEVIN PLANK: It is part of a national progression. It's got nothing to do with current politics.

SARA EISEN: It's not coming to North America, is it?

PATRIK FRISK: I think it's really – it's two things that are happening. One is the actual balance strategy that you want to have. You want to make sure you're positioned you know, from a global perspective. The other thing is also speed to market. So you've got to get prepared for making sure you're also having an ability to go faster into the market. And the third thing is local for local. You know, some parts of the world you have to produce product in market, like in China, to be able to supply that market. So it's a combination of those three things. But sourcing strategy have to develop over a longer period of time, right? I mean, where we were today was thought of like two years ago because our calendar has a certain length to it. So it's not -- we're not reactive to the current marketplace. We're more thinking about it long term. We have to because we make 270 million pieces a year.

SARA EISEN: I guess that's what I'm getting at Kevin. Is it hard to think long term in an environment where there's so much political instability in places like Europe -- you're pinning your hopes there and who knows what will happen with the U.S. and China, the narrative changes every day, every Tweet, every photo opportunity. How do you think long term in this environment?

KEVIN PLANK: I think transformation is getting it away from any one thing. I think we're a business that was built on a lot of forces of will, a lot of forces of personality. The ability to bring a partner like Patrik on where we can actually systemize what we're doing and get it away from "I've got a great idea" or "Here's something that could sell a lot of units today." That's the maturing of our company that we are incredible proud of and that we can present. That's what yesterday was. It wasn't about "What does one individual think?" but "How do we demonstrate that we now have a complete process, when we talk about going from structural, from strategy and then into cultural?" Making sure that the entire business feels that way. That it's not waiting for the force of will of one individual but it really becomes this balanced approach. And so that's the four regions and the new operating model, that's the category of management that we've gone to, and that's all going to manifest itself in an amazing product that you know, 16-year-olds are going say, "That's the greatest thing in the world, I want to participate because that product makes me better."

PATRIK FRISK: Don't forget, you know, if we were trying to convey the message yesterday of 40% CAGR and EPS over the next five years, ending up with a 20% RYC, generating $2.5 billion in positive cash flow. I think that's a great story.

SARA EISEN: But there's such great expectations already – I mean, this is a stock that still trades at 60 times earnings and had run up more than 50% into yesterday. Why do you think it's such a controversial name?

PATRIK FRISK: What I think –

KEVIN PLANK: Controversial?

PATRIK FRISK: Controversial? I think --

SARA EISEN: It's a battleground stock.

PATRIK FRISK: Yeah, I think you know, ultimately to answer that question, you know, earnings need to go up, right? So I think for us short term we are focused on that. You know, because you need earnings, you need cash to be able to invest and that's really how we think about it. So for us, you know, the next period that we're going through here from 20 to 22, and that's what we laid out yesterday, is an investment into capabilities, is an investment into innovation, is an investment into our people, is an investment into our regions to really make sure that we stay competitive, become more competitive as a global brand.

SARA EISEN: I heard you, Kevin, mention the world "cultural changes" a number of times. Clearly there have been questions. First of all, how do you have a policy up to February, 2018, that lets executive charge strip clubs on a corporate card?

KEVIN PLANK: Yeah. An e-mail from our CFO that's clarifying a lot of different policies doesn't define exactly what that is. And so we want to be clear is that we want to have an environment which is incredibly diverse and inclusive, that every teammate feels like Under Armour is a great place to work, and so --

SARA EISEN: -- But is it an Under Armour problem?

KEVIN PLANK: No one would ever tolerate that. So, I mean, I want to make sure I set the record straight on that. What we have is we want to make sure our team feels like we're building something that they're moving toward that they can be proud of. And so, you know, the environment that we work on in Under Armour, it's like -- we put a lot of metrics in place. We put our new structure in place. We put a lot of this work over the last two years. And we've been clear, we're in year two of a three-year transformation. So all these things that coming out, it's difficult. You know, we're in our 14th year as a public company. That much time in the arena means that at some points you're going to have to retool the machine. And again, we had to do what we were doing 100 miles an hour trying to change tires and now we've slowed down to 30 or 40 miles an hour. But still, it's something that's happening and we're evolving. And now we're looking forward at the Under Armour we're about to become and you know, incredibly proud of what we've done to get to this moment. But there's work to be done, like in any organization.

SARA EISEN: So when you read about the fact that Under Armour is having a Me Too moment, is that an exaggeration or are you really doing some soul searching?

