Under Armour Is Still Fueled For Growth After Solid Quarter

July 26th, 2013 by Trefis Team
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Under Armour

Under Armour (NYSE:UA), a developer and distributor of athletic apparel, footwear and accessories, posted net revenue growth of 23% annually to $455 million. It maintained its solid growth momentum with 13th consecutive quarter of over 20% top-line growth. The performance across all the product categories, including apparel, footwear and accessories was promising. This underlines the success of the company’s growth strategies, and we believe the it is still scratching the surface of its various growth drivers including its women’s, international, direct-to-consumer, and footwear businesses.

In an encouraging sign, Under Armour’s profitability also improved during the quarter. Gross margin increased to 48.3% from 45.9% in the same quarter last year, owing to lower input costs and favorable sales mix. Moreover, its operating margin rose by 390 basis points annually to 7.1%. However, the company only expects a modest expansion in gross and operating margin for the full year.

See our full analysis for Under Armour

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Rapid Growth Across All Product Categories

Apparel sales, which account for around 75% of Under Armour’s net revenues, grew by 23% to $310 million. This represented the 15th consecutive quarter of over 20% growth. The introduction of a new baselayer product as well as the expansion of Storm and Charged Cotton platforms boosted growth in this product category. Strong results in UA’s biggest product category are encouraging, and it indicates a significant opportunity ahead in the company’s established men’s apparel business.

Footwear sales grew 21% driven by continued success of Highlight football cleat and UA Spine platform. Accessories saw revenue growth of 30%, primarily fueled by rise in headwear sales.

Key Future Growth Drivers

We believe Under Armour is well armed for growth in the long-run on account of its key growth strategies of expanding the women’s, footwear, international and direct-to-consumer business.
UA’s growth in the women’s business was fueled by higher sales of capris, Studio line, ArmourBra collection, and new tank tops. The company continues to enhance its design talent to launch innovative offerings in this market. Within the footwear business, Under Armour aims to gain market share with its Highlight baseball and football cleats, Spine running platform and a new SpeedForm technology. In addition, it is expanding the distribution of footwear and women’s products across its wholesale and direct-to-consumer channels. Due to these efforts, we think Under Armour’s revenues will continue to grow rapidly in the future.

During the second quarter, Under Armour’s direct-to-consumer and international revenues increased by 29% and 25% respectively, surpassing the overall sales growth of the company. It added three new factory house stores during the quarter. In 2o13, UA aims to open a total of 13 such stores to bring its factory house store base to 114 at the year end. [1] Moreover, the company plans to grow its international business by expanding in the markets of Asia, Europe, Australia and Latin America. It plans to open 10 new international offices over the next year and aims to grow the share of international sales in its overall sales from 6% in 2013 to 12% by 2016. [1] We believe revenue growth in these segments will continue to outpace the overall revenue growth for the company over the next few years.

Updated guidance for the year 2013

– Net revenue in the range of $2.23 billion to $2.25 billion, representing an annual growth rate of 22% to 23%

– Operating income to range from $258 million to $260 million, representing y-o-y growth of 24% to 25%

– Effective tax rate to be between 40.0% to 41.0%

We are in the process of updating our price estimate for UA’s stock.

Notes:
  1. Under Armour Inc (UA) Management Discusses Q2 2013 Results – Earnings Call Transcript, Seeking Alpha, July 25 [↩] [↩]