Under Armour 1Q numbers - back on track

Under Armour, the sports apparel and shoes company reported results a number of weeks back. Kevin Plank, the CEO and founder is an interesting guy. He is not without his own set of controversy, making a German football team and Steph Curry (the almost legendary current basketball star) more than a little angry about his supportive Trump comments. At the end of the day, Plank is always going to make his fair share of omelettes (by scrambling the eggs, you know).

Plank ruffles feathers. His story is not too dissimilar to that of Phil Knight, the Nike founder. Not shoes, rather sports apparel (in particular American Football t-shirts) that he manufactured in the house of his grandma. The reason being is that he didn't like the existing sweaty cotton shirts. The funds used to create all of this was money derived from a rose selling business on Valentines Day. Often the trajectory and the success of a business is through the founding efforts and persistence of individuals, that permeates through the DNA of the business. And eventually becomes just part of every day life.

Sales have been growing at a rapid rate, for the last five years an average 27 percent compounded growth rate, from 1.834 billion Dollars in 2012 to 4.825 billion Dollars in 2016. That means, on a comparative basis, that Under Armour is around one-eighth of Nike sales. The mix relative to Nike is very different too, the Under Armour mix is 67 percent apparel (as per the 2016 annual report), 21 percent footwear and 8 percent accessories (hats, bags and the like).

For a little perspective, Adidas has annual sales of 19.3 billion Euros (nearly 21 and a half billion Dollars), Nike 32.5 billion Dollars. Under Armour is a small, yet growing business in a space that we think has lots of room to move. Athletic wear is no longer confined to the sport field, it is also fashion, both with apparel and shoes. In fact, Under Armour was at the New York Fashion show last year with their own range. Take from that what you want, the consumer wants to be comfortable and stylish and the sports brands of the world have responded aggressively. The company has some amazing brand ambassadors, see below. On the recent quarterly numbers conference call, CEO Kevin Plank had the following to say:

"So now, as the third largest athletic brand in the world with more than $15 billion ahead of us to second place and another $15 billion ahead of that to first place, the fact remains that we have significant and scalable opportunities before us."

One of the issues that Under Armour has, is their direct sales to customer channels are not as big as they would like, repressing only 31 percent of total sales. Equally, they are still pretty much confined to North America, which represents 85 percent of all sales. Europe, the Middle East and Africa is around 7 percent, Asia-Pacific is small at 5.6 percent and Latin America is just less than three percent. This represents a huge growth possibility for what is becoming a huge global brand, the likes of Andy Murray, the Welsh Rugby Team, Aston Villa and Southhampton football clubs respectively.

Plus, there are exclusives with the likes of the aforementioned superstar Steph Curry and most recently "The Rock", aka Dwayne Johnson. Who, in case you missed it, was the highest grossing movie star recently. Yes, you heard right. Of course there are the old favourites, Michael Phelps, Jordan Spieth, Tom Brady and Misty Copeland, as well as Lindsay Vonn, crossing over from swimming through skiing, golf, ballet and of course NFL. And in 2020, Under Armour will provide the MLB (Major League Baseball) a 10 year exclusive uniform deal. Yes. That will be big.

The recent quarterly numbers showed a slowdown across the sector that impacted their brand too, revenues increased only 7 percent, homebound revenues declined as a result of a wholesalers going out of business. Expenses increased, margins were crimped a little and the company recorded a marginal loss for the quarter. The stock has halved in the last year, the growth trajectory expectations were just WAY too strong relative to the reality. I think that the share price is now fairly valued, relative to the expectations. Accumulating on weakness, versus the outlook that even for the balance of the year looks decent, sales growth expectations of 12 odd percent increase. The stock is still expensive, it does add something different, a brand that is taking on their two bigger peers, with many opportunities. If you hold them, be patient.