Stock Market Research: Under Armour (NYSE: UA, UAA)


Under Armour is the originator of performance footwear, apparel and equipment, and has revolutionized how athletes across the world dress. The brand is designed to make all athletes better, and UA’s innovative products are sold worldwide to athletes at all levels.

Revenue Breakdown

North American apparel is the company's largest and most profitable business, by far. However, international and direct-to-consumer businesses as well as footwear may offer growth for UA in the future

Recent Stock Performance

In Q1, 2017, UA posted its first ever operating loss at $2.3m with an EPS loss of $0.01 (vs. estimated loss of $0.04). This drop comes shortly after the company broke it’s 26-quarter streak of revenue growth above +20%. Despite the loss, UA stock increased almost +10% (April 27th, 2017) as the loss came in lower than expected. CEO Kevin Plank noted that “our first quarter results were in line with our expectations and we're off to a solid start in 2017.” Prior to Q1, UA stock had fallen over 60% due to unexpected growth slowdowns and estimates misses throughout the later half of 2016. Driving these slowdowns and decreases in profitability were the bankruptcy declaration from The Sports Authority, one of UA’s wholesale distributors, as well as continued investment in strategic initiatives.

Future Outlook: Four Areas of Hope

Despite an uncertain environment, four main factors could lead Under Armour back into the light

International: International sales (those outside of NA) grew +74% YoY for Q3 2016. This sales growth is of particular interest as UA sells only 15% of its product internationally but has shown significant investment in foreign markets. Management expects international sales to increase from 16% (2016) to over 20% (2017), with a particular focus on China. Higher mix of international sales could also provide a boost as there are typically lower tax rates in international markets.

Footwear: While apparel growth slows, investors have been looking to footwear as the company’s next big opportunity. While only ~21% of sales, UA footwear grew 42% YoY (2016), driven primarily by basketball shoes through Steph Curry’s line as well as other new lines. UA also released product in DSW in late 2016 with the hopes that it would make up for some sales lost at The Sports Authority. The company still has progress to make, specifically regarding their premium and athleisure footwear markets as well as pricing consistencies.

Digital: Over the past two years, UA has spent almost $1b buying and investing in three of the most prominent activity and diet tracking mobile apps. UA’s Connected Fitness segment (including sales of its digital products) is only about 2.3% of total revenue, but is the fastest growing segment at +70% growth. The company has a great opportunity through this platform as (1) over 60% of Connected Fitness's users are women, who account for only 30% of apparel sales and (2) 35% percent of the Connected community is international, who account for only ~11% of sales.

Direct-to-Consumer: UA has become more focused on growing its direct-to-consumer segment, which comprises approximately 30% of sales and grew +27% YoY (2016). Growth in this segment is significant as direct-to-consumer typically enjoys higher margins, boosting overall profitability.


Despite Troubles, Under Armour Can Rebound and Remain a Solid Long-Term Investment

Despite troubles in the past year, UA is still expected to deliver strong (+12%) revenue growth in 2017. Due to recent uncertainty, stock performance will rely heavily on how well the company controls product discounts (e.g. gross margin and profitability) and international expansion. In addition, it will be telling to see if UA can provide stability for their North America wholesale channel while they grow international and footwear segments. Management is expected to reset throughout 2017 which may cause a continued growth slowdown. UA’s fundamentals are strong, however, and the company has continued to invest in their future. As such, the company has reiterated their belief that UA can be a $10b company – and perhaps they can.

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