Earnings Review: Under Armour Caps a Fantastic 2014 With Another Blockbuster Quarter

Under Armour (NYSE:UA), a developer and distributor of athletic apparel, footwear, and accessories, posted another very strong quarter in Q4 2014, with  30% net revenue growth to $895 million. The company maintained its solid growth momentum as it reached a 19th consecutive quarter of an over 20% increase, and a 5th consecutive quarter of over a 30% increase, in its top line. We believe the company will continue to show strong growth in the future as consumers continue to respond to the strength of its brand, and as the company’s efforts to lure in women customers are successful. ^[1]

Gross margins improved by 140 basis points to 50.1% in Q4 2014. The expansion in margin was driven by favorable comparison to last year’s margin, which was suppressed due to high import cost duties, and a favorable year-over-year sales mix. Selling, general, and administrative expenses as a percentage of net revenues, decreased by 330 basis points to 33.6% in the fourth quarter of 2014. For the full year, revenues rose by close to 30% to about $3.08 billion from $2.33 billion in the previous year. ^[2]

Strong Growth Across All Product Categories

Apparel sales, which comprise about 75% of Under Armour’s net revenues, rose by 30% to $707 million, primarily driven by strength in the company’s Charged Cotton and Storm, and ColdGear Infrared products. This represented the 21st consecutive quarter of more than 20% growth in this product category. In the women’s business, the company’s running and Studio lines remained strong, while its youth business was driven by the training and sport-specific categories. We believe the solid results in UA’s biggest product category are highly encouraging. The strong growth indicates that opportunities still exist in the company’s established men’s apparel business, and the company has a strong brand image that it can leverage to exploit those opportunities. ^[3]

Footwear sales grew by 50% to $85 million, owing to strong growth in the running category. The much publicized SpeedForm Apollo running shoe showed excellent sell-through rates, while the $125 ClutchFitDrive baseball shoe also showed strong momentum. Footwear has now grown to represent 10% of the company’s net sales. Accessories revenues rose by a strong 22% to $79 million, due to high sales of head wear offerings and gloves. Direct-to-Consumer net revenues, which represented 39% of total net revenues for the quarter, grew 32% year-over-year. ^[3]

Key Future Growth Drivers To Keep Under Armour’s Growth Story Intact

We believe Under Armour’s key growth strategies of expanding the women’s, footwear, international, and direct-to-consumer business, will continue to fuel strong growth at the company in the future.

The company aims to grow the women’s business to around $1 billion by 2016, and 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. Within the footwear segment, UA plans to increase its market share with Highlight baseball and football cleats, as well as its innovative technologies in the running segment, like SpeedForm and the Spine running platform. The distribution of both women’s and footwear products is being increased across its doors, and hence we believe these steps will continue to drive growth at Under Armour.

During 2014, Under Armour’s direct-to-consumer revenues rose by 32%, outpacing the overall revenue growth at the company. The company has also focused on increasing square footage and its factory store count during the calendar year. Moreover, the company plans to expand its operations in the markets of Asia, Europe, Australia, and Latin America. The share of international sales within overall sales is forecast to rise from 6% in 2013, to 12% by 2016. In the fourth quarter, international revenues represented 9% of the net revenues. Hence, we think the revenue growth at both these segments will surpass the overall revenue growth of the company in the long run. ^[4]

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1. Under Armour 8-K [↩]
2. Under Armour’s CEO Kevin Plank on Q4 2014 Results, Seeking Alpha, February 2015 [↩]
3. Ref: 2 [↩] [↩]
4. Ref: 2 [↩]