Tuesday, 18 June 2013

Under Armour the next Nike?

Under Armour (UA) is a sportswear brand that is focused on helping athletes win. UA supplies hi-tech performance sportswear for athletes and casual apparel for weekend warriors like myself. UA recently outlined their aspiration to double sales over the next three years. In their words UA is armoured for growth.

UA built brand credibility by supplying performance apparel first to university sport terms and then to the majors in the National Football League and Major League Baseball. UA has moved on from its background as a "tight t-shirt company" with their signature compression apparel representing only 14% of sales down from 63% in 2005. UA is moving into other categories such as run, golf, underwear and outerwear.

Still just American
UA is very much a North American brand their opportunity is in going global. UA is looking to be the next Nike, the main difference being UA is the leader in apparel and Nike is dominant in footwear. UA has 70% awareness in apparel versus 14% in footwear. Nike has 35% of worldwide market share in footwear while UA released their first football cleat in 2006.

  FY12 (bn) NKE UA
Market Cap $54.40 $5.90
Revenue  $24 $1.80
Gross Profit 43.3% 47.9%
International 63.0% 6.0%

UA oversees sales are only 6% of overall with plans to double to 12% of sales by 2016. Locally UA has been in talks with Rebel sport to act as its exclusive wholesale distributor in Australia. With the exception of Japan UA's global market share is insignificant. In Europe and China UA sales are less than $0.10 and less than $0.01 per capital respectively versus $US5 in North American.

A recent initiative has been kids with their alter ego line of performance clothing. The clothes transform these kids and even some adults into superheroes. The line sold out in a matter of weeks.

Another opportunity is in womens wear. Like everyone else they are targeting Lululemon and believe that the womens business could one day be larger than the mens.

CEO pays himself $26,000
The CEO and Founder Kevin Plank owns around 20% of the company, a company he started from his Grandmas basement. As the self proclaimed "sweatiest guy on the football field" Plank designed shirts that would wick the sweat making athletes lighter and faster. Kevin is aligned with shareholders taking a base salary of $26,000 his approximate salary when he founded the company.

Customer concentration is an issue with Dicks Sporting Goods and the Sports Authority combining in 2012 for 22% of sales. Though both these companies have plans to accelerate store growth and UA is still under penetrated especially compared to the category leader Nike. See Merrill research below. Meanwhile the North American operations are expected to grow with plans to double the number of shop in shops from 800 to 1,600 by 2016.

UA has the potential to be a much larger company not many companies have crossed Nike and lived to tell its story. If UA can compete with Nike in North America maybe it can compete against Nike across the globe. As a weekend warrior I'll be watching with interest from the armchair.


Disclosure: Decisive has a long position in UA stock
The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.