Under Armour (NYSE:UA) delivered another good performance in its Q4 2012 results driven by sharp gains in all its product segments. It managed to deliver strong results even while some of the other retailers suffered from weak consumer demand during the holiday season. Under Armour posted net revenues of $506 million, witnessing a y-o-y increase of 25% during Q4. Under Armour’s full year revenues stood at $1.84 billion, marking 25% increase over 2011, and were above the company’s previous projections. Continued innovation across all product segments, helped the company post a strong top line growth. Its net income also witnessed y-o-y increase of 54% in Q4 to reach $50 million. 
Going ahead, we feel Under Amour’s increased focus on Women’s and footwear products, direct-to-consumer business and expanding international presence, will help drive its future growth.
Focus On Footwear And Women’s Products To Drive Growth
Under Armour’s footwear net revenues saw a 43% y-o-y increase in Q4 and constituted around 9% of the company’s total net revenues in the quarter.  Under Armour aims to extend its market share within the running and basketball shoe categories. To achieve this goal, the company is introducing innovative footwear technologies, enhancing its footwear distribution network and hiring new talent.
Even though Under Amour faces stiff competition within footwear market from big players such as Nike and Adidas, we believe that it can extend its market share given its strong track record of launching innovative products.
Under Armour saw y-o-y growth of 25% in its apparel division in Q4 – its main product category in terms of revenue contribution. This was the 13th consecutive quarter in which Under Armour recorded more than 20% y-o-y growth in apparel revenues. 
Under Armour is focusing on women’s products to fuel its growth. In its upcoming store in Baltimore, Under Armour plans to showcase women’s and men’s apparel in an equal ratio. The company also aims to grow its floor space at key distributors such as Macy’s and Dillard’s with a greater assortment of women’s products. We believe that these initiatives will benefit Under Armour by helping the company build its brand image among Women customers.
Expanding International Operations
Considering the growth opportunity in international markets of Latin America, Asia and Europe, Under Armour is focusing on expanding its international operations. International net revenues recorded an y-o-y increase of 30% in Q4, to reach $34 million. This constituted around 7% of its net revenues in Q4. 
Under Armour has entered into partnerships with popular international sporting leagues such as Tottenham Hotspur (an English football club) and opened stores in China in an attempt to grow its international business. We believe its strategies in international markets can become major growth driver for Under Armour, and we also expect revenues from these regions to continue to grow at a rapid pace.
Enhancing Direct-to-Consumer Business
Enhancing the direct-to-consumer business is yet another significant growth strategy for Under Armour. It opened 21 factory stores in 2012, and also bolstered its e-commerce business. Under Armour’s direct-to-consumer net revenues increased by 34% in 2012. These revenues represented 29% of the total net revenues in 2012, as compared to 21% in 2010. 
Based on this trend, we forecast the retail business’ revenue contribution to increase until the end of Trefis forecast period, which will help improve Under Armour’s gross margins in the long run.
Outlook for 2013
- Net revenues for 2013 is in the range of $2.2 billion – $2.22 billion (representing annual growth of 20-21%)
- Operating income is in the range of $255 million – $257 million (representing annual growth of 22-23%)
- Effective tax rate of 39%-39.5% (assuming no state tax credit benefits)
We are in the process of estimating the price for Under Amour’s stock.Notes: