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Investment Overview for Under Armour (NYSE:UA)
Below are key drivers of Under Armour's value that present opportunities for upside or downside to the current Trefis price estimate:
- Retail Apparel Revenues : Retail Apparel Revenues increased from $122 million in 2009 to around $412 million in 2012. Under Armour's focus on innovation as well as addition of new specialty and factory stores helped drive the sales. Going forward we expect the figure to increase rapidly and cross $2 billion in the long run. If retail apparel revenues increase to $2.5 billion by the end of the Trefis forecast period, there could be a 6% upside to the Trefis estimate. On the other hand, if revenues increase only to $1.5 billion, it represents around 7% downside to the Trefis estimate.
- Apparel Gross Profit Margin: Under Armour's Apparel Gross Profit Margin declined in 2012 to reach 47.0% mainly on account of unfavorable sales mix and higher air freight costs. We expect this figure to improve to 51% in the long run as direct retail sales mix increases. If margins increase to 56% by the end of the Trefis forecast period, there could be a 6% upside to our price estimate for Under Armour's stock. On the other hand, if they stay at present level, there could be a 5% downside to the Trefis price estimate.
Under Armour is a manufacturer and distributor of performance apparel, footwear and accessories for men, women and children. The company's products use moisture-wicking fabrics that are engineered in many designs and styles for wear in nearly every climate. The company sells its product worldwide with a significant percent of sales coming from North America. The company's distribution includes both wholesale and retail channels. Its products are worn by athletes at all levels, from youth to professional, on playing fields around the globe, as well as by consumers with active lifestyles.
The primary sources of Under Armour's value are its apparel and footwear businesses, and together they contribute around 89% of Under Armour's value. Apparel is more valuable than Footwear and Accessories businesses for the following reasons:
Market leader in performance apparel market
Under Armour is the current market leader in the performance apparel market with over 70% market share. All three apparel gearlines of the company i.e. HOTGEAR, COLDGEAR and ALLSEASONGEAR are extremely popular among professional athletes as well as consumers. However, in the footwear and accessories businesses, Under Armour faces tougher competition with established players such as Nike and Adidas.
Under Armour is expanding its own stores leading to higher overall gross margins due to a shift in sales mix
Gross margins in the direct-to-consumer channel are nearly 30% higher than in the wholesale channel.
Expanding its direct-to-consumer segment is a major focus for Under Armour. The company added 21 new factory stores in the US in 2012, and continues to focus on e-commerce sales. As direct revenues contribute more to net sales, we expect gross margins to increase.
Focus on the international business
While international sales currently contribute only 6-8% of Under Armour's net sales, the company plans to increase this figure to 12% by 2016.
The company plans to expand in the key markets of Asia (China, Korea and Japan), Europe (U.K., France and Germany), Australia and Latin America (Brazil, Mexico, Argentina and Chile) to enhance its international business.
Focus on the womens business
Being previously popular for its men's products, Under Armour is now focusing on women's products to enhance its revenues.
It is making efforts to elevate its brand image among women customers by altering the retail experience at its stores to suit them.
It recently signed a deal with USA Gymnastics which is expected to strengthen its brand image among female customers.
Expansion in footwear revenues
Under Armour aims to gain market share in various shoe categories, including running and basketball. The company is launching innovative footwear technologies, enhancing its footwear distribution network, hiring new talent and expanding marketing efforts to achieve this goal.
Footwear sales rose by 32% in 2012, and we expect these sales to continue to grow rapidly in the future.
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How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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