Under Armour’s Management Changes Show That It Is Focused On Growth

Under Armour (NYSE:UA), a developer and distributor of athletic apparel, footwear, and accessories, is quite unique in being able to boast of the kind of growth it has exhibited over the past few years. The company has posted an increase of greater than 20% in top line growth for 18 consecutive quarters and over 30% top line growth for the last four quarters. Since the company went public in 2005, its stock has grown ten-fold  in value. Recently, the company over took European sports giant Adidas to become the second largest athletic wear company in the U.S.  But the company is not resting on its laurels and is looking to grow even more.

To this end, the company underwent significant management changes toward the end of 2014, with multiple managers moving to different positions in different divisions to bring their expertise to various aspects of the business. ^[1] Below, we take a look at what the company plans to achieve with this managerial shuffle.

We have a $74 price estimate for Under Armour, which is about 12% higher than the current market price.

See our complete analysis for Under Armour here

Growing Footwear Is a Major Concern

Under Armour is a relative newcomer in the footwear market. Even in the U.S., from where the company earns nearly 90% of its revenues, the Under Armour brand only has a 2.5% share of the market. ^[2] Compared to this, Nike has nearly 25% of the global sports footwear market and 60% of the U.S. sports footwear market including the Jordan and Converse brands. The overall global sports footwear market is only expected to grow at a CAGR of 1.5%, expanding to reach $87 billion from the current $78 billion, by 2020. This makes the task of gaining market share in the footwear space more challenge than it already is.

If Under Armour is to increase its market share, it will have to grow at a faster rate than the overall market, which means that it will have to attract customers away from competitors like Nike, Adidas, Puma, Skechers, Asics, and Wolverine. This fight for market share is going to first materialize in the stores of footwear retailers like Foot Locker.   These retailers only offer limited floor space to companies and that limits the number of shoes they can sell. One reason for Under Armour’s low market share is simply the limited number of volumes it sells compared to Nike.  Currently, Under Armour is only banking on its running category, which it can up-sell by leveraging its recently acquired fitness technology, MapMyFitness.  But in the future, it will have to expand to other categories, like training, baseball, and soccer, which will be key for international growth. Comparatively, Nike offers running, basketball, baseball, soccer, training, and casual shoes, in addition to slippers and children’s footwear, and it is an influential name in each of these categories. It is possible for Under Armour to channel Nike in terms of market presence, but it first must find people willing to sell all these shoes. For that it will have to take away floor space in these retail chains from competitors, which can only be triggered by the exceptional performance of the Under Armour shoes at these stores. ^[3]

The man entrusted with overseeing this task appears to be former COO Kip Fulks. The company is starting to do well in its footwear operations. In the last quarter, while the overall revenue grew by 30%, footwear revenue grew by more than 50%. The main reason for this jump in revenue was the performance of the company’s new line of running shoes, SPEEDFORM. The shoe surprised industry watchers with the reception it received in the press and consumers responded equally enthusiastically to the shoe when it was released in the market in April 2014. The more than 50% jump in year-over-year footwear revenues shows that the company’s push into this market segment is now working.

International Growth Is Another Opportunity

The majority of these changes were made to affect the company’s international operations. In the most recent quarter, Under Armour’s international revenues grew by more than 90% year-over-year. Even after that stellar performance, international revenues still account for less than 10% of the company’s overall revenues. Former senior VP of North American sales Adam Peake has now moved to the position of global head of marketing. The company has previously stated that it would one day like its international revenues to be at least half the size of its overall business. Moreover, the company plans to expand its operations in the markets of Asia, Europe, Australia, and Latin America. The share of international sales in overall sales is forecast to rise from 6% in 2013 to 12% by 2016.

Attracting More Customers To The Brand

Under Armour bought the fitness tracking app MapMyFitness in 2013 for about $150 million. The app allows users to track their fitness with the use of multiple brands of fitness trackers like jawbone and fitbit. Additionally, the company is looking to partner with HTC on a completely new fitness-tracking hardware device to go along with the app. ^[4] The revenue generation capacity of the app is probably miniscule at best. However, it will work as a marketing tool for the company. The strategy will be to attract fitness conscious consumers to the brand through the use of the app, and then try to sell them the company’s apparel, footwear, and accessories product that meet their needs. Additionally, the company will also gain access to data that allows it insight into the needs of consumers and use it to design products in the future. It should not be surprising if in the near future the company, which is already working on smart clothing that allows it to incorporate technology into active wear, starts taking market share away from Nike in the digital fitness market.

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1. Under Armour shuffles management team, Baltimore Business Journal, November 2014 [↩]
2. March 2014 Atheltic Footwear Executive Summary, FDRA, March 2014 [↩]
3. Under Armour CEO Takes Aim at Running Market to Fill Footwear Gap,Wall Street Journal, April 2014 [↩]
4. New rumors say launch time is coming for HTC and Under Armour’s first smartwatch, Digital Fitness, January 2015 [↩]