Here’s How Under Armour Can Benefit From Expanding Its Smart Shoe Range

Under Armour recently unveiled three new “record equipped” running shoes, which will be available on pre-order starting January next year. The record equipped technology provides runners with digital tools needed to understand recovery and maximize performance. These new shoes are an expansion of the company’s smart shoe line, which was launched earlier this year. This line of shoes will be linked to MapMyRun, Under Armour’s mobile app which commands a user base of 190 million globally. According to our estimates, the footwear segment accounts for nearly 30% of Under Armour’s valuation and its contribution to the company’s revenues is estimated to increase from around 20% in 2016 to nearly 32% by the end of our forecast period.  As the company expands its connected fitness business by focusing on its smart shoe offering, it can boost its footwear revenues and drive growth in the long term.

Increased Focus On Connected Fitness

Last year, Under Armour invested nearly $560 million to acquire two fitness apps – MyFitnessPal and Endomondo.  In late 2013 the company had acquired MapMyFitness for $150 million. These acquisitions gave it control over the world’s largest digital and fitness community, a community the company is now looking to leverage.  The new shoes are powered exclusively by MapMyRun, Under Armour’s mobile app. Each shoe includes new features that will provide runners not only with automatic tracking capabilities, but also with insights into their muscular fatigue prior to working out. Through these initiatives, Under Armour is focusing on its connected fitness goal which is likely to drive revenues in the long term.  According to our estimates, the company’s retail footwear revenues are likely to increase rapidly from around $300 million in 2016 to nearly $1.4 billion by the end of our forecast period.

We believe innovation is likely to remain a key element of the company’s growth. It can gain market share in the footwear segment as it focusses on innovative new products. We note that Footwear is not the most valuable segment for Under Armour.  In fact,  Performance Apparel accounts for nearly 50% of its valuation according to our estimates.  As such, growth in retail footwear revenues will impact the company’s valuation moderately. For instance, if these revenues grow at a faster pace and reach $2 billion by the end of our forecast period, there can be a 5% upside to our price estimate.

Under Armour is increasing focus on its footwear segment, which is likely to witness significant growth in revenues in the next few years.  Its connected fitness initiative will give the company insights into consumer behavior (based on data collected via the app), which can enable it to tweak its products according to consumer preferences. These smart shoes should find favor in consumers who are looking to move away from wearables to monitor fitness and workout trends. We believe this innovation can drive revenues for the company in the long term.

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