Earnings Review: Under Armour Hot As Satan’s Den And Firing On All Cylinders

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Under Armour (NYSE:UA), a developer and distributor of athletic apparel, footwear, and accessories, posted another very strong quarter in Q2 2015, with  29% net revenue growth to $784 million. The company maintained its solid growth momentum as it reached a 21st consecutive quarter of an over 20% increase in its top line. We believe the company will continue to show strong growth in the future as consumers continue to respond to the strength of its brand, and as the company’s efforts to lure in women customers are successful. [1] However, net income decreased 17% in the second quarter to $15 million compared to $18 million last year, as the company increased its expenditures on connected fitness acquisitions and store expansion related expenditures. [2]

Strong Growth Across All Product Categories Drives Topline

Apparel sales, which comprise about 75% of Under Armour’s net revenues, rose by 23% to $515 million, primarily driven by strength in the company’s Base Layer and training products. This represented the 23rd consecutive quarter of more than 20% growth in this product category. The strong growth indicates that opportunities still exist in the company’s established men’s apparel business, and the company has a strong brand image that it can leverage to exploit those opportunities. In the women’s business, the company’s running and Studio lines remained strong, while its youth business was driven by the training and sport-specific categories. We believe the solid results in UA’s biggest product category are highly encouraging.

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Footwear sales grew by 40% to $154 million, owing to strong growth in the running category as well as the impact of Stephen Curry’s performance leading to higher sales of the signature CurryOne shoe. The much publicized SpeedForm Gemini and Apollo running shoes showed excellent sell-through rates, while the $125 ClutchFitDrive baseball shoe also showed strong momentum. Footwear has now grown to represent to close to 20% of the company’s net sales. Accessories revenues rose by a strong 39% to $83 million, due to high sales of head wear offerings and gloves. Direct-to-Consumer net revenues, which represented 32% of total net revenues for the quarter, grew 33% year over year. [3]

International Growth On The Agenda

Under Armour is slowly gaining international recognition and its international business is starting to explode. In the second quarter, international revenues grew to 11% of total revenues, growing 93% on a year-over-year basis. [4] Excluding the impact of currency fluctuations, international revenue grew by 112% compared to the same quarter in the previous year. [4] Moreover, the company isn’t content with this growth. The company is focused on expanding in Europe, Asia and Latin America. In Europe, it is focusing on the UK, France and Germany markets. In Asia, the company has now reached distributor agreements in  the South East and is working on establishing them as well in the Middle East.

Expanded Product Categories

In the Earnings Call, Under Armour CEO Kevin Plank highlighted a key point of the company’s strategy going forward. He said that in the future the company will have to be more surgical in its approach to product design, segmenting customers into smaller and smaller categories, and thinking about customer-product fit in a more granular manner. To this end, the company has now hired Terdema Ussery, who was the President of the Dallas Mavericks and has previous experience in athletic footwear and apparel. [5] The company believes that this kind of discrete identification of customer needs will allow it to sell more products and grow faster in the future.

The company’s recent acquisitions in the Connected Fitness space will help it in this regard. Under Armour is host to the largest fitness community in the world with over 140 million users worldwide, who have logged in over 1 billion workout sessions and 5 billion meals. [5] The company can leverage this data on customers to design new products that are tailored to their specific needs and use its e-commerce platform and e-mail advertising techniques to market specific products to specific customers in the future.

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Notes:
  1. Under Armour 8K []
  2. Under Armour’s (UA) CEO Kevin Plank on Q2 2015 Results – Earnings Call Transcript, Seeking Alpha, July 2015 []
  3. Ref: 2 []
  4. Ref: 1 [] []
  5. Ref: 2 [] []