It seems rather prophetic that just last week Sports Executive Weekly wrote that conventional wisdom held that a company that wanted to go public should have revenues north of $200 million and a consistent history of profitability.
It appears that Under Armour indeed fits the bill for those requirements with trailing twelve month sales in excess of $242 million, while posting a profit in every year since 2000. This is the deal that most have been waiting for, an Initial Public Offering that may well make everyone forget about the over-hyped prospects of more recent announcements.
Under Armour hopes to raise $100 million in the IPO. Shares are expected to trade on the Nasdaq exchange under the symbol UARM. The company will have two classes of stock, with Class A shares available to purchasing shareholders and the Class B shares exclusive ti the founder Kevin Plank and his family. Class B shares will carry 10 votes per share while the Class A shares will have one vote each. In addition to outstanding shares eligible for sale, 3,615,280 shares of current Class A common stock are issuable under currently outstanding stock options granted to executive officers, directors, employees, and consultants under equity compensation plans.
UA will use $12.0 million of the net proceeds from the IPO to redeem 1.2 million outstanding shares of Series A preferred stock that were issued to Rosewood Capital IV, L.P. and Rosewood Capital IV Associates, L.P. The company will also use approximately $25.0 million of the net proceeds to repay amounts outstanding under the term loan portion senior secured credit facility. An additional portion of the proceeds will pay down the revolver associated with that facility. Under Armour had $48.0 million in debt as of June 30, 2005.
For the second quarter ended June 30, Under Armour saw revenues increase 58.6% to $49.0 million from $30.9 million in the year-ago period. Gross margins for the period broke the keystone barrier, increasing 510 basis points to 50.1% of sales versus 45.0% of sales in Q2 last year. Operating income for the period jumped 340% to $3.6 million, compared to $828,000 in the year-ago quarter.
Net revenues grew from $5.3 million in 2000 to $242.2 million for the 12 months ended June 30, 2005, representing a compound annual growth rate of approximately 133.3%. The company said that initial revenues were generated from a small assortment of compression products sold to athletes and teams at the collegiate and professional levels, but they believe that net revenue growth was driven by a growing interest in performance products and the strength of the Under Armour brand in the marketplace relative to its competitors, as evidenced by the increases in sales of its men's core product line as well as consumer acceptance of newer products.
By the end of 2004, Under Armour was found in over 6,000 domestic doors, up from approximately 500 doors in 2000. The company said it plans to expand its product offerings to include additional men's and women's performance products as well as expanding its products from on-field to off-field outdoor sports, including hunting, fishing, running, mountain sports, skiing, and golf. They are also launching football cleats in 2006.
Under Armour products were manufactured by 18 primary manufacturers in 2004, operating in 19 countries, five of which manufactured approximately 73% of all products. Also in 2004, approximately 67% of UA products were manufactured in Central and South America, with 14% in Asia, and 19% manufactured in the United States.
Approximately 3.3% of 2004 net revenues were generated through international sales and licensing fees. Licensing revenue has grown from $84,000 in 2002 to $6.4 million for the 12 months ended June 30, 2005.
For the full year 2004, net revenues increased 77.8% to $205.2 million from $115.4 million in 2003. The increase was a result of increases in both net sales and licensing revenue. Net sales increased 76.6% to $200.9 million in 2004 from $113.8 million in 2003. This increase was primarily driven by volume growth in both men's and women's product lines and additional doors opened by several of UAs largest retail customers.
Men's net sales increased more than 62.5% in 2004 to $149.9 million from $92.2 million in 2003 and women's net sales jumped 161% to $28.7 million in 2004 from $11.0 million in 2003. The remaining revenue increase was attributable to athletic gloves and youth products.
Licensing Revenues increased 153% to $4.3 million in 2004 from $1.7 million in 2003. The increase in licensing revenue was primarily a result of increased sales by domestic licensees.
Gross margin increased 260 basis points to 46.5% of sales in 2004 from 43.9% of sales in 2003. Gross margin related specifically to net sales (excluding licensing revenues) increased 230 basis points to 45.4% of sales in 2004 from 43.1% in 2003. Management said the increase was “primarily attributable to more accurate demand forecasting and better inventory management coupled with improved pricing from our overseas manufacturers as a result of higher volumes.”
