Submitted by Daniel Tarockoff as part of our contributors program.
Since going public in November 2005, athletic apparel retailer Under Armour (NYSE: UA) has seen its share price rise more than 260%, as the company has positioned itself as an emerging global brand. Under Armour was founded in the basement of Kevin Plank’s grandmother’s house in 1996. Plank came up with the idea for the company during his time as a football player at the University of Maryland. The Baltimore-based company’s website describes the founding of the business: “It started with a simple plan to make a superior T-shirt. A shirt that provided compression and wicked perspiration off your skin rather than absorb it. A shirt that worked with your body to regulate temperature and enhance performance.”
In the company’s first year, it generated around $17,000 in revenue. Fast-forward to the end of fiscal 2011, and Under Armour had grown to nearly $1.5 billion in revenues and the company’s market-cap is approaching $5 billion. In many ways, the Under Armour story is akin to the early days of Nike (NYSE:NKE), and the company has positioned itself as a legitimate competitor to the Beaverton, Oregon-based apparel giant.
Top-notch marketing and revolutionary apparel offerings have established Under Armour as a highly desired brand within its market. Furthermore, the company has developed a significant marketing presence in recent years. Like Nike, the apparel-maker has a roster of high profile athletes across multiple sports. These include the NFL’s Tom Brady, Ray Lewis, Miles Austin, and Vernon Davis, among many others. Baseball players such as Ryan Zimmerman, Ryan Howard, and rookie sensation Bryce Harper also endorse the brand. In the NBA, the company has signed contracts with young players such as Brandon Jennings, Kemba Walker, and Derrick Williams.
The company’s products have caught on with professional and amateur athletes alike, and its mission is “to make all athletes better through passion, design, and the relentless pursuit of innovation.” Under Armour’s diverse, and cutting-edge product offerings speak to this mission. The company’s website states that “Under Armour is the originator of performance apparel – gear engineered to keep athletes cool, dry and light throughout the course of a game, practice, or workout.”
The company’s focus on innovation has allowed it to continue to grow its footprint in the global athletic apparel market and the corporate culture is ambitious and aggressive — like many of the athletes that endorse its products. On its career site, Under Armour offers “opportunities building the biggest, baddest brand on the planet, bar none.” In addition to its emerging brand, this company has attitude!
In describing its evolving product line, the apparel-maker states that “the technology behind Under Armour’s diverse product assortment for men, women and youth is complex, but the program for reaping the benefits is simple: wear HeatGear® when it’s hot, ColdGear® when it’s cold, and AllSeasonGear® between the extremes.” What is truly interesting about the brand is just how fast they have been able to expand into a myriad of different apparel segments.
At UnderArmour.com, customers can buy apparel designed for everything from football, basketball, and baseball to golf and surfing. The company also sells an assortment of everyday apparel such as pants, polos, jackets, and headwear. Under Armour is also making a large push into footwear. The website shows a very diverse and ambitious lineup of shoes and sandals. Footwear designed for all of the major sports is available, as well as running shoes, lacrosse cleats, and even hiking boots.
In addition to the company’s broad and diverse product offering, designed using cutting-edge technology, Under Armour is aggressively expanding its retail store presence. In 2007, the company opened its first retail location at the Westfield Annapolis mall in Annapolis, Maryland. In May of 2008, Under Armour opened a 6,000 square-foot store in Aurora, Illinois. In the subsequent years, Under Armour specialty stores and factory outlet locations have been opened in 34 states. Undoubtedly, this has helped the expansion of the brand. Furthermore, the company has recently expanded outside of North America, opening a retail location in Edinburgh, Scotland.
Underscoring the apparel-maker’s ambitions, the company also recently said that it intends to turn its headquarters into one of the “top campuses” in the United States, and maybe even the world. Last year, it spent $60.5 million to lay the groundwork for a 400,000 square-foot expansion to its campus, which will feature a 25,000 square-foot Under Armour store.
Under Armour has undoubtedly established a role in the designer clothing industry, but it is not the only player. Several other competitors, such as Lululemon (NASDAQ: LULU), RYU: Respect Your Universe (OTC: RYUN), and Joe’s Jeans (NASDAQ: JOEZ) have emerged as significant road blocks to Under Armour’s goal of controlling the market.
Lululemon first started after founder Chip Wilson took up a passion for yoga. Chip developed a passion for technical athletic fabrics after suffering through a sweaty, uncomfortable yoga session. He rented a design studio to begin plans for the Lululemon brand, which also served as a yoga studio at night in order to help cover costs. Founded in 1998, the first store opened officially in Vancouver, BC in November 2000. The first store was intended to be a community where people could discuss the benefits of healthy living as well as purchase Lululemon products. Due to overwhelming popularity, the company had no choice but to open more and more stores nationwide.
Lululemon was able to succeed by focusing their efforts where they saw fit: women who love yoga. The market was there, yoga was continuing to grow in popularity, and there weren’t the high-quality fabrics around to keep sweat and discomfort at bay. By targeting these women, Lululemon was able to modify their designs and fabrics to fit the specific audience. RYU, an athletic wear company focused on the mixed martial arts industry, grew it self in a similar “fashion.” Founded in 2008, a few friends came together to come up with the best martial arts performance short available. They did not do so by dreaming up an idea, but by seeking out the athletes that would use them. The RYU founders sought elite athletes who could provide insight into what exactly they would hope for in their dream martial arts shorts. The company came up with a product that stays put where it needs to but moves where necessary. They designed it to ensure comfort with moisture wicking and weather resistance. RYU created the short that “the warrior in all of us demands.” Because mixed martial arts (MMA) athletes tend to start at early ages, and due to the fact that MMA is a truly global sport that may be the fastest growing sport in America, RYU has chose the MMA market to target.
While Under Armour, Lululemon, and RYU all remain strong players in the athletic wear industry, they also compete with more traditional clothing companies, such as denim-focused Joe’s Jeans. The Los Angeles based company that was founded in 2001 has grown a lot in the past 11 years. Founder Joe Dahan’s now global brand gained notoriety for “pioneering the concept of body-specific fits.” By catering to individuals instead of assuming that jeans fit all people the same way, the brand succeeded in establishing a loyal following.
While all four of these companies’ stories are unique, they all have one thing in common: by targeting a specific consumer niche, they were able to pull ahead of similar hopeful companies and establish credibility in their given industry. Their stories are compelling, but more importantly, they have all gained attention in the stock market.
Lululemon trades at over $56 per share, with strong investor interests. While RYU and Joe’s Jeans may not be as dominant, they both maintain market caps of $37.77 million and $72.16 million respectively, and consistently trade in decent volumes.
Under Armour, in particular, has performed extraordinarily. The stock has been reacting to Under Armour’s strong top and bottom line growth in recent years, and increasing margins. Net income, for example, went from just above $38 million in fiscal 2008 to nearly $100 million by fiscal 2011. Revenues during the same period increased from just above $725 million to almost $1.5 billion. Over the last 5 years, UA shares have climbed almost 70% and the stock is up nearly 28% in 2012 alone. The bottom line on Under Armour is that it is an exciting emerging global brand and continues to be a compelling stock to own in the mid-cap retail space.