Under Armour Investing In Long-Term Growth

Aug.15.14 | About: Under Armour, (UA)

Summary

Under Armour landed a place on Fortune’s Fastest Growing Companies list for 2014.

UA has seen 17 consecutive quarters of revenue growth of over 20%.

UA is investing in continued growth in five major areas: footwear, women’s apparel, “connected fitness” technology, direct-to-consumer sales, and international expansion.

Under Armour, Inc. (NYSE: UA) landed a place on Fortune's Fastest Growing Companies list for 2014. It's no surprise - the performance apparel company has tripled its revenues over the past five years and continues to aim big for growth. Q2 earnings results were announced on Thursday, July 24th. The company reported $0.08 EPS for the quarter, beating the consensus estimate of $0.07. The company had revenue of $610 million for the quarter, again beating the consensus estimate of $572.47 million.

CEO Kevin Plank attributed Q2 growth to five major areas: footwear, women's apparel, "connected fitness" technology, direct-to-consumer sales, and international expansion. These five areas will likely drive substantial, sustainable growth for the company in the long-term as well.

1. Footwear

Plank has plans for Under Armour to be a, "truly disruptive voice in the footwear market." The company seems to be on track - footwear revenue grew 34% in Q2 compared to the company's other business, which grew 30%. Part of this growth has come from raising prices. For example, the price of the Under Armour Highlight Cleat increased to $130 from $110 a year ago. Better sales have actually been seen from price increases, which was an important revelation for the company. The other aspect of growth in the footwear category is innovation. Under Armour is leveraging its technology to innovate and introduce truly unique products into the market. The company has plans to become "not an apparel brand who's making shoes, but a totally integrated footwear company."

2. Women's Apparel

Under Armour has not traditionally been a big player in the women's fitness apparel market, but the company is investing to increase its presence. The company has made positive strides already with its Armour Bra and UA Studio. The product offering is functional, but growing increasingly fashionable as well to align with consumer preferences. After the PR struggles Lululemon (NASDAQ: LULU) has faced with a product recall and an outspoken CEO, there is an opportunity for Under Armour to gain some of Lululemon's market share in women's fitness clothing. Under Armour just launched its largest ever women's ad campaign, and it will be interesting to see the positive impact it will have on sales.

3. "Connected Fitness" Technology

In November 2013, Under Armour announced that it was acquiring MapMyFitness. MapMyFitness is a leading fitness platform that allows users to track their runs, bike rides, etc. and interact with other users. As of March 2014, there were over 22 million registered users with 200,000 new users signing up each week. 30% of users are located outside of the U.S., which plays a big role in the company's international expansion strategy (furthered discussed below). Besides increased exposure for Under Armour, this acquisition also provides the company with valuable metrics. Data profiles can be created based on behaviors to group similar people. For example, by looking at variables such as average hours biked and average time of day of bike rides, bikers can be characterized as "enthusiasts" or commuters. This information has implications on how Under Armour can target them with marketing.

4. Direct-to-Consumer Sales

As Under Armour has grown as a company, so has its brand recognition. This has enabled the company to begin selling directly to customers. Selling directly to customers (versus selling through a retailer) has many advantages. Two major advantages are: better margins and more control over how the product is sold. In the 2013 annual report, the company discussed its expansion in the direct-to-consumer channel. In 2013, this channel represented 30% of total sales and the company took advantage of the opportunity to interact directly with the customer and to tell a story. As this channel continues to grow, we will likely see better margins and increased brand loyalty.

5. International Expansion

International sales currently make up approximately 6% of Under Armour's net sales. By 2016, the company plans for the figure to double to 12%. In order to achieve this growth, the company is making strategic investments. One investment was seen in the 2014 Winter Olympics in Sochi. The company outfitted several teams, and plans to move forward with both the U.S. speedskating team (through 2022) and the US gymnastics teams (2016 and 2020). These partnerships will be extremely beneficial for worldwide exposure of the brand. The company also plans to increase its number of stores throughout the world. In China, the company plans to increase the number of stores by over 100% by the end of the year. Increased international presence will significantly contribute to sales volume for the company, but will also decrease risk resulting from overdependence in the US market.

After 17 consecutive quarters of revenue growth of over 20% for Under Armour, I'm excited to see what else the company is capable of in the long-term. The company has the passion and dedication for growth - and announced at a recent investor day that they intend to double revenue to $4 billion by 2016. With the current investments being made to increase sales volume, it seems to me that the company is right on track to reward shareholders with continued growth.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.