How Significant Is The Performance Of Its “Curry” Shoe Line For Under Armour’s Long Term Growth

According to our estimates, the footwear segment accounts for nearly 30% of Under Armour‘s (NYSE:UA) valuation and is the company’s second most valuable segment. In 2016, this segment is likely to contribute around 20% of the company’s total revenues and we expect this figure to increase to more than 30% by the end of our forecast period. Footwear revenues of the company are growing at a rapid pace and we expect its retail footwear revenues to grow from 0.32 billion in 2016 to nearly 1.46 billion by the end of our forecast period.

The company partnered with two-time NBA (National Basketball Association) MVP (Most Valuable Player) Stephen Curry and launched basketball shoes under the “Curry” tag line. While the first two versions in this line have contributed to the growth in footwear revenues of the company, reports suggest that its new sneaker “Curry 3” got off to a slow start. While it may be too early to tell for this version, sales of basketball shoes are declining across brands. Recently, Foot Locker reported a decline in basketball footwear in the mid-single-digit range, due to the weakness in sales of Nike brand shoes.

Under Armour has invested significantly in the Curry brand and these shoes are expected to be the key driver of revenue growth in its footwear segment.  Products designed around icons usually attract consumers and with the Curry line, Under Armour was finally able to create this brand image and develop a competitive edge over other players such as Nike and Adidas. In fact,  experts believe that Under Armour was gaining in the basketball shoes category primarily due to the endorsement from Stephen Curry.  These shoes usually command a premium and higher sales in this category can positively impact the company’s margins. However, the reported lukewarm response to Curry 3 shoes is an indication that basketball shoes in general, and Under Armour’s Curry line in particular, is losing customer appeal. This can impact its footwear segment revenues negatively and in turn the valuation of the company.

A slower rate of growth in Under Armour’s Wholesale and Retail footwear revenues can lead to a downside in our price estimate.

The Curry line of basketball shoes is significant for Under Armour’s revenue growth in the footwear category since a line on an iconic basketball player gives the company a competitive edge. However, as the overall basketball footwear segment slows down, Under Armour’s significant investments in this category can be negatively impacted. The Curry line, due to its strong brand association, is important for Under Armour’s long term revenue growth.

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