Under Armour Investor Day: Highlights & Analyst Reactions

Curry Two Iron Sharpen Iron
The Curry Two Iron Sharpen Iron.
Courtesy of brand.

Analysts remain upbeat on Under Armour Inc. after management provided a bullish outlook for the company, whose revenues and overall brand perception have skyrocketed in the past year.

During its investor day on Wednesday, the Baltimore-based athletic-footwear-and-apparel company said it plans to boost its revenues to $7.5 billion by 2018, representing a 25 percent annual growth rate, driven by footwear, international and its Connected Fitness platform.

With accelerated momentum in basketball, buoyed by its partnership with 2015 NBA MVP Stephen Curry, the firm announced an extension of its endorsement deal with Curry in tandem with its updated revenue goals.

The deal, analysts say, is fitting since Curry’s signature shoe is a top seller. The firm expects footwear revenues to accelerate to $1.7 billion by 2018, from $431 million in 2014. That figure represents a 40 percent, four-year, compound annual growth rate (CAGR).

“In the near term, Under Armour is focused on performance footwear,” wrote Sterne Agee CRT analyst Sam Poser in a Sept. 16 note. “We believe Under Armour is building out a team to enter the lifestyle footwear market to complement the sportswear-apparel category.”

Among the other components of Under Armour’s growth goals are a 50 percent, four-year growth target for its international business — representing 18 percent of total sales — and $200 million in revenues for Connected Fitness in 2018, compared with revenues of $30 million in 2014.

After initial concerns regarding how the firm would monetize its $710 million investment in the Connected Fitness platform, which is now estimated to have around 150 million users, market watchers now seem more positive about the venture.

“The Connected Fitness technology is a great mechanism to provide Under Armour with unique consumer insight,” Poser said. “The benefits will primarily help drive the women’s and international businesses. … [Under Armour] will get to know [its] customers intimately: their exercise, daily activity, nutrition, sleep, weight and how she feels. Such information will be used to better connect with her in an individualized manner.”

Still, Jefferies LLC analysts pointed out, in a Sept. 17 report, that Under Armour’s aggressive growth goals will be accompanied by ramped-up expenses.

“Growth requires investment,” the report stated. “[Selling, general and administrative expenses] are expected to deleverage slightly over the next few years, as leverage in some areas is more than offset by opportunistic investments in marketing to build Under Armour’s authority in less established categories, as well as spending in international, Connected Fitness, [direct-to-consumer] and technology.”

The Jefferies analysts added that they expect the firm’s investments to leave it “well-positioned for the long term and to drive higher-margin dollars.”

Similarly, Poser — who reduced his earnings-per-share estimates due to investments — said Under Armour remains his top pick for long-term-growth investors. “Needed investments in marketing and infrastructure are accelerating to support the brand and its growth,” Poser wrote.

The women’s business also remains a big focus for Under Armour, as well as apparel, which is projected to hit $5 billion in 2018 — a 21 percent compound growth rate.

“As a category in which Under Armour doesn’t play, sportswear is a large opportunity, as the category makes up 25 percent of [its] two largest competitors’ business,” Poser wrote. “Sportswear will be a 2018 story.”

Under Armour’s operating income is targeted to nearly double from 2015 levels, to $800 million, by 2018.

“We believe management is more focused than ever on transforming Under Armour into a scale-able global business, with plans to sharpen merchandising assortments, introduce new product segmentation and invest in a more efficient supply chain,” wrote Citi Research analyst Kate McShane in a Sept. 16 note.