Under Armour (UA) has done what many deemed impossible several years ago. The company has positioned itself within the crowded athletic apparel business and successfully seized market share from Nike (NKE) , Adidas ($ADDYY), and the other usual players. More importantly, it has carved out and capitalized on niche markets, driving growth and fueling astronomical gains in the stock.
Under Armour stocked popped on Thursday after it announced earnings of $0.08 on $610 million in revenue. Analysts were expecting $0.07 in earnings on $573 million in sales. The EPS beat was fairly modest and the company still trades at an astronomical price-earnings multiple, but that’s not what investors were looking for in the report.
Investors were looking for growth, and Under Armour more than delivered. The company reported 34% revenue growth year-over-year, driven by 80% international growth (Brazil sales launched during Q2), 34% footwear growth, and 49.2% gross margins. Nike, by comparison, grew sales by only 13% last quarter.
Under Armour is growing market share in multiple segments thanks to successful, divergent marketing tactics, establishing the company as a growth machine in an otherwise predictable industry.
Under Armour's Target Areas of Growth
Youth and Amateur Movement: While Nike and Adidas focus a lot of its resources on professionals and celebrity endorsers, Under Armour strives to become the brand for the every-day athlete. Much of Under Armour’s strategy is to harness brand loyalty at an early age, as the company has become a major sponsor for high school, college, and amateur sports.
Under Armour is the name sponsor for the nationally televised Under Armour All-American game, which features the best high school football players in the nation. As a consequence of its success within high schools, Under Armor’s $130 Highlight Cleat for football was a major hit this year. The company is also expanding into college athletics, reaching sponsorship agreements with top-tier programs like Auburn, Notre Dame, Texas Tech, and Boston College.
Establishing a footprint within inner cities also is a major component of Under Armour’s philanthropic and branding efforts. Its UA Youth Movement provides facilities that enable inner-city youth to become active. Youth Movement is not only helping kids nationwide, but has made Under Armour a hot brand within the younger demographic.
Success in a Tough Footwear Environment: Under Armour’s marketing success has resulted in growth within a number of new product categories, particularly footwear. Despite overcrowding and abysmal 2% annual growth in footwear, Under Armour’s footwear business grew 34% year-over-year to $110 million. Its footwear sales hit $223 million in the first six months of 2014, almost matching its total 2013 footwear sales.
CEO Kevin Plank believes this growth can be accredited to disruptive innovation and the company’s reputation as a top-tier apparel maker. “We are investing in these category strategies, the long-term focus, and believe we will look back on 2014 as the year we transitioned from a company learning how to make great shoes into a truly disruptive voice in the global footwear market,” said Plank during the earnings conference call. “Disruption is also our goal with our upcoming holiday shoe campaign.”
UA’s Female Revolution: Under Armour’s brand has long been acknowledged as “masculine” because much of its business is football-centric. However, Plank acknowledged female apparel as an area of tremendous growth, now reaching $500 million in sales. Plank also stressed that Under Armour’s mission to disrupt the entire female apparel market is only beginning.
Plank mentioned during the conference call that it would soon broadcast ads featuring Misty Copeland, a ballet soloist at the American Ballet Theatre. Plank called the sponsorship, “compelling and 100% reflective of our brand DNA…so yes, it’s a ballerina in an Under Armour ad. But I will challenge anyone to describe anything she does on the spot as not being the moves of an athlete, an incredible athlete.” The strategy is bold, but could better position Under Armour in the female market if Plank and the marketing team and successfully pull it off.
No End in Sight?
Under Armour’s growth is accelerating, thanks to a successful marketing scheme that has made the brand hot and relevant for amateurs, youth, and women. Its marketing plan is rather ingenious, and the combination of innovation and successful branding is driving the company to new heights. Passivity from Nike and Adidas is helping as well.
Under Armour stock exploded on Thursday, gaining nearly 15% to close at $69.55. Shares reached an all-time high of $70.25 at one point during the trading day due to the strong report. The company is now worth close to $15 billion.
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