Under Armour (UA): A Peek at 2037
Overview
Under Armour (UA) was founded in 1995 by Kevin Plank, then special teams captain of the football team from University of Maryland. Frustrated by the increase in weight traditional cotton T-shirts incur after heavy sweating, Plank set out to develop T-shirts using better materials. After a year of fabric and product testing, he settled on a compressed synthetic shirt that can be worn beneath an athlete’s uniform. The product provides a snug fit, while wicking sweat away from the body and remaining light.
Fast forward 20+ years later, UA has seen its product offering expanded to a wide variety of apparel, footwear, accessories and so on for both men and women. UA also now sells its products globally. In 2016, UA’s revenue has reached more than $4.8 billion, becoming the third biggest sports brand in the world after growing revenue 38% p.a. since 2002. They have also started cracking the lifestyle sportswear market in 2016 by introducing a new product line called UAS.
Despite, the diversification of product lines since its inception, it’s important to remember UA is still a performance wear company. All its products are designed to have an aspect of “performance”, including the new UAS line.
Business Description, Quality and Moat
It’s probably most helpful to understand UA in the context of its two biggest competitors.
Both Nike and Adidas started out as sports footwear companies. As of 2016, both of them still generate the majority of their revenue from footwear, 53% for Adidas and 65% for Nike.
And as brands with longer histories, both Nike and Adidas are more established internationally, generating more than 50% of their revenue outside of their home markets, i.e. Western Europe for Adidas and North America for Nike.
On the other hand, UA is much less reliant on footwear while much more reliant on its home market. With its roots in performance apparel, apparel still represented 67% of revenue for UA in 2016, with footwear at just 21%. UA’s reliance on its home market is more extreme. North America accounted for 83% of their revenue in 2016.
Despite the above two major differences, UA has displayed a remarkably similar financial profile when compared to either Nike and Adidas. First of all, all three of them have stable gross margins in the mid to high 40%. In fact, UA’s gross margin has been higher and more stable since 2002.
Stats for Gross Margin since 2002:
|
Company |
Average |
Median |
S.D. |
Coefficient of Variance |
|
Under Armour |
48% |
48.2% |
1.6% |
0.033 |
|
Nike |
44.1% |
44.5% |
1.9% |
0.042 |
|
Adidas |
47.1% |
47.7% |
1.7% |
0.036 |
A similar picture can be found for EBIT. This time, UA’s performance has only trailed Nike.
Stats for EBIT since 2002:
|
Company |
Average |
Median |
S.D. |
Coefficient of Variance |
|
Under Armour |
10.8% |
10.8% |
1.7% |
0.160 |
|
Nike |
13% |
13.1% |
0.9% |
0.070 |
|
Adidas |
8% |
7.8% |
1.4% |
0.177 |
The major reasons why these three companies can have high and stable gross margins are: 1) They are in the business of selling a brand, 2) they engage in …
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