Under Armour Eyes Bigger Footwear, International Sales

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After making a name for itself in the U.S. with its line of athletic apparel, Under Armour is gunning for a larger slice of the footwear and international pies.

To get there, it'll have to carve out market share against a couple of 800-pound gorillas in the athletic apparel and shoe business.

Under Armour ( UA ) makes and sells performance-related gear, ranging from training T-shirts, warm-up jackets, underwear and swimwear to cleats, backpacks, sunglasses and water bottles.

Its website lists dozens of items for men, women and kids.

The company sells its gear via sporting goods retailers such asDick's Sporting Goods ( DKS ) and Sports Authority, as well as its own stores. With the brand's popularity and name recognition on the rise -- and physical fitness an American pursuit -- it can also be found in places such as upscale department storeNordstrom ( JWN ).

Last year more than three-quarters of Under Armour's sales came from apparel, while only 13% came from footwear. The geographic disparity was even wider: 94% of revenue came from North America, with the rest coming from elsewhere in the world.

To help bring more balance to those percentages, Under Armour has been working to expand its footwear business as well as its international footprint.

Both initiatives will require trying to elbow into markets that are dominated by high-profile names such asNike ( NKE ) and Adidas.

That won't be easy.

In The Footsteps Of Giants

In a recent report, analysts from Trefis noted that the Under Armour footwear brand has only a 2.5% share of the U.S. market. By comparison, Nike has a nearly 25% share of the global sports footwear market and 60% of the U.S. sports footwear market if you include the Jordan and Converse brands.

ShoemakerSkechers USA ( SKX ), profiled in The New America earlier this month, is making a run for the athletic-shoe market too.

"If Under Armour is to increase its market share, it will have to grow at a faster rate than the overall market, which means that it will have to attract customers away from competitors such as Nike, Adidas, Puma, Skechers, Asics and Wolverine," Trefis said.

Trefis also notes that Under Armour will have to expand beyond running shoes into other categories such as basketball, baseball, soccer, training and casual shoes.

Analyst Andrew Burns of D.A. Davidson points out that Nike "has dozens of platforms" in athletic footwear, while Under Armour has only a few.

"Under Armour started in cleats, and they are building out their non-cleat business," Burns told IBD.

The company's most recent footwear launch was its SpeedForm Apollo running shoe, which retails for about $100 under the marketing slogan "This Is What Fast Feels Like."

On a conference call with investors earlier this year, Under Armour CEO Kevin Plank said the Apollo "may very well be our next defining product." The company did not respond to requests for comment for this article.

Trefis notes that with the SpeedForm Apollo, Under Armour "finally seems to have a product that can help it make a dent in the footwear market."

Sales of the SpeedForm platform -- which includes other shoes and socks in addition to the Apollo -- helped Under Armour report a 41% year-over-year gain in footwear revenue during the first quarter. That compares with a 36% increase in overall revenue.

Under Armour also has designs on expanding its worldwide business and faces many of the same challenges there that it faces in footwear.

"They are in the first inning of launching a global platform, so relative to Nike and Adidas they are nonexistent from a global standpoint," Burns said.

International Game

Under Armour executives have talked about making Under Armour a global brand that can eventually get more than half of its revenue outside the U.S.

The short-term goal is more modest. The company looks to push international revenue to 12% of overall sales by 2016.

Much of that growth will be focused on Europe, where Under Armour looks to tap into the Continent's passion for soccer by sponsoring professional clubs.

The company has inked deals with England's Tottenham Hotspur club as well as the Welsh national rugby team, Trefis says.

To gain access to a larger fan base in Europe, it will have to find more and bigger partners.

"Moreover, these partnerships will have to be sufficiently successful so as to be leveraged into even bigger partnerships, which is a challenge, given the rising competition in this space," Trefis said.

Under Armour also looks to boost its business in Latin American markets such as Mexico, Chile and Brazil. Brazil offered a major marketing opportunity for apparel retailers during the recently finished FIFA World Cup soccer games there. However, it's unclear how much marketing headway Under Armour made during the event.

"They don't really have a soccer platform, so there's nothing specific to the World Cup you can point to in terms of expanding the Under Armour brand," Burns said.

He calls foreign markets a "moving target" for makers of athletic apparel and accessories.

"The activewear trend is certainly global," Burns said. "To the extent to which these brands resonate in the U.S., there's a high probability they will also appeal to the global consumer."

During the first quarter, sales outside of North America rose 92% from the previous year to $59 million. That represented 9% of the total vs. 6.5% a year earlier.

Overall revenue climbed 36% to $641.6 million, topping consensus estimates. That continued a years-long run of 23%-or-better quarterly sales growth. Earnings for the quarter gained 50% to 6 cents a share, above views for 4 cents.

By category, apparel sales rose 33% during the quarter, footwear sales increased 41% and sales of accessories climbed 43%.

Under Armour is due to report second-quarter results on July 24. Analysts polled by Thomson Reuters expect EPS of 7 cents, down from 8 cents a year earlier.

If that happens, it would be Under Armour's first earnings decline in five quarters. The company's stock trades near 58.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: UA , DKS , JWN , NKE , SKX

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