Under Armour 2Q - Slower growth & restructuring

On the first of August we had results from Under Armour which looked bad at first glance. Sales grew only 9% to $1.09bn while they made a $12m loss. We are used to solid double digit growth from these guys. It clearly pushed management into action who also announced a restructuring plan on the same day.

The apparel industry is going through a big change. Sales points are moving online or to directly branded stores instead of aggregators like Foot Locker and Sports Authority (who have now closed down). Over the long run this is good news for the likes of Under Armour and Nike because the middle man is lost, the transition requires good strategic decisions and costly logistics changes though.

More than 80% of sales come from North America. This region is massively competitive, especially following a massive resurgence from Adidas. This presents a great opportunity for Under Armour to expand globally. Their brand is already well known and highly sort after. They just need to increase their presence in new geographies.

The company has doubled sales over the last three years. This resulted in the company over capitalising in certain areas. The restructure involves streamlining operations, terminating leases and firing a few employees. The restructure will costs between $110m-$130m.

The share price hit $45 in April last year. It is now at $17 a share. A big fall from grace. We think this is a good buying opportunity in a sector we think has massive traction as people become more health and fitness conscious. The brand has the potential for global growth and the shift to online and direct store sales will benefit the business over the long run. Kevin Plank started this business from scratch, I am sure he can navigate the business successfully through this tough period.