Can Under Armour Continue To Grow Its Revenues This Year?

Under Armour (NYSE: UA) is one of the fastest-growing companies in the apparel industry. Under Armour has achieved steady revenue growth in the last couple of years, with its revenues of $5.2 billion in 2018 marking a y-o-y growth of 4.1% driven by an increase in wholesale revenue, strong performance in apparel and footwear segments, partially offset by lower sales of accessories. Trefis captures trends in Under Armour’s Revenues over recent years in an interactive dashboard along with our forecast for the current year. We expect the company to achieve steady revenue growth and add more than $160 million to its top line in FY’19 primarily due to growth in wholesale as well as direct-to-consumer business coupled with growth in its international business (particularly in Asia) – mitigating the impact of soft demand in North America on its top line.

You can view the Trefis interactive dashboard to better understand the revenue trends and division-wise revenue performance, and alter the assumptions to arrive at your own estimate for the company’s revenues. In addition, here is more Trefis Textiles, Apparel and Luxury Good Industry Data

A Quick Look at UA’s Revenue Sources

UA reported $5.19 billion in total revenues in FY 2018. This included 4 revenue streams:

• Apparel: $3.46 billion revenue in FY 2018 (67% of total revenues). This includes sales of apparel in a variety of styles and fits intended to enhance comfort and mobility, engineered to replace traditional non-performance fabrics.
• Footwear: $1.06 billion revenue in FY 2018 (20% of total revenue). This includes sale of performance training footwear, running footwear, basketball footwear, and the latest in hunting boots.
• Accessories: $0.42 billion revenue in FY 2018 (8% of total revenue). This includes sale of hats, bags, baseball, football, golf gloves, etc. Its accessories include the HEATGEAR and COLDGEAR technologies.
• Licensing and Connected Fitness: $0.25 billion revenue in FY 2018 (5% of total revenue). This includes fee and subscription revenue received from licensees that are permitted to manufacture and distribute Under Armour’s brands for a fee.

How Has Under Armour’s Revenue Trended Historically? 

• UA has added more than $1.2 billion to total revenue since 2015 at an average annual rate of 9.4% led by steady growth across all operating segments.
• Apparel, led by its athleisure collection, has been the largest growth driver. Apparel alone has added more than $660 million to total revenues-accounting for more than 50% of total incremental revenues
• Going forward, we expect Under Armour’s revenues to increase by 3% and cross $5.3 billion in FY 2019.

A Detailed Look At Under Armour’s segment performance and revenue change over the years:

Apparel Segment Is Under Armour’s Largest Operating Segment

• Apparel segment consistently contributes a majority of its revenues, with an average revenue share of more than 67% in the last four years
• However, the segment’s share has declined from 71% in 2015 to nearly 67% in 2018 due to faster growth in the Footwear segment.
• The segment grew by 5% year-over-year in fiscal 2018 – contributing more than $175 million to total incremental revenues. This growth has been driven by steady unit sales growth in training, golf, and team sports categories.
• We expect the segment to continue its sustained growth and record $3.5 billion in revenues in FY 2019.
• Asia will continue to drive the segment’s growth for the foreseeable future thanks to continued expansion with key partners and higher sales to the off-price channel coupled with sustained momentum in direct-to-consumer

Footwear Segment’s Growth Has Normalized Since 2016

• Footwear Segment has achieved robust growth in the last few years, with revenues increasing from $677 million in 2015 to more than $1 billion in FY 2018 driven by continuous growth across all major products categories. Notably, a majority of this growth came in 2016 when the footwear segment grew by almost 50%. Since 2016 the growth has normalized and the segment has grown in the low-single digits
• This growth has been supported by continued global trends such as increasing penetration of sportswear, rising sports participation rate, and increasing health awareness
• We expect this segment to continue its steady growth, with revenues increasing at a rate of 3.8% to $1.1 billion in FY 2019.
• This growth is likely to be primarily driven by higher sales in the running wear category. Moreover, strong demand in running category products coupled with new launches will help this segment achieve steady growth in the near term.
• The segment’s contribution to total revenues has gradually increased over the years, which is expected to continue for the foreseeable future.

Accessories Segment Growth Likely To Rebound After A Difficult 2018

• This segment has added more than $75 million to total revenue since 2015 at an average annual rate of 6.8% driven by unit sales growth in multiple categories led by men’s training
• However, the Accessories segment had a difficult 2018 with revenue declining more than 5% mainly due to unit sales decline in outdoor and training categories.
• This segment has continued to struggle in the first half of 2019 with revenue declining by 5% primarily driven by planned lower sales of backpacks and bags related to a strategic relaunch of key product.
• However, going forward, we expect the segment to grow in low single-digits, mainly due to growth in most of the categories – led by men’s training.

Licensing and Connected Fitness Is Under Armour’s Fastest Growing Segment

• This segment has been Under Armour’s fastest growing segment – adding more than $105 million to total revenues since 2015 at an average annual rate of 21%.
• The segment has continued to witness strong growth in the first half of 2019 with revenues increasing by 14% (y-o-y)
• We expect this trend to continue over subsequent quarters thanks to increase in new subscription revenue partially offset by lower revenue from licensing partners in North America due to softer demand.
• The segment’s share to total revenues has increased from around 3.5% in 2015 to nearly 4.7% in 2018 and we expect this figure to increase further to 5% in 2019.

Based on our forecasts, Under Armour’s revenue per share for full-year 2019 is likely to be around $23.8. Using this figure with our estimated forward P/S ratio of 0.9x, this works out to a price estimate of $22 for Under Armour’s stock which is roughly 20% ahead of the current market price

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