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Under Armour (UA)Stock (Apparel - Clothing Industry, Fashion Industry)
 The company's traditional focus has been on compression (tight fitting) performance attire, but the company has also begun to offer a more comprehensive array of products-- “LooseGear” in an effort to appeal to customers looking for a more conventional relaxed-fitting apparel that still provides exceptional performance [2]. In 2006, the company also unveiled its first line of cleated footwear products and was able to capture 20% of the market for football cleats that year [3]. As Under Armour has expanded its retail offerings, the company has also seen rapid financial growth. Revenue has grown from $50 million in 2002 to an $606 million in 2007.[4]. From 2006 to 2007 alone revenue grew 41%, [5], but for the first quarter of 2008, revenue growth dropped to 25%[6]. Under Armour must compete for market position with established giants such as Nike (NKE) and Adidas AG (ADDYY) which have developed similar alternatives to Under Armour's moisture-wicking products. The company is growing domestically through the planned debut of nine outlet stores and two retail stores in the United States in 2008. It has taken steps to capture international markets, signing deals with the Welsh Rugby Union and the Hannover 96 Football Club of Germany in an effort to expand into Europe [7] [edit] Company OverviewUnder Armour's apparel products are separated into three different categories, ColdGear, HeatGear, AllSeasonGear. [8] In 2006 Under Armour added a fourth segment, footwear, entering this market with their performance cleats for football, baseball, and softball. The company quickly signed a contract with the NFL the same year to be their official footwear supplier[9] , and in 2007 footwear brought in roughly $41 million.[10] Under Armour also produces a number of accessories such as gloves for football, baseball, and golf, as well as socks, bags, and eye wear. [11] Revenue from accessories increased 95% in 2007, from $14 million to $29 million.[12] In fact Under Armour's profits have increased across every major product line that it produces as it makes the transition from being a new upstart company to an established force in the athletic industry. HEATGEAR: Designed for hotter temperatures and humid environments, HEATGEAR is the original Under Armour product. Its microfiber design helps the body breath and gets rid of moisture quickly, allowing the athlete to remain light and dry. [13] COLDGEAR: COLDGEAR is the most expensive product line of Under Armour and the most popular. Its design is similar to the HEATGEAR, with microfiber material getting rid of moisture. However it is also designed to trap heat and keep the body warm. Its popularity helped to Under Armour's profits increase dramatically in late 2007 and earl 2008. In 2007, Q2 (the spring season) revenue was $124 million[14], whereas in Q4 (the fall season) Under Armour took in $186 million[15] ALLSEASONGEAR: This product line is designed differently from other Under Armour products as it does not use microfiber. Rather it uses technical fabrics that are good for both hot and cold temperatures. Examples of ALLSEASONGEAR include tights, jackets, and long sleeve shirts.[16] Charts 
 [edit] Trends and Forces[edit] A depressed economy will hurt Under Armour's salesUnder Armour is part of the performance apparel industry and therefore is appeals to a niche market. Consumers who are suffering from financial trouble due to a failing economy will not readily spend money on Under Armour's expensive products. The recent credit crunch and rising commodity prices on gas and food will slow sales for less essential products. Analysts predict that 2008 will be a difficult year for retailers , and thus far signs indicate that it will be. [edit] The regions of the world where Under Armour products are manufacture are very unstableIn 2007 53% of Under Armour Products were produced in Asia, 25% in Central America, and 19% in Mexico.[19] Central America and Mexico are unstable regions of the world and have witnessed much political violence in recent history. Such violence could directly effect Under Armour as factories shut down or are destroyed, shipments are delayed or confiscated, or employees are attacked or leave their posts. As a result Under Armour would be unable to distribute in the United States. [edit] Diversification into new product lines could be at lower margins than the apparel marketUnder Armour's attempts to penetrate the shoe market have been fairly successful with their performance cleats. In 2007 footwear brought Under Armour $41 million and the company is the official footwear sponsor of the NFL.[20] However Under Armour intends to release a cross trainer shoe in the summer of 2008 that will put it into direct competition with Nike (NKE) , and it will be difficult to penetrate such an established market.[21] While performance cleats appeal to the customers familiar with Under Armour performance apparel, cross trainers are marketed to a much wider audience which may be unfamiliar with the brand name. [edit] Under Armour relies too heavily on a limited number of distributorsIn 2007 33% of Under Armour's sales were to Dick's Sporting Goods (DKS) and Sports Authority.[22] If either of these companies were to suffer, Under Armour's sales would be affected. Also the company does not enter into long term sales contracts with any of its key customers, relying on a good faith policy.[23] Due to the lack of any contracts, these customers can take away business from Under Armour whenever they feel the need to. [edit] Inventory BuildLooking at the historical inventory supply of UA, the trend has recently been increasing in the last few quarters, from 121 days at March 30th, 2007 filing to 171 days at December 31st, 2007. This 41% increase in inventory is not uncommon to UA, seeing that they experienced similar increases last year. But what is puzzling is that, this recent build is lasting longer then the previous year Below is the seasonality excerpt from the UA SEC filing: "Historically, we have recognized approximately 70% to 75% of our income from operations in the last two quarters of the year, driven by increased sales volume of our products during the fall selling season, reflecting our historical strength in fall sports, and the seasonality of our higher priced ColdGear® line. Approximately 61% and 62% of our net revenues were generated during the last two quarters of 2006 and 2005, respectively. The level of our working capital reflects the seasonality and growth in our business. We generally expect inventory, accounts payable and accrued expenses to be higher in the second and third quarters in preparation for the fall selling season. Nonetheless, the high percentage of income from operations and net revenues in the second half of the year may have been in part due to our significant growth in net revenues."Being told that this inventory build is due to the seasonality, when comparing it to a competitor, Nike (NKE), you will see that UA is not managing the inventory as tightly as NKE.
This growing variance is also the main contributor to the difference in the total cash cycle between the two firms. [Exhibit 2]
[edit] CompetitionUnder Armour's main competition comes from large and well established apparel and footwear companies, such as Nike (NKE) and Adidas AG (ADDYY). These companies have international appeal and resources to match. Thankfully, Under Armour competes with them in a market that they specialize in. Therefore the company has been able to be both competitive and very successful despite the fact that their competitors have far more resources. Also Under Armour competes with other sportswear focused companies, such as Columbia Sportswear Company. These smaller companies, while more of a match for Under Armour in terms of resource, they too appeal to a larger base than Under Armour and are competing with the company in only one market. In their primary market, athletic apparel, Under Armour can claim 75% of the market share, with Adidas and Nike struggle to catch up.[24] In the terms of the overall athletic market, Under Armour claims 31% of the market share, Nike 36%, and Adidas and other athletic companies claiming the remainder. Anaylsts predict however, that Under Armour could possibly surpass Nike in the near future if it continues its staggering growth rate.[25]
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