SG&A expenses increased 72.1% to $70.1 million in 2004 from $40.7 million in 2003, but improved 120 basis points as a percent of sales to 34.1% in 2004 versus 35.3% in 2003. The increase was attributable to an increase in marketing costs of $8.0 million, an increase in non-marketing payroll and related costs of $8.9 million and increases in overall corporate infrastructure costs to support growth. Marketing costs decreased 1.3% to 10.6% of net revenues in 2004 from 11.9% of net revenues in 2003. Non-marketing payroll and related costs decreased 0.6% to 10.7% of net revenues in 2004 from 11.3% of net revenues in 2003.
UA said the decreases in selling, general, and administrative expenses as a percentage of net revenues were partially offset by increases in general corporate infrastructure costs primarily related to increased costs for additional space at its corporate headquarters and an increase in its distribution facility costs due to a new, larger warehouse to support growth.
Income from operations increased 155.0% to $25.4 million in 2004 from $10.0 million in 2003. Income from operations as a percentage of net revenues increased to 12.4% in 2004 from 8.6% in 2003. This increase was a result of the increase in gross margin and a decrease in selling, general, and administrative expenses as a percentage of net revenues for the year.
Resulting net income jumped 184% to $16.3 million in 2004, compared to $5.7 million in 2003.
Under Armour said they historically generate about 80% of income from operations in the third and fourth quarters due to significant increases in sales during the fall season. Most of their marketing plans are driven by the fall season.
They obviously see higher price-points in their fall/winter line, but have also seen spring sales creep up as a percentage of the total for the year. For 2004, 65.8% of the years revenues were generated in the back half, compared to 67.2% of net revenues in H2 2003. However, net revenues for the third and fourth quarters of 2004 represented 55.8% of total net revenues for the 12 months ended June 30, 2005.
The company indicated that approximately 95.2% of net sales in 2004 were derived from wholesale distribution, with approximately 67.7% of total net sales coming from large format national and regional retail chains.
Under Armours three largest customers, AAFES, Dicks/Galyans, and The Sports Authority, collectively accounted for approximately 36.5% of total net revenues in 2004.
The remaining 27.5% of net sales from wholesale distribution was derived from independent and specialty retailers, which are serviced through a combination of in-house sales personnel and third-party commissioned manufacturer's representatives. Independent reps also service sales to military specialists, fitness specialists, outdoor retailers, and other specialty channels throughout the United States and Canada.
Approximately 4.8% of net sales in 2004 were generated through direct sales, with a “significant majority” of that amount generated through the Under Armour Web site. Direct sales also include sales by the companys sports marketing group for use by professional and college athletes.
In the S-1 filing, Under Armour cited SportsScanINFO estimates that indicate retail sales in the compression market of $415.7 million in 2004, a 27.2% increase from $326.7 million in 2003. Under Armour further cited SportsScanINFO estimates that in 2004, UA had a 78% share of the compression market, which was more than seven times that of its nearest competitor.
The company also highlighted its focus on entering the outdoor market, focusing on hunting, fishing, hiking, and mountain sports.
On the international front, Under Armour sees the Canadian market is a natural extension of its products and current brand recognition in the U.S., initially driven by direct sales to several National Hockey League teams. They also cited a current licensing arrangement with Dome Corporation in Japan that allows them to pursue the Japanese sports apparel market. They are now also expanding into the European sports apparel market, beginning with the U.K. Approximately 2.0% of total net sales in 2004 were generated in Canada and approximately 23.1% of licensing revenues were generated in Japan.
Under Armour had 546 employees, of which 535 were employed in the U.S., on June 30, 2005.
Goldman, Sachs & Co. is acting as the lead underwriter and sole bookrunner for the proposed offering.
>>> The market has been waiting for this one since Rosewood made its initial investment…
>>> Kevin Plank has been getting more analyst love the last two years than many of the public CEOs
>>> Will this one make it to market? Or is this another Converse opportunity for Nike just waiting to happen???
| Under Armour, Inc. | ||||||
| Full Year and First Quarter Results | ||||||
| In $ Millions | Full Year | First Half | ||||
| 2004 | 2003 | Change | 2005 | 2004 | Change | |
| Total Revenues | $205.2 | $115.4 | 77.8% | $107.1 | $70.1 | 52.8% |
| Gross Margins | 46.50% | 43.90% | +260 bps | 47.0% | 45.3% | +170 bps |
| SG&A | 34.1% | 35.3% | -110 bps | 39.1% | 37.6% | +140 bps |
| Net Income | $16.3 | $5.7 | +184% | $4.3 | $3.4 | +28.6% |
| Diluted EPS | 39¢ | 15¢ | +160% | 8¢ | 6¢ | +33.3% |
| Inventories* | $48.1 | $21.8 | +120% | $49.1 | $48.1 | |
