Earnings Preview: Can Under Armour Continue Its Impressive Growth Story

April 20th, 2015 by Trefis Team
-12.84%
Downside
8.71
Market
7.59
Trefis
UA: Under Armour logo
UA
Under Armour

Under Armour (NYSE:UA), a developer and distributor of athletic apparel, footwear, and accessories, is set to report its first quarter earnings on April 21. The company’s last reported earnings were consistent with the trend of impressive growth of the last four years. [1] The sports retailer posted a sales increase of more than 30% for the fourth quarter running and earnings per share was up by a strong 27%. [2] Below, we take a look at our expectations from the company’s forthcoming earnings report.

Massive Scope For Growth In Footwear and International Sales

While the U.S. performance apparel market remains the biggest revenue source for the company, footwear and international sales are slowly getting to the point where their importance cannot be understated by the company. In the last quarter of fiscal 2014, footwear sales increased by a massive 44% to $431 million, but that still only represented 15% of the company’s overall business. [3] If one looks at market share, Under Armour has barely made a dent in the athletic footwear market compared to Nike. The Oregon based Nike makes roughly 60% of its annual revenues through the footwear business and because of its notoriously sticky brand value, it can raise prices and still sell the same number of shoes. To give a sense of proportion, Nike makes more money through footwear sales in China alone than Under Armour from all of its footwear business operations. However, there is an enormous opportunity for Under Armour to grow in this space. Nike has a monopoly in footwear in the U.S. market with roughly 60% market share if you include sales of Converse and Jordan and 96% market share in the basketball segment, the biggest segment in the footwear space. If Under Armour can increase its market share to even 10%, it would end up growing its footwear sales four-fold and overall revenues by 33%. Under Armour is nowhere near that point and its attempts to bring NBA superstars like Kevin Durant on board betray that the company is trying too hard to change that state of affairs.

Relevant Articles
  1. What’s Next For Under Armour Stock?
  2. Down 20% This Year, Will Under Armour’s Stock Recover Following Q4 Results?
  3. Down 25% This Year Will Under Armour Stock Rebound After Its Q2?
  4. Under Armour Stock Down 24% This Year, What’s Next?
  5. Under Armour Stock Up 28% Over Last Month, What’s Next?
  6. What To Watch For In Under Armour’s Stock Post Q1?

Similarly, growing the Under Armour business outside the U.S. is critical for the company’s near term growth prospects. In 2014, the company nearly doubled its internationals sales, but the overall revenue from international operations still came in below the $300 million mark. [3] Again, comparing with Nike, which makes more than half of its revenue from international operations, shows the room Under Armour still has to grow.

Investments in Fitness Technology

Over the last three years, Baltimore-based Under Armour has invested more than $700 million in connected fitness applications. Over that period, the company has acquired three brands: MapMyFitness, MyFitnessPal, and Endomondo. The first two are based in the U.S. and the last is Europe based. The sports retailer is focusing on smartphone based apps because it believes that that’s where the future lies. In the company’s February earnings call, company CEO Kevin Plank cited a survey that reported 57% of responders as saying that the media source they miss most is the smartphone compared to only 16% who said the same for the television. [4] The increasing importance of the smartphone in the lives of consumers means that companies need to start concentrating on increasing user engagement with their brands on the device. This is one reason why sports apparel based companies like Nike and Under Armour have been seen hobnobbing with the likes of Apple and Samsung recently: smart phones and other smart devices (like wearables like glasses and watches) are capable of measuring various important biometrics like activity level and heart rate, and apps like Nike+, MapMyFitness, and Endomondo can create a link between technology and fitness. Under Armour’s portfolio of apps serves the dual purpose of branding and advertising — giving existing customers a unique experience and also bringing new customers on board the brand.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

Notes:
  1. Under Armour 10-K, SEC [↩]
  2. Ref:1 [↩]
  3. Ref: 1 [↩] [↩]
  4. Under Armour’s CEO Kevin Plank on Q4 2014 Results – Earnings Call Transcript, Seeking Alpha, February 2015 [↩]