One company that is evolving fast into a “somebody from nobody” is Under Armour Inc (NYSE:UA). The small company which used to make form-fitting super-hero tees is becoming a big name in the sportswear world. It is challenging stalwarts like NIKE, Inc. (NYSE:NKE) on the home turf. The company has just taken its first office in Manhattan in the 20-story Starrett-Lehigh Building. It has big plans for the future.
Huge target
At the time of its IPO in 2005, Under Armour Inc (NYSE:UA) had just $281 million in annual sales. But within the next seven years, it was generating around $1.8 billion per year. In 2013, the company is estimating revenue to increase to around $2.2 billion, which implies a compound annual growth rate of 29% between 2005 and 2013.
Under Armour Annual Revenue Growth
Source: Under Armour’s Investor Presentation
But the story does not end here. Under Armour Inc (NYSE:UA) intends to continue with its growth trajectory and wants to more than double its sales to $4 billion by 2016. This may seem to be a little ambitious at a first glance but the company has planned this out to the last detail.
It has three clear strategies – global growth, growing its women’s wear business, and building innovative product platforms.
International expansion
Under Armour Inc (NYSE:UA) generated only $108 million in international revenue in 2012. This is completely dwarfed if we consider NIKE, Inc. (NYSE:NKE)’s $15.3 billion in international sales. In fact, as a percentage of its own revenue, the company had just 6% of cross-border sales.
But this may change soon. Under Armour Inc (NYSE:UA) has been busy putting its logistics in place for the last few years and now it is all set to open as many as 10 new offices abroad. It will focus on key markets in Europe, Asia, and Lain America with particular emphasis on China, Japan and Brazil which are the biggest sportswear markets after US.
While Under Armour is still not in a position to leverage the Fifa World Cup, it intends to have some visibility at Sochi Winter Olympics next year and at the Summer Olympics in Brazil in 2016. The company has an eight-year contract with US gymnastics teams for providing gymnasts and their coaches with apparel, footwear, and accessories. It also the official outfitter of Canada Snowboard in next year’s Winter Olympics.
Obviously, this is no match for Nike, which being the official sponsor of the Brazil soccer team will hog a lot of the limelight during the 2014 World Cup. The Olympics in 2016 will also be a big playground for the company. The London Olympics drove sales in the running category to such an extent that Nike’s running business became 50% bigger than it was two years back.
Nike has deep pockets to spend heavily on these events. During the first quarter of fiscal 2013, which saw the London Olympics, the company increased its promotional spending by 29% to $891 million.
However, Under Armour’s first target is to brave the challenges and achieve 12% of its total revenue from international markets by 2016.
Growing women’s wear segment
Women’s athletic wear in the US is around 10% bigger than the men’s segment, according to NPD Group. The researcher estimated the overall size of the women’s apparel segment to be around $111 billion in 2012 compared to $57 billion of the men’s segment. The former grew at a pace of 3% compared 1% by the latter.
However, Under Armour has so far been more of a guy thing. Even its stores have a locker room kind of a setting. Currently, the women’s business is approximately half the size of the men’s segment. In 2013, the company is expecting $960 million in sales from men’s wear and around $490 million from women’s wear. Management senses that it is losing out on the opportunity in women’s wear and has decided to address this. It wants to grow its women’s segment to $960 million by 2016.
Under Armour has taken its cue from Lululemon Athletica inc. (NASDAQ:LULU), which has made fortunes selling premium women’s yoga outfits. The latter company, which sells tank tops for $60 and leggings for $90, has evolved women’s athletic outfits into a fashion statement in casual wear. In the process, it tripled its sales in the past three years.
While analysts still expect revenue to rise by 21.5% to $1.67 billion this year and by another 21.4% to $2.02 billion next year, Lululemon Athletica inc. (NASDAQ:LULU) is currently on a back foot due to negative publicity over its sheer yoga pants. And Under Armour is trying to cash in on this opportunity and has launched its “we’ve got you covered” campaign.
The company’s lower price points are also an advantage over Lululemon in some markets. Apart from the Studio Yoga line, Under Armour’s sports bras are gaining popularity. The women’s focus is clearly visible in the company’s new test store in native town Baltimore, which has cheerful colors and more emphasis on the ladies section. So over the coming years, women’s wear is going to be a big push area.
Innovative platforms
The final strategy for fueling growth is building innovative product platforms. Under Armour’s strategy for leveraging its technological innovations is beginning on a small scale and then eventually, depending on the success of the product, expanding it into multiple categories.
So when it introduced its Storm brand, which uses a waterproofing technology, in 2011, it started from a small base, with business worth $50 million. In 2012, the company expanded this to outerwear, fleece, and golf apparel and doubled its revenue to $100 million. This year, Storm is making its way into all kinds of product lines including apparel, footwear, and accessories. Revenue is expected to climb to $225 million.
Ultimately, Storm and Charged Cotton, another platform introduced in 2011, will account for $500 million in revenue by 2016. And that is not all. Under Armour has a full pipeline of innovations including Coldgear Infrared, Vent heat gear, Cold Black, Scent Control, etc.
Parting thoughts
In some ways Under Armour reminds us of Nike in its early years in the ‘70s. While only time will tell if we have another Nike in the making, one thing is for sure, and that is Under Armour is growing fast. Without being too hasty, the company is deciding on solid strategies that can trigger big growth. The international expansion, women’s wear opportunity, and product innovations are all well-planned moves and make us confident about its future prospects.
Gaurav Basu has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica, Nike, and Under Armour. The Motley Fool owns shares of Nike and Under Armour.
The article This Is One Company That Can Become Really Big originally appeared on Fool.com and is written by Gaurav Basu.
Gaurav is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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