Earnings Review: Under Armour Continues Its Strong Growth Story With Another Big Quarter

Under Armour (NYSE:UA), a developer and distributor of athletic apparel, footwear, and accessories, posted another very strong quarter in Q1 2015, with  25% net revenue growth to $805 million. The company maintained its solid growth momentum as it reached a 20th consecutive quarter of an over 20% 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 stayed flat at 46.9%. Looking closely at the figures, higher product margins improved the gross margin by 110 basis points but the impact of those factors was mitigated by higher transportation and freight costs and the negative impact of currency fluctuations. Selling, general, and administrative expenses as a percentage of net revenues, increased by 80 basis points to 43.5% in the first quarter of 2015 on the back of rising investments in connected fitness applications and the direct-to-consumer business. ^[2]

Strong Growth Across All Product Categories

Apparel sales, which comprise about 75% of Under Armour’s net revenues, rose by 21% to $555 million, primarily driven by strength in the company’s Base Layer product line and newly introduced training products. This represented the 22nd 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 41% to $161 million, owing to strong growth in the running category as well as the impact of Stephen Curry’s performance leading to higher sales of the signature CurryOne shoe. The much publicized SpeedForm Gemini and Apollo running shoes showed excellent sell-through rates, while the $125 ClutchFitDrive baseball shoe also showed strong momentum. Footwear has now grown to represent 20% of the company’s net sales. Accessories revenues rose by a strong 23% to $63 million, due to high sales of head wear offerings and gloves. Direct-to-Consumer net revenues, which represented 25% of total net revenues for the quarter, grew 21% 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 company is also trying to expand into the basketball shoe segment but success there is dependent on getting popular basketball stars to sign up for merchandising as shown by the success of the CurryOne shoe. 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 16% by 2016. In the first quarter, international revenues represented 12% 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 (UA) CEO Kevin Plank on Q1 2015 Results – Earnings Call Transcript, Seeking Alpha, April 2015 [↩]
3. Ref: 2 [↩] [↩]
4. Ref: 2 [↩]