KEVIN PLANK: I don't think there's a company in the world right that would say we've got all the metrics that we want. The one thing I know is as we look to promote and includes diversity and inclusion across the organization, that we make sure we have women in leadership, we have people of color that are helping to drive because we're looking for a management team and Executive base not unlike our board that reflects the constituency that we're trying to sell to each and every day. And I think we're making great strides toward that. And again, we're not starting from zero. We have an amazing base right now. So the way a story may play out isn't exactly the facts, and so it's our job to communicate that story. That's what we had the opportunity to do yesterday to a slew of investors and I think the reaction from those who were there and saw it, I think was positive. And talking about things like a 40% EPS growth, CAGR over the next five year, talking about the free cash flow.

SARA EISEN: Talking about your relationship, which I think a lot of investors really wanted to see up close, which is why I'm glad we got this interview with both of you. Because with some of the management departures, which are still happening as recently as last week, or have been reported, they want to know what this is like. And we saw on Instagram you guys are matching clothing. I mean, There was a big question you're the founder, Kevin, you're a bold personality, you're the CEO and the leader of their company, how much room you would give him to come in and change the operating focus and execution of this --

PATRIK FRISK: He's given me a lot of room. I think that the manifestation of that was really yesterday. Because you know that was a joint effort to present that plan. I think what you saw yesterday too was more of our leadership stepping up and actually presenting. And I think one of the feedback from the investors that I talked to yesterday was that they were appreciative of getting insight into the strong bench that we actually do have at Under Armour.

SARA EISEN: Is there anything that you want to do that he won't let you do?

PATRIK FRISK: Not that I can think of.

KEVIN PLANK: No. I mean, we work at it. We get together for an hour twice a week. You know, we sit down and sometimes we will sit with somebody else between us to make sure – it's the marriage counselor. Because this is -- Patrik has a point of view, I have a point of view. How we meet on the bridge is part of what that partnership is. Because I think it's defining of what the quote/unquote evolved Under Armour is meant to look like. And so –

PATRIK FRISK: But I'm 18 months in now. And I really feel – you know, if you ask me about "How do you feel about right now, right today?" And I feel we're at the point where I hoped we'd be. And I think that's really an exciting time for Under Armour, an exciting time for me and our relationship. Because we're stronger, we're better.

SARA EISEN: What's been the biggest change you've made in 18 months?

PATRIK FRISK: I think the biggest is focus. I think it's focus, it's alignment, it's process, it's discipline.

SARA EISEN: Margin improvement, isn't it?

PATRIK FRISK: It's all of those things. And I think, you know, Under Armour is a great brand. And you know, when I get really excited, when I get really, really excited, is when I come into a brand that's bigger than its business. And I think that's where Under Armour is right now. It's a brand and we see it across the world, I mean, you know, there's a lot of consumers that just long for this brand out there. And I think that's what makes me excited. So the progress makes me excited. Where we're at right now makes me excited. The improvements that you see makes me excited. And I think the plan which we put forward yesterday now should give shareholders also a good sense of -- in terms of shareholder return going forward is also going to be strong.

SARA EISEN: You've also got Steph Curry who is a big asset right now I think in some of the cultural issues you've been dealing with. You mentioned the new Curry 6s which came out this week. What do you have planned when it comes to girls' shoes and what is demand like?

KEVIN PLANK: I think everybody fell in love when little Riley sent Stephen a message and just said, "Why can't I find my shoes in girl's sizes?" And so as a brand that's had the last three women's national championships in the NCAA Championships, most recently with the Notre Dame Fighting Irish, you know it's a tremendous opportunity for us to make sure that she does feel represented. And so we corrected that right away, we made sure girls' sizes are there. Because there's a lot of these efforts, I don't think we've been as clear and I think this is an opportunity for us in this moment to make sure that we're – to make sure she always feels represented. Is that we want girls participating. We don't want girls dropping out of sports. A), and selfishly, it's a massive market for us. But more importantly, it's the right thing to do. And I think that's everything. When we think about diversity, inclusion, all the things that you deal with as a company right now, if you're doing them just for -- you think it might help business, you're doing it because it's actually going – it's the right thing for your business, and it's the right thing to do. And so when those are in line it gives us great opportunity. So Stephen, it's very important to him. And you'll see some new things coming out – and a little tease into International Women's Day as well –

SARA EISEN: In March.

KEVIN PLANK: We'll have a few things happening then. So a lot of exciting news.

PATRIK FRISK: A lot of opportunity.

SARA EISEN: Well as someone who has bought size 4 boys shoes their whole life I'm excited to have a women's size. Guys, thank you.

KEVIN PLANK: We'll have that for. Thank you very much, Sara.

SARA EISEN: Patrik Frisk and Kevin Plank, the President and CEO of Under Armour.

For more information contact:

Jennifer Dauble
CNBC
t: 201.735.4721
m: 201.615.2787
e: jennifer.dauble@nbcuni.com

Emma Martin
CNBC
t: 201.735.4713
m: 551.275.6221
e: emma.martin@nbcuni.com