This fitness behemoth is striking new deals left and right, growing revenues and beating earnings estimates.
Under Armour (UA)
From Dividend Lab
Founded in 1996, Under Armour Inc. (UA) has quickly become a major player in the sports apparel and footwear industry. With a growing presence on all seven continents, the company has gained significant market share over the last decade. Under Armour has endorsement deals with top athletes including Tom Brady (NFL MVP), Stephen Curry (NBA MVP), Carey Price (NHL MVP) and Clayton Kershaw (MLB MVP).
Under Armour is one of only two companies in the S&P 500 that has reported 22 consecutive quarters with over 20% year-over-year growth in revenue. Under Armour’s annual revenue has grown from $17,000 in 1996 to $3.08 billion in 2014.
Under Armour reported 3Q15 financial results for the three months ended September 30, 2015. The company had net revenues of $1.20 billion, up about 28% from 3Q14. Net revenue growth was led by a 23% increase in apparel revenue from increased sales of its base-layer and storm innovation platforms, and a 22% increase in accessories’ revenue from new product launches in the bag category. The footwear segment grew 61% over the past year with revenue of $196 million—on growing popularity of the company’s basketball, running and training shoes.
Under Armour reported net income of $100.5 million, or $0.45 per share, up 13% year-over-year, and beat analyst estimates on revenue by 3% and on EPS by 2%. Management updated full-year 2015 guidance, increasing revenue estimates by 2% to $3.91 billion, representing top line growth of about 27% from FY2014. Operating income is estimated to be $408 million for the full year, near the high-end of management’s previous operating income guidance.
Brean Capital initiated coverage on Under Armour with a Buy rating and a price target of $117 (30% upside) while FBR Capital maintained an Outperform rating with a $115 price target (28% upside).
Under Armour continues to aggressively expand its alliances and marketing deals, including:
* A $96 million agreement with the University of Wisconsin
* An extension of its endorsement deal with Auburn University (the first university to sign a deal with Under Armour).
* A new partnership with WWE superstar and famed actor Dwayne ‘The Rock’ Johnson, which will likely be leveraged with the company’s connected fitness application segment.
* This should grow the company’s app base of 150 million registered users and allow for a seamless introduction into connected devices, smartwear apparel and food & nutrition markets.
* An extension of its endorsement partnership with NBA superstar Stephen Curry through 2024
Under Armour management is focused on long-term profitability despite investor concern over current spending and increased debt. Total liabilities increased from $724 million to $1.5 billion and capital expenditures are well above all of its peers. This increased spending is tied to gaining market share and has pushed down gross margins to 48.5% over the trailing twelve months; even so, gross margins are ahead of competitors such as Nike Inc. (KNE) at 46.2%, Columbia Sportswear Co. (COLM) at 45.9% and Adidas at 47.5%.
Through various business development initiatives, management plans to double revenue to about $7.5 billion by 2018, with a strong emphasis on expanding the brand globally. To push revenue growth over the next 3 years, Under Armour aims to establish 2,000 shop-in-shops and grow to 800 stores. Management predicts that 18% of net revenues will come from international markets by 2018, up from 11% in 3Q15.
With a mean price target of $107 and a high price target of $130 (upside of 19% and 45% respectively), Under Armour shares should bounce back from their current slump and deliver solid capital gains over the coming years, as the company grows its global brand.
Todd Johnson, Dividend Lab, www.dividendlab.com, 505-514-0036, November 30, 2015