Shawn D. Hamilton

MBA 621: Managerial Accounting

Under Armour Financial Analysis

Abstract:

Under Armour’s principal business activity is the development, marketing and distribution of

branded performance apparel, footwear and accessories for men, women and youth. Net

revenues are generated primarily through the wholesale sales of products to national, regional,

independent and specialty retailers. The company also generates revenue from direct to

consumer sales and from product licensing.

Background:

Under Armour was founded in 1996 by Kevin Plank, a then 23-year old former special teams

captain of the University of Maryland football team. Plank initially began the business from his

grandmother's basement in Washington, D.C. He spent his time traveling up and down the East

Coast with nothing but apparel in the trunk of his car. His first team sale came at the end of 1996

with a $17,000 sale. From his grandmother's basement, Plank moved to Baltimore, Maryland.

After a few moves in the city he landed at his current headquarters in Tide Point. [1]

The idea behind Plank’s shirt design came to him during his time a collegiate athlete. He found

himself overheated and sweating profusely when wearing traditional cotton shirts during

practice. Plank decided that the same materials used to make breathable layers in other

applications should work well for performance athletes. This led to his initial design for the

breathable shirt that he sold out of his car.

Under Armour received its first big break in 1999 when Warner Brothers contacted Under

Armour to outfit its two upcoming films, Oliver Stone's Any Given Sunday and The

Replacements. In the film Any Given Sunday, Willie Beamen, played by Jamie Foxx, wears an

Under Armour jockstrap. Leveraging the release of Any Given Sunday, Plank purchased an ad in

ESPN The Magazine. The ad generated close to $750,000 in sales, and nine years after starting

the company, Plank finally put himself on the payroll. [1]

Recent Success:

On January 21, 2014, it was announced that the University of Notre Dame and Under Armour

had come to terms on providing uniforms and athletic equipment for the university. This 10 year

deal is the largest of its kind in the history of college athletics and is effective July 1, 2014.

Under Armour provided the suits worn by speed skaters in the 2014 Winter Olympics. The U.S.

speed skaters were losing while wearing the new Mach 39 speed suits, but when they reverted to

the previous model suits, the skaters continued to lose. Although there did not appear to be a

design flaw in the suit that caused the poor results, the news of the suits caused Under Armour

stock to drop 2.38% [2].

After its November 2013 acquisition of digital app maker MapMyFitness for $150M USD, in

February 2015 Under Armour announced it had purchased the calorie and nutrition counting app

maker MyFitnessPal for $475M, as well as the fitness app maker Endomondo for $85M USD

[3].

Financial Performance:

For fiscal year 2013, Under Armour experienced ever increasing growth, finishing the fiscal year

with 2.33 billion in net revenue and 1.54 available per common share. The company did well

leveraging their international growth, and ended the year with a gross margin of 48.7%. The

current ratio for 2013 was 2.65 showing a very stable capital situation in the sometimes shaky

market of athletic retail.

Strengths:

Under Armour has experienced solid growth in the last few years, increasing net revenues 27%

in 2013, following a 24% growth in 2012. Shareholders enjoyed a 79% price increase on

common A share stock in 2013 as well.

Weaknesses:

Approximately 6% of net revenues were generated outside of North America in 2013. Under

Armour has plans to continue to grow international business through expansion in to growing

markets.

Opportunities:

Under Armour made a minority investment of ownership in Dome Corporation in 2011. Dome

has been a licensee of UA apparel since 2002 and markets the brand in Japan and Korea. The

company plans to capitalize on this investment to further growth of retail sales in the Asian

market. International sales are an increasing, but still small slice of the earnings pie for the

company. Additionally, Under Armour made the aforementioned acquisition of MapMyFitness,

Inc. in 2013. The service offers license and subscription revenue as well as digital advertising

revenue totaling 6% of 2013 net earnings and subscription rates have almost doubled in the last

two years.

Threats:

Under Armour faces stiff competition in the sports apparel industry. The competition stems

mainly from rivals Nike and Reebok. Also, 94% of Under Armour’s revenue was produced in

the North American market. This lends itself to threats from a weak domestic economy.

Outlook:

In 2013, Kevin A. Plank Chairman, President & Chief Executive Officer of Under Armour

announced the 2x Ready initiative to shareholders. This is the company’s ambitious goal to

double net revenue to a total of 4 Billion as of fiscal year 2016. They appear to be well on the

way, with net revenues of 3.03 Billion reported at year end 2014. They have accomplished an

impressive 19 consecutive quarters of revenue growth over 20% and five consecutive quarters of

30%-plus growth. [4]

In addition, the company has achieved great brand awareness through several key sponsorship

opportunities. As previously mentioned, these include an historical partnership deal with Notre

Dame University in 2014. This was the largest collegiate-corporate sponsorship in history. Also,

Under Armour teamed up with Duck Dynasty as official corporate sponsor and added two soccer

teams to the international roster in 2013 (Colo-Colo and Cruz Azul) as official team sponsors.

Summary:

I feel that the previously explained accomplishments paired with the aggressive and competitive

nature of the management at UA, the company is poised to continue strong growth into the next

half of this decade. I would certainly recommend investment into this company as earnings

continue to exceed expectations and the company is primed to expand international success.

Under Armour is a success story of “American Dream” caliber. Growing from a one-man

operation with a dream to lead the performance apparel business, it has established a dominant

market position with the backing of professional athletes and teams that prove the real value of

the product every day on the field.

References:

1. Under Armour Performance Apparel History". Retrieved 2012-11-28.

2. Robinson, Joshua (February 18, 2014). "How a Bet on High-Tech Suits Left U.S. Skaters in the Cold". The

Wall Street Journal. pp. A1, A10.

3. "Under Armour Snatches Up Health And Fitness Trackers Endomondo And MyFitnessPal" Perez, Sarah.

Techcrunch, February 4, 2015.

4. Under Armour, Inc. Q4 2014 Earnings Conference Call ( 04-Feb-2015)