Three Reasons Why Under Armour Is Primed For Growth

by Trefis Team
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74.02
Trefis
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Under Armour
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Baltimore based Under Armour (NYSE:UA) has been one of the best apparel stocks to invest in over the last couple of years. Its stock has risen more than 100% over the last year and as its outstanding sales over the holiday season show, it is not showing any signs of slow down in momentum. [1].

Now, Under Armour has added another feather to its cap with the conclusion of a sponsorship agreement with Notre Dame. The much speculated Under Armour deal with Notre Dame was confirmed by the company last week. This is a huge achievement for Under Armour, as it gives them access to one of the largest fan bases and most valuable college football programs. Under Armour beat out bids from Adidas (XETRA: ADS) and Nike (NYSE:NKE) to secure the Notre Dame program. Under Armour will supply footwear, apparel, equipment for training and game-day uniforms for all 26 varsity athletics programs. [2]

In addition to the Notre Dame deal, Under Armour’s various sports sponsorship deals with many U.S. winter olympics teams and its expansion into newer geographies show that its growth prospects look bright from 2014. In this article, we take a look at how each of these aspects look for Under Armour and highlight how they fit in with Under Armour’s long term growth strategy.

See our full analysis for Under Armour

What Notre Dame Deal Means For Under Armour

The deal gives Under Armour one of the top ten colleges in terms of merchandise sales. Prior to signing Notre Dame, which ranks third in merchandise sales, Under Armour’s highest ranked school was 16th placed South Carolina. Under Armour now has 13 Division 1 football programs under contract. This is low compared to its competitors- Nike and Adidas have 79 and 30 respectively- but shows that Under Armour is beginning to grab share in this market too. It is speculated that the Notre Dame deal with Under Armour is worth about $9 million per year, making it the highest college apparel deal ever. Deals of this size are rare, and Under Armour won’t enter into deals of the same scale too often, but it is clear that Under Armour is now a strong competitor in the college football segment. [3]

Apart from the financials, this deal highlights a special competence that Under Armour brings to the table, something it might leverage in the future to differentiate itself from its competitors. College football expert, Teddy Mitrosilis, speculates that Under Armour’s acquisition of MapMyFitness, a digitial fitness technology that offers an assortment of apps that help people monitor their workout routines, might be a clue to understanding why Notre Dame chose Under Armour. [4] In addition to its expertise in sports apparel, the company, armed with its technology, can also collect biometric data, something no other competitor has access to. This advancement in technology can help football teams see how effective their training regimens are and calibrate them accordingly. Mitrosilis also suggests that this technology could improve recovery, rehab and injury prevention. It is easy to see, then, why the deal with Under Armour might be so valuable to Notre Dame. It is also possible, that other college football teams might see how Notre Dame is benefiting from this deal, and decide to follow suit. [5]

Winter Olympics

The Notre Dame deal has already sent the shares of Under Armour up, but another boost could be just around the corner. Under Armour is betting big on the 2014 Winter Olympics in Sochi, Russia. The company is the official outfitter of the United States speedskating, bobsled and skeleton teams. With the Winter Olympics being telecast worldwide, these deals will put Under Armour on TV screens around the world. This exposure could be helpful in boosting sales further. [6]

Additionally, Under Armour partnered with Lockheed Martin to design the fastest, most aerodynamic suit ever for US speedskating team. This suit could help the US team in breaking some records and reaching new heights. The new suits will surely be likened to the full-body swimsuits, which increased buoyancy and helped shatter records before they were banned in 2009 following allegations of “technological doping”. While this sounds negative, being able to put a dynamic suit like this in the spotlight will lead to future wins for Under Armour for other countries and other sports. [7]

International Expansion

Under Armour’s management has always been upfront about its ambition to turn the brand from purely American to a global one. That ambition received a significant boost with the opening of an Under Armour Experience store in Shanghai’s brand new mall, the Jing An Kerry Centre. This is a highly unusual venture with a unique retail concept: The Experience store features an immersive wrap-around video experience that tells Under Armour’s story. Another store, carrying a collection of Under Armour product, is connected. The idea is clear: introduce new customers to Under Armour’s story and then get them to buy some gear. [8]

This comes on the back of several other international deals that Under Armour has wrapped up in the past year or so. The most significant of these deals was the sponsorship agreement it signed with English football club Tottenham Hotspur. This deal is of significant value as the English Premier League is one of the most highly watched sports tournaments in the world. The exposure Under Armour can get through being on Tottenham’s kits is highly significant and can be a launchpad for further expansion in Europe. [9]

We currently have a $74.20 price estimate for Under Armour represents a ~11% downside to the market price.

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Notes:
  1. Holiday Season Cheer Under Armour []
  2. Notre Dame Under Armour Deal []
  3. Notre Dame Selects Under Armour []
  4. Under Armour Acquires MapMyFitness []
  5. What Richest Apparel NCAA Deal Means For Notre Dame and Under Armour []
  6. Under Armour Uniforms for Winter Olympics []
  7. Under Armour’s Secret Suit Winter Olympics []
  8. Under Armour Experience Store []
  9. Under Armour Five Year Deal With Spurs []
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