Analyzing the reality of Under Armour’s Q3 earnings


One of the best ways to get a true sense of how a company is doing is by listening to the earnings report conference calls.  These give you the ability to hear it right from the mouth of the CEO not pundits or talking heads.  That is what we have done here.  We took the earnings report and we are going to boil it down to the key points; revenue, footwear, their dominance of the football cleat market and future outlook.


Revenue is the life blood of a company and revenue growth is a key indicator of a successful company and stock.  This year, Under Armour’s footwear business went from $239 million in 2012 to approaching $1 billion in revenue.  International markets open new doors to additional revenue and UA’s international revenues grew from $108 million in 2012 to more than $700 million this year.  This quarter is Under Armour’s 26th consecutive quarter of 20% plus revenue growth.

As it pertains to market share, consider this, UA’s two largest competitors generated approximately $18 billion in revenue in North America over the past 12 months.  So, while UA recognizes that their trailing 12 month North American revenues of $3.95 billion is 85% of their business, it is just a fraction of the opportunity that they believe exists for they brand.  As UA grows they can eat into that $18 billion dollar market that is theirs for the taking.

Going forward, UA plans to drive growth by the measures you’d expect: innovative product, brand strength and relevance and the best team in the industry to drive market-leading results.  A large part of that growth in North America will come from footwear as they firmly believe that they are at a tipping point in terms of opportunities to gain market share.   This was evidenced by the back-to-school window of July through September where UA’s overall footwear market share nearly doubled according to industry data.


Under Armour is attacking all areas of the shoe market not just basketball.  This summer, they launched their, ‘It Came From Below’, Footwear campaign which focused on the importance of footwork as athletes trained.  They started with Bryce Harper in baseball and for running UA hosted a UA run camp, where they took experienced men and women from urban run crews and put them and their Under Armour footwear to the ultimate test in the world’s toughest conditions. This is similar to something Nike has been doing with their Nike Fit Club which has proven to be highly successful.

With the start of the NFL season in early September, UA incorporated NFL MVP, Cam Newton with the prince of a thousand enemies spot and the launch of a game on Snapchat with Cam that drove incredible engagement.


The final piece of UA’s footwear campaign debuted with the launch of the Curry 3 TV spot on TNT during opening night of the NBA season.  UA also combined their Curry marketing efforts with their second tour of Asia where they took Stephen to four cities in early September.  They are continuing to build their relationship with the basketball consumer and driving awareness and UA as a footwear brand by partnering with the two-time NBA MVP.

One thing that concerns me is that I don’t see UA going after any other athletes.  It is almost as though they are blind to the fact that Steph Curry, Cam Newton and at one point in time Ray Lewis, carry and have carried their brand.  It would be wise for them to target some big named athletes and put more shoes on more NBA players.


While Stephen has been a big part of building Under Armour’s footwear story, Under Armour is also having success in other areas that are contributing to the growth. The highlight is the number one Football cleat in the market four years running now and continues to showcase Under Armour’s ability to elevate and drive premium footwear in every category they choose to be in.  Under Armour made their first football cleat in 2006 and since then have changed the look of the entire category while elevating the price.


On the conference call, Kevin Plant mentioned that Under Armour has three central goals/focus areas: 1) getting big fast, 2) making retail a core competency 3) getting more shoes on feet.

To be clear; get big fast does not mean at all costs, it means prioritizing their growth and making the right decisions for the brand.  It means growing the right way.  UA proudly touts that they have succeeded over the past 20 years by consistently punching above their weight and they say that will not change.  I interpreted this as meaning UA is going to challenge companies like Nike and Adidas both of which has a substantially greater market capitalization compared to UA.  Nike has a market cap of 80.62 billion and Adidas has a market cap of 34.31 billion yet UA with a cap of 12.55 billion is competing with them all and in most areas seen as an equal.

Retail is a great opportunity because UA is stepping in and building flag ship stores to replace the Sports Authority and Sports Chalet.  This not only allows UA to reduce margins by going direct to consumer but they also enjoy brand awareness and exclusivity because they aren’t competing for floor space.

As I sated earlier, UA has to get more shoes on feet and they are doing this by creating lifestyle shoes, which are more functional than just sports.  It will take some time to be seen as the cool shoe but UA is making moves that other companies are unwilling to make (like taking the logo off the side of the Curry 3).  I would still like to see UA investing in more athlete sponsorships but they are being aggressive with what they have. UA currently has about $180 million in cash so this limits what they can do but they are being aggressive with what they have.  This aggressive stance should allow them to continue to conquer their goals.

I believe that you have to be a strategic thinker when investing in stocks.  You have to see what isn’t there before it is there.  My vision for UA is that they become the new Nike.  It is my hopes that UA is going to continue to grow into a household name, increase revenues, margin and market cap while increasing its stock price.  For investors, that means exponential gains and wealth but we have to hold on for the ride.


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