What Will Drive Under Armour’s Near Term Growth?

by Trefis Team
Under Armour
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After posting consistent gains for over a decade, Under Armour (NYSE:UA) hit an all-time low early last year. With a slowing North American apparel market and lack of a strong international presence, the company reeled under the pressure of a building inventory, causing it to see some of its lowest revenue figures in years. However, those days seem to be behind the company now. After months of uncertainty, investors seem to be happy with the progress CEO Kevin Plank and his team are making on picking up, a bruised but resilient, Under Armour again.

We have created an interactive dashboard What Is The Outlook For UA on the company’s expected performance in 2019. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues and earnings.

Unlike its competitors, Under Armour has hardly improved on its international reach since 2010. While Nike and Adidas look for a balance between their domestic and international businesses, Under Armour pushed its North American business to try and gain significant market share. While this strategy worked for the company in the beginning, the same strategy became the reason for its fall from grace. UA’s over-reliance on North American revenues led to heavy losses in the top and bottom lines as the North American apparel market hit a slump. However, the company was quick to learn from its mistake and is working hard on preventing such a mishap from transpiring again.

In general, the company has made great strides in improving its international businesses over the past few months. With a strategy of targeting high growth, emerging markets, Under Armour was able to quickly make itself at home in some of the largest markets in Asia. In particular, China, Korea, and Australia have seen good growth in the recent quarters. Additionally, through better marketing, the apparel manufacturer was able to improve sales in the better established EMEA region as well.

Going forward, we expect Under Armour to push its presence significantly outside the U.S. and Canada. Entering new markets and expanding existing ones will not only enable the company to benefit from several international trends, but will also help leverage its business across a wider market, while dividing its risk significantly.

Further, the company has decided to invest more in its direct to consumer channel. With e-commerce quickly eating into retail sales, having an easy to use, accessible online store is absolutely essential for any company. For this reason, Under Armour has spent the last few quarters bettering its online presence, while trying to improve traction on its website and app through targeted digital advertising. Overall, these strategies seem to be working. In the latest quarter, direct to consumer revenue grew by about 7% to hit $414 million, as the revenue channel represented nearly 35% of total global sales in the quarter. We expect a similar momentum to persist in the near term.

All in all, it seems as though things are back on track at Under Armour. With continued international expansion, new innovations and strategic investments, we hope to see the company pick up steam sooner than later.


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