Under Armour Aims High To Close Gap On Nike, Adidas

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I t's a safe bet that Under Armour CEO Kevin Plank won't ever be accused of aiming too low. At a recent investor day for the athletic apparel maker, Plank set a revenue target of $7.5 billion for 2018. That's more than twice as much as the company's sales last year and nearly double what it is expected to post this year.

Plank has likenedUnder Armour 's ( UA ) industry clout to that of social media giantFacebook ( FB ), saying that his company "will be the destination for health and fitness."

That's a pretty bold proclamation, considering that one of Under Armour's chief rivals in the athletic apparel arena,Nike ( NKE ), is a global powerhouse with more than $30 billion in yearly revenue and one of the most recognizable brands on the planet.

Under Armour has a long way to go to catch Nike -- or, for that matter, Adidas, another global industry powerhouse with about $17 billion in annual revenue.

Still, Under Armour has come a pretty long way in a pretty short period. It is approaching $4 billion in annual revenue; as recently as 2009, it had less than $1 billion.

Investors seem to like the company's growth potential. Its stock price set a new high of 105.89 on Sept. 17 and is up more than 40% since the beginning of the year.

Meanwhile, most analysts have little doubt that Under Armour can achieve its lofty goals.

More Market Share Available

"It's definitely doable," D.A. Davidson analyst Andrew Burns told IBD. "When you think about the company compared to the athletic industry as a whole, it still has a sub-5% market share. They have a vast growth opportunity globally."

FBR analyst Susan Anderson has a similar take, noting recently that Under Armour can deliver high 20% to low 30% revenue growth "for the next several years as it earns its status as the next global athletic apparel and footwear brand."

Under Armour makes athletic apparel -- or, in its parlance, "performance" apparel -- as well as footwear and accessories. It breaks its sales down into five main categories: men's apparel, women's apparel, footwear, international and direct-to-consumer.

The vast majority of its business is in North America, though the company is pushing to expand sales overseas.

Under Armour is perhaps best known for introducing one of the first moisture-wicking athletic apparel products. That happened back in 1996, when Plank, a former University of Maryland football player, founded the company.

It has since moved into footwear and accessories -- everything from bags and backpacks to hats, gloves and sunglasses -- as well as digital workout-activity trackers.

The company groups its digital products under the category "Connected Fitness." This business includes four apps -- UA Record, MapMyFitness, MyFitnessPal and Endomondo -- the latter three of which came aboard via acquisition. The apps are available to use onApple 's ( AAPL ) iPhone and other makers' mobile devices.

Mobile Apps Drive Sales?

One of Under Armour's goals for Connected Fitness is to "drive growth not only for the core Connected Fitness business but also for the broader Under Armour business," Chief Digital Officer Robin Thurston told the analysts.

That business already is doing pretty well. Under Armour regularly delivers quarterly revenue growth in the mid-20% to low-30% range, though the company's bottom-line performance has been less robust, at least lately.

It has posted year-over-year earnings growth only twice in the last five quarters. It logged lower earnings the last two quarters, partly due to tough prior-year comparisons and partly due to the impact of acquisitions.

Second-quarter earnings came in at 7 cents a share, down from 8 cents the previous year but ahead of consensus analyst estimates.

The earnings picture should brighten when Under Armour reports Q3 earnings on Oct. 22. Analysts polled by Thomson Reuters expect EPS of 44 cents, up 7% from the prior year. Revenue is seen climbing 49% to $1.17 billion, which would mark the first time it has passed the $1 billion mark in quarterly revenue.

Perfect Endorsements

Recent results have gotten a boost from a pair of fortuitous endorsements involving two of the year's most successful pro athletes. One of them, NBA star Stephen Curry, was named the league MVP and led the Golden State Warriors to the NBA championship. The other is PGA star Jordan Spieth, who won the 2015 Masters and U.S. Open tournaments.

Under Armour's biggest growth in coming quarters is expected to come from its footwear and international businesses.

On the international side, FBR's Anderson expects "broad-based growth across its existing markets in Asia, EMEA (Europe, Middle East and Africa) and Latin America, supplemented by expansion to new countries through 2018."

At The Expense Of Rivals

Part of that growth will come at the expense of competitors such as Nike and Adidas, Burns said. "Under Armour has a stronger brand and a stronger product than Adidas and other rivals, and they're gaining share within the athletic market."

Analysts expect Under Armour's full-year earnings to grow 14% in 2015 and 31% in 2016.

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

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

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