VALUATION HIGHLIGHTS
- Performance Apparel constitutes 60% of the Trefis price estimate for Under Armour's stock.
- Footwear constitutes 22% of the Trefis price estimate for Under Armour's stock.
WHAT HAS CHANGED?
- Under Armour Q3 Snapshot
Under Armour reported third-quarter revenue of $1.4 billion, down 6%, and its seventh straight quarter of year-over-year revenue declines. But the company beat on top-line estimates as the market was expecting a 10% fall. Earnings per share were $0.08 in Q3, ahead of the $0.04 consensus. North America revenue was $844 million, down 6%, and represented 60% of Under Armour’s revenue. Europe, the Middle East and Africa (EMEA) was the best-performing region, with revenue up 5% to $288 million.
Under Armour sources roughly 3% of its goods from China and less than that from Mexico, and the company has no manufacturing relationships in Canada. Given these facts, the current U.S. tariff proposals are not expected to impact its business significantly.
Note: Under Armour's FY'24 ended on March 31, 2024. Q3 FY'25 refers to the quarter that ended on December 31, 2024.
- Outlook
Looking ahead, the company said it raised its fiscal 2025 profitability outlook with better-than-expected results, while simultaneously increasing marketing investments to amplify its brand.
For the year, loss per share is now expected to be between $0.48 and $0.50, compared to the prior expectation of a loss of $0.48 to $0.51. Adjusted earnings per share are expected to be between $0.28 and $0.30, compared to the previous expectation of $0.24 to $0.27. Revenue is expected to decline by approximately 10% compared to the prior expectation of a low double-digit percentage decline. This includes a 12% to 13% decline in North America as the company works to reset this business. In the international business, the company expects flat results in EMEA and a low-teen percent drop in the Asia-Pacific region compared to the prior expectation of a high single-digit decline.
Management noted it had found additional savings largely related to the closing of one of its distribution facilities in Rialto, California. That and other cost-saving measures will cost an additional $70 million in restructuring charges by March of 2026.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Under Armour's value that present opportunities for upside or downside to the current Trefis price estimate:
- Apparel Revenues : Under Armour's Apparel Revenues declined from $3.9 billion in 2022 to around $3.8 billion in FY 2024. We expect the figure to fall in FY 2025, before increasing gradually to reaching the $4 billion mark in the long run. If revenues only reach $3 billion by the end of our forecast due to a slower-than-expected apparel market growth in the U.S., it will imply a nearly 5% downside to the Trefis estimate.
- Gross Profit Margin: Under Armour's Gross Profit Margin has stayed in the region of 45%-50% historically, despite the downward pressure of increased competition, the negative impact of currency fluctuations, and increased air freight costs. The company has been able to consistently introduce new products and increase its average unit prices, which has helped sustain margins. Going forward, we expect this figure to hover around 47% in the long run. If margins increase to about 51%, there could be an upside of about 5% to the Trefis price estimate.
BUSINESS SUMMARY
Under Armour is a manufacturer and distributor of performance apparel, footwear, and accessories for men, women, and children. The company's products use moisture-wicking fabrics that are engineered in many designs and styles for wear in nearly every climate. The company sells its products worldwide, though a significant percentage of sales come from North America (about 61% in FY2024). The company's distribution includes both wholesale and retail channels. Its products are worn by athletes at all levels, from youth to professional, on playing fields around the globe, as well as by consumers with active lifestyles.
SOURCES OF VALUE
The primary sources of Under Armour's value are its apparel and footwear businesses, and together they contribute around 90% of Under Armour's value, as per our estimate. Apparel is more valuable than Footwear and Accessories businesses for the following reasons:
Market leader in performance apparel market
Under Armour is the current market leader in the performance apparel market with over 70% market share. All three apparel gear lines of the company, i.e., HEATGEAR, COLDGEAR, and COLDBLACK, are extremely popular among professional athletes as well as consumers. However, in the footwear and accessories businesses, Under Armour faces tougher competition from established players such as Nike and Adidas.
KEY TRENDS
Under Armour is expanding its stores leading to higher overall gross margins due to a shift in sales mix
Gross margins in the direct-to-consumer channel are nearly 30% higher than in the wholesale channel.
Expanding its direct-to-consumer segment is a major focus for Under Armour. The retailer also increased the average square footage of its factory stores in 2023, including more product categories within its stores. As direct revenues contribute more to net sales, we expect gross margins to increase.
Focus on the international business
While international sales currently contribute only 39% of Under Armour's net sales (as of March 31, 2024), the company plans to increase this figure further going forward.
The company plans to expand in the key markets of Asia (China, Korea, and Japan), Europe (U.K., France, and Germany), Australia, New Zealand, and Latin America (Brazil, Mexico, Argentina, and Chile) to enhance its international business.
Focus on the women's business
Being previously popular for its men's products, Under Armour is now focusing on women's products to enhance its revenues. It is making efforts to elevate its brand image among women customers by altering the retail experience at its stores to suit them.
The company is taking several measures to accomplish this goal. It has expanded its creative talent within the women's business and altered its product portfolio and retail presentation to suit the tastes of female customers. Additionally, the retailer has also signed endorsement deals with female athletic and fitness icons such as Misty Copeland, Gisele Bundchen, and Lindsey Vonn.
