Activewear is a hot fashion statement on and off gym floors
and other exercise venues.
AndUnder Armour (
), which designs and distributes what it calls "highly technical"
products for men, women and youth, is a beneficiary of that
"It suddenly became acceptable (in 2013) to wear activewear in
virtually every imaginable venue, including some offices," said
analyst Faye Landes of Cowen & Co. in a report this month on
consumer retail themes.
Reasons for this, she speculated, include more comfortable
fabrics, peer pressure to look like you care about keeping fit or
the desire to "dress up" for exercise classes.
New Cold-Weather Gear
Under Armour keeps upping the performance and fashion ante
with new products, the latest a ColdGear Infrared line of
clothing to absorb and retain body heat, launched in the third
Under Armour holds a spot on the IBD 50 list of top-rated
growth stocks. It has logged 17 straight quarters of double-digit
sales growth, with the third quarter's up 26% to $723 million.
But shares fell nearly 5% after management's early outlook for
2014 came in at the lower end of its long-term target of 20% to
25% a year. The stock has since climbed 11% to around 89, setting
an all-time high.
Earnings in the quarter also grew by 26%, to 68 cents a share.
Analysts expect 2013 profit growth to slow to 19% from 30% in
2012, but they see 24% growth this year, according to Thomson
Landes expects another banner year in activewear as new
technologies to make clothing softer, thinner or wick better keep
consumers going back for more.
In her report, one special mention went to Under Armour's
men's performance chino. Landes said it "makes plain old pants
seem both uncomfortable and passe."
Most of Under Armour's revenue comes from wholesale
distribution to sporting goods retailers such asDick's Sporting
), Sports Authority andHibbett Sports (
), among others.
While men's products constitute the bulk of sales, Under
Armour is making a big push to expand its women's business, still
less than 30% of apparel sales in the third quarter. But CEO
Kevin Plank said in the last quarter's conference call that
women's "will be larger than men's someday in the future."
A Swipe At The Swoosh
), Under Armour's chief rival, typically is the No. 1 athletic
brand carried in sporting specialty stores. But Under Armour is
catching up, says Sam Poser, a Sterne Agee analyst.
One reason is that retailers don't want to put their eggs in
one basket, Poser said, adding that Nike accounts for as much as
60% of stores' athletic business.
"All of the sudden, here comes Under Armour emerging into a
very big player, especially in apparel. And (stores) are saying,
'Let's grow the Under Armour business faster than Nike,'" Poser
Though the Nike business will keep growing, its share would
end up shrinking as Under Armour's rises, he says.
It's already happening. Take Dick's. In 2012, Dick's carried
171 Nike in-store shops to Under Armour's 107. In fiscal 2013,
according to a Dick's filing in early November, Dick's added more
Under Armour shops than Nike shops.
Clothes Trump Shoes
Most of Under Armour's sales are in apparel, which in the
third quarter rose 26% to $561 million, part of it driven by a 5%
rise in the average selling price.
Footwear accounts for about 11% of sales, but it has the
potential to grow with retail chains such asFinish Line (
) andFootlocker (FL), Poser says. Both are key footwear partners.
Department stores also offer "huge opportunities" to grow apparel
and footwear, he says.
"In footwear, our big story for 2014 is Speedform," said Plank
in the conference call, referring to the company's latest running
shoe. It was inspired by spacesuits and the form-fitting
"material innovation of a bra," as the firm's website puts it.
The shoes are made in bra factories rather than footwear
Under Armour runs a relatively small retail business, mostly
outlet stores, which grew by six in the third quarter to 112 in
North America, up from 96 the year before. Four more outlets were
expected to open in the fourth quarter, but the pace of growth is
expected to slow this year.
Existing outlet stores are being expanded, however, to
accommodate more women's apparel, youth products and footwear,
noted analyst Christopher Svezia of Susquehanna Financial
Under Armour operates two full-price stores, one in its
hometown of Baltimore and the other a recently opened store in
Tysons Corner, Va., near Washington, D.C. It plans to open a
full-line store in Manhattan's Soho in the spring.
Svezia noted that management believes 15 to 20 full-price
stores need to open over the next few years to "test and tweak"
before a significant rollout proceeds.
Management also is eying expansion in international markets
such as Latin America and China. To help increase brand awareness
in China, it recently opened an "Under Armour Experience" retail
theater in Shanghai, featuring a "multidimensional video
experience," as Plank put it, "that combines the high energy of
our brand with our commitment to telling authentic athlete
Under Armour has already expanded into Europe, notably in the
U.K. But Svezia has pointed out that management believes the
playing field is better in Latin America, where the demographics
are younger and more sports-obsessed.