Business World

Tuesday 25 July 2017

Share watch: Sports firm Under Armour slows down, but no sweat

Plank has transformed UA from a single product company to one with $4.8bn sales, supplying garments for all seasons, climates and conditions. Photo: Justin Sullivan/Getty Images
Plank has transformed UA from a single product company to one with $4.8bn sales, supplying garments for all seasons, climates and conditions. Photo: Justin Sullivan/Getty Images

John Lynch

Because this column usually examines large corporations with a global reach, the companies we focus on normally have a decent amount of history behind them.

Today's one is a mature enterprise, only if two decades in business qualifies as maturity. It is an American group set up in 1996 and already worth a phenomenal $9bn (€8.1bn).

Not surprisingly it makes its money in one of those market sectors that has only really blossomed in the last few decades, branded sports apparel and equipment.

The company is Under Armour (UA) Inc, one of the great startup stories of this generation. It is now the third largest athletic brand after Nike and Adidas, employing some 11,000 people worldwide.

It owes its growth to the individual genius of its football-playing founder Kevin Plank, who designed a synthetic T-shirt that had the quality previous sports clothing lacked, impressive sweat resistance.

Plank has transformed UA from a single product company to one with $4.8bn sales, supplying garments for all seasons, climates and conditions. Its range includes shirts, gym clothes, running and training shoes, golf trousers, gloves and much more.

Click to view full size graphic
Click to view full size graphic

He originally set up in his grandmother's basement but was fortunate to have many friends and contacts in American football and began selling his T-shirts to the teams, initially from the boot of his car.

By 2000, he had signed up basketball, American football and hockey teams, with sales topping the million-dollar mark.

By 2005, the company was listed on the NYSE and had the distinction of rising 100pc on its first day of trading.

Today, UA's biggest source of revenue is the US market, with 85pc of the group's revenue ($4bn). While the company has seen enormous growth in this market, it is still early days in other parts of the world. As a result, it has been investing heavily to develop international markets.

An international focus may be important because UA is having problems in its key US retailing market with bankruptcies, internet disruption and intense competition leading to price reductions and restricting growth.

Europe is its largest international market, with revenues at $330m showing a 63pc increase on the previous year.

The Asia Pacific market follows Europe, with sales of $268m and an impressive growth of 83pc last year.

UA saw sales in China move up to $189m, boosted by the trend towards sporting activity in order to counter obesity.

UA's revenue last year was $4.8bn, half way to the company's target of $10bn and 2.5 times greater than that of five years ago.

Last year the group saw a 50pc increase in footwear (21pc of group sales) to a new revenue record of $1bn. Its largest division, business apparel (67pc of group sales), increased by 15pc.

However, the high-flying company is under pressure. After 26 straight quarters of growth of 20pc, the winning streak came to an end last year.

Meanwhile, Kevin Plank's endorsement of Donald Trump generated an outcry and required heavy front-page newspaper advertising to defuse the backlash.

Analysts, concerned with the slowdown in key US retail markets and the loss of market share to Adidas, have changed their outlook from stable to negative.

As a result, UA shares have pulled up short and fallen out of fashion, plunging by almost one-third this year. This is on top of a 30pc fall in 2016.

Today, they trade at $21, down from a yearly high of $47 and with a very fizzy price-to-earnings multiple of 36. The general opinion is that a UA turnaround will require more than a visionary like Plank and an operations whizz-kid is urgently needed.

After a year of missteps and pessimism, investors hope the athletic brand can pull out of its current slump.

Maybe the overly negative sentiment creates a buying opportunity but with no dividend, I feel there is no rush to buy just now.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned

Irish Independent

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