Under Armour Inc (UA): This Sportswear Company Is Spreading Its Wings

What more can one ask of a company that grows its revenue at double digit rates year after year, challenges the who’s who of the industry, and grows its stock price by 900% over a span of just four years?.

I am talking about Under Armour Inc (NYSE:UA), the company that touched our childhood days with the super hero tees. But, that small company is now a big force to reckon in the sportswear market, with annual revenue of $2 billion and market cap in excess of $6 billion.

It is now aiming even higher. Armour has announced big international plans that will help it achieve its target of doubling revenue to $4 billion by 2016.

Going global

According to Euromonitor, in 2012 the global sportswear market was over $244 billion in size, having clocked growth in excess of 7.5%. The four largest countries accounting for more than 50% of this market were the US, China, Japan and Brazil. The US was the single largest market at $80 billion, and the global sportswear market is expected to see incremental sales of $55 billion over the next four years.

Currently, Under Armour Inc (NYSE:UA) does not feature anywhere on the global map with its 2012 international revenue of $108 million. Although it clocked a 40.6% increase in international revenue in the first quarter of 2013, standing at $81 million it was just 6% of Under Armour’s total revenue.

So, Under Armour has to leverage the global opportunity it has to spread its wings. To do this it will use a franchisee model and organize its international efforts into four regions, concentrating on the key markets in those regions.

The four regions will be Western Europe, Latin America, Asia, and, all other markets combined. In Western Europe, Under Armour Inc (NYSE:UA) will target the UK, Germany, and France. In Asia, it will target China, Japan, and South Korea. And in Latin America, the company will focus on Brazil, Mexico and Argentina. This would take care of the three biggest markets outside the US, as well as other high-growth areas. Within the next two years, the company will set up subsidiaries in Australia, Mexico, Chile, and Brazil.

Under Armour Inc (NYSE:UA) is expecting that international operations would generate around $640 million, or roughly 16% of the $4 billion in sales that it is targeting by 2016.

Not an easy task

The global market is dominated by stalwarts like NIKE, Inc. (NYSE:NKE) and Adidas. Both companies generate around 60% of their total sales from outside North America and Europe, respectively. This amounts to $15.3 billion in international sales for the former and $11.5 billion for the latter.

The market dynamics are completely different in the different markets. For example, the European sportswear market is much more fragmented than the US. According to ISI data sources and as quoted by Bloomberg, the six largest retailers in the US account for 75% of total industry sales, while in Europe the top nine account for around 37%.

NIKE, Inc. (NYSE:NKE) and Adidas already have their logistics in place. Although Under Armour Inc (NYSE:UA) has been putting its supply chain agreements in place for the past few years, it still has a long way to go.