Under Armour Imposing on Nike’s Turf, But is Still Far From a Serious Threat

Nike (NYSE:NKE) is the world’s largest manufacturer (by sales) of athletic footwear, apparel and equipment. The company traditionally competes with manufacturers like Adidas (PINK:ADDYY), Puma (ETR:PUM) and Under Armour (NYSE:UA).

Our price estimate for Nike’s stock is $77.52, which stands below market price.

Under Armour is a small but fast growing rival of Nike. It began as a sports apparel focused company but later expanded into footwear as well. Under Armour recently reported its Q4 2010 earnings with EPS (earnings per share) rising by 50% vs. the same period in 2009. ^[1] The company also increased its guidance for sales growth in 2011.

Given its recent surge, does Under Armour pose a real threat to Nike?

See our full analysis and $77.52 price estimate for Nike

Sales Size Comparison

Under Armour’s sales come primarily from the North American region. For example, in 2008, about 95% of its sales were attributable to U.S. and Canada. On the other hand Nike’s sales are primarily international. If we compare Nike and Under Armour for the U.S. market, Under Armour’s sales of close to $1 billion still pale in comparison to Nike’s approximately $6.5 to $7 billion in sales (excluding revenues from non-Nike brands). ^[2] Still, Under Armour is growing at a much faster pace and expects a revenue growth of 25% to 27% in 2011. ^[1]

Under Armour Taking Steps to Expand

Under Armour has now expanded into cotton-based apparel which is in high demand for casual settings. The company believes that this could be a prominent category, and was actually one of the challenges earlier for its expansion into the sport apparel market. ^[3]

Under Armour is also looking to challenge Nike with its footwear offerings. The company previously launched its basketball shoe line to penetrate the category totally dominated by Nike. ^[4] The U.S. basketball market is estimated to be $2.5 billion, of which Nike controls about 95%. ^[3]

While the U.S. sports market has suffered declines in the recent past, Under Armour has grown its revenues at a fast pace. ^[5] Given that Under Armor is primarily focused in North America, logic suggests market share gains in this region although the company’s share figure may be relatively low compared to Nike’s. But is Under Armour snatching this market share from Nike?

Nike’s North American revenues declined by a little over 1% in fiscal year 2010, while in fiscal year 2009 this number grew by 2%. Since data from NPD suggests that the U.S. sports market declined by more than 1% on average during the period ranging from 2008 to 2009, we believe that Nike could still have maintained its market share in the U.S.

Thus we believe that currently Under Armour’s success has not materially hindered Nike’s gains to date, although the company could be headed in that direction. Nike is somewhat shielded from Under Armour’s recent success for the time being due to its large size and international presence.

Drag the trend line in the chart above to see how changes to Nike’s market share in the apparel segment affects the company’s stock value.

1. Under Armour profit higher, raises 2011 view, Reuters, Jan 27 2011 [↩] [↩]
2. From Nike’s SEC filings [↩]
3. Under Armour Advances Most Since May After Raising 2011 Sales Forecast, Bloomberg, Jan 28 2011 [↩] [↩]
4. Under Armour Plans to Dethrone Nike, Jordan in Basketball Shoes, Bloomberg, Oct 23 2010 [↩]
5. Data from NPD Group for 2008 and 2009 [↩]