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Summary

  • Under Armour projects 24-25% revenue growth in 2014.
  • The company has only touched the surface in many apparel segments including footwear, golf and outdoor wear.
  • Only 10% of revenue came from international sales which presents yet another area for tremendous expansion of the Under Armour brand.

Every time a quality company with a clear long-term business path sees a large one-day decline, it always peaks my interest of buying in at an attractive entry point. Today Under Armour (NYSE:UA) posted solid quarterly earnings with a 36% increase in first quarter net revenue, 73% increase in net income, 71% increase in diluted EPS and increased its net revenue outlook to $2.88 to $2.91 billion for 2014. The company expects revenues to increase by 24-25% in 2014. For 16 straight quarters, top line revenue has exceeded 20% and the company is on track to deliver another 3 during 2014.

Quarter ended March 31

($ millions)

2014

2013

Y/Y % change

Apparel

$ 459

$ 345

33%

Footwear

$ 114

$ 80

43%

Accessories

$ 51

$ 36

42%

Licensing

$ 16

$ 9

78%

Total Revenue

$ 641

$ 471

36%

Operating Income

$ 26.8

$ 13.5

99%

Net Income

$ 13.5

$ 7.8

73%

EPS (diluted)

$ 0.06

$ 0.04

50%

Source: Under Armour Earnings release

While the company expects continued growth across all product lines, the company sees particular strength in footwear and golf apparel. Under Armour saw 43% growth in footwear to $114 million. The company launched a number of new running shoe brands across different price points that have seen tremendous success. Under Armour currently only makes up a small fraction of the total active footwear market. As an example, Nike had footwear revenue last quarter of over $4.2 billion and over $1.9 billion in North America alone. Clearly Under Armour has incredible growth potential in this market as it begins to win over customers with its new shoe lines.

In 2013, the company's golf apparel revenue approached $100 million. The golf apparel industry has enormous potential for Under Armour and the company is making a strong push to gain market share in this area. Most recently, Jordan Spieth, an Under Armour sponsored professional golfer, gave the company incredibly strong coverage when he came in second at The Masters. This was significant for the company because the Under Armour brand reached millions of golf enthusiasts, many of whom were unaware of the golf product line offered by Under Armour.

International Expansion Opportunity

Quarter ended March 31

($ millions)

2013

2012

North America

$ 582.5

$ 440.8

Other foreign countries

$ 59.0

$ 30.7

Currently international sales only make up roughly 10% of company sales. This presents another huge opportunity for expansion. As another example, Nike had total international sales of over $3.4 billion last quarter resulting in nearly 50% on total revenue. To date, Under Armour has focused almost exclusively on the domestic market, but recently launched its products for the first time in Brazil and Chile. The company is also looking to strengthen its presence in Latin America, Europe and Asia. While Under Armour may never develop into the next Nike, it does show how strong the international market is for active wear and the potential opportunities the company will exploit going forward.

Reason for price pullback

The company projected 2014 revenue to increase by 24-25%, but also warned of a potential slowdown in growth numbers over 2013 due to tougher comparisons. CFO Brad Dickerson said the first quarter benefited from comparisons to 1Q2013 because the company was pulling back its bag business ahead of a relaunch in 2Q2013. This resulted in a quarter-over-quarter revenue increase of 36%. Quarter-over-quarter comparisons for the rest of the year aren't expected to be as explosive.

When a company trades at a P/E of 66 and a forward P/E of 53, any slight hiccup in revenue and earnings growth will magnify itself. However, the company continues to perform well and its revenues will continue to grow by high double digits throughout 2014 and into 2015.

Reason to buy on the pullback

Under Armour is rapidly becoming the favorite athletic performance wear of athletes and young people in the US. Turn on any professional sport and you'll see the huge presence of Under Armour during warm-ups and during the game. The company has only touched the surface in a wide variety of industry segments including running footwear, golf apparel and outdoor gear. The potential for Under Armour to eat up market share in these areas is enormous. Combine that with the fact that the company is just beginning to capitalize on the international market and you will see why the company commands such a price premium. Today's (4/24/14) pullback of 6%-10% creates a great entry point for the long-term investor.

Source: Under Armour A Long-Term Buy On The Recent Pullback