In what had to be the most unusual locale for an investor meeting (the Baltimore Ravens game-day locker room), Under Armour reiterated its full year guidance and unveiled its next major footwear initiative, Endurance (running). In spite of a soft retail marketplace that has plagued some of its biggest customers, Under Armour said the brand is “still driving traffic.”
UA confirmed its guidance for 2008 that sales would be $765 million to $775 million with operating income of 13.5%. UA also told investors that its long-term guidance was for 25% top-line growth, and as its new businesses leverage, operating margins would approach 15%. Footwear, international and direct-to-consumer represented about 1% of sales in 2004 and accounted for 25% of sales in 2007. By 2010, UA believes these new initiatives will represent 45% to 50% of revenues. CEO Kevin Plank said he expects footwear to be larger than apparel “in the future.” He also said that international should ultimately be more than half of sales, up from its current 4%.
Owned-retail is currently having the largest impact, growing 77% in the last quarter. UA ended last year with 1 full price store and 18 outlets. They will grow this base to 3 specialty stores and 25 outlets by year end. The two additional specialty stores will be in Fox Valley Mall outside Chicago and the newly renovated Natick Mall in MA. Chris Hufnagel, VP retail said that the first specialty store located in Annapolis, MD did $1.7 million in its first 60 days. Plank stated that outlets make more margin than wholesale, that specialty margins exceed outlet, and that web throws off the most gross margin of the group.
Fresh off the successful Prototype Trainer launch, UA unveiled its next initiative, Endurance Running. Using the tag line “all athletes run,” UA plans to offer six styles for an unspecified date in 2009. The shoes will be priced at $90 to $120 and will be divided into trail (2) and road (4) with both genders having 3 shoes. The line will be targeted at the same athletes who wear the trainer, but for use in the running portion of their regime. According to SportScanINFO, Nike owns more than a 75% share of running shoes over $90.
Suzanne Karkus, SVP apparel, outlined the changes in approach to womens apparel which has had its bumps, while still providing good growth. Emphasis will be on expanded color and more defined fits, while adding new technological attributes to all genders. SportScanINFO estimates the UA share of the Performance apparel market was 34.4% compared to 26.5% for Nike.
COO Wayne Marino attempted to allay investor concerns over high inventories and subsequent write-downs, stating “inventory will eventually get to the right place.” He outlined in detail current and new initiatives around the supply chain, mostly around better forecasting and shorter lead times. He stated that Q2 inventory would be the highest dollar value for the year, but that by end of Q3, inventory growth would be in line with sales growth and that by end of year, inventory growth would be below sales trend. He also stated that by the end of 2009, inventory turns would approach 3 times. In order to incentivize this improvement, bonuses for the operational teams have been keyed to turnover.
Plank concluded the meeting by repeating that UA is a “growth story” and that the drivers to growth would be: innovation, womens apparel, product differentiation between mall and full line, new footwear categories (including basketball), supply chain improvements, international and direct-to-consumer. Plank felt that UA has a better understanding of its end consumer, stating “we listen better than any company out there”.
