Team Members Brandon Carlson
Qiongxi (Michelle) Luo Aditi Mishra
Panchaya Pimprapoat Xiaochen (Ariel) Song
Under Armour, Inc.
Company Overview
Industry: Sports Apparel and Equipment
Founded: 1996, Baltimore, Maryland
CEO: Kevin Plank
IPO: 2005 (UA)
Market Cap: $18.4 Billion (as of Dec 3, 2015)
Major Milestones
Under Armour was founded as an athletic
apparel company
New headquarter and warehouse
in Baltimore
Entered athletic footwear market
IPO with revenue $281M
Launched women's line
$1B revenue
Consecutive Years of Revenue Growth
$10B
$20B
$30B
$40B
(Founded)
Source: UA Investor Day
Celebrity Endorsement
Company Overview
Source: 2014 10K
Revenue Exposure by Country
Source: FactSet as of October 22, 2015
Trailing Twelve Month Revenue: $3.7B%
%
%
%
Global Expansion
226 stores 11 Countries 1.1 M SQ FT
1000+ stores 40+ Countries 3M+ SQ FT
YE 2014
62% North America
38% International
YE 2018
20% North America
80% International
Major Changes
Acquisitions Change in management
- MapMyFitness [Dec 2013] - Endomondo [Jan 2015] - MyFitnessPal [Feb 2015]
- CFO/COO, Brad Dickerson to step down in Feb 2016
Automated Manufacturing
- “Project Glory” - Physical space in Baltimore - Reduce human touches by up to 30% - Improved supply chain
Connected Fitness Platform
INDUSTRY &
COMPETITIVE ANALYSIS
Global Sports and Apparel Industry
Source: Statista
$132B $135B $141B $146B$152B
$158B $165B$171B
Projected Industry in Billions
Athletic and Sporting Goods in the US
5 Year Expected Growth Revenue expected to increase at an annualized rate of 0.6% to $9.3B
Key information: ● Highly competitive and fragmented with many brands competing ● Many mergers and acquisitions over recent years ● Increasing demand for versatile wear with wider functionality ● More health-conscious and older demographics ● Women = strong consumer demographic ● More collaboration between sports and fashion industry
Major Market Segment 2015 Total volume: $9.1B
Source: IBISWorld, Statista
Competitive Landscape
Source: Yahoo Finance, FactSet
Years as Public Company0 5 10 15 20 25 30 35 40 45
Nike
Adidas
Lululemon
V.F. Corporation
Under Armour
Columbia Sportswear
$111.3B
$27.2B
$3.2B
$18.4B
$6.9B
$40.0
$35.0
$30.0
$25.0
$20.0
$15.0
$10.0
$5.0
$0.0
LTM
Rev
enue
in B
illio
ns
$19.6B
Performance Comparison (IPO Index)
Under Armour
Performance of a $100 Investment at IPO
SWOT Analysis
•Focus on innovation •Strong financial performance •Growing product portfolio •Top-profile endorsement •Highly visible marketing campaigns
•Revenue source is heavily depended on North America •Outsourced manufacturing - little control
•International expansion •Athletic footwear market •Connected fitness •Project Glory •Women’s Apparel growth •Casual activewear •E-commerce
•Low barriers of entry •Rising labor wages •Limited patent ownership •FX volatility
MANAGEMENT PERSPECTIVE &
WALL STREET COMMENTS
Recent Performance
Net Revenue by Product
Products Q3 FY15 Q3 FY14 % increase
Apparel $866M $705M +23%
Footwear $196M $122M +61%
Accessories $104M $85M +22%
License revenues $24M $22M +9%
Connected Fitness $14M $4M +221%
Total $1.2B $938M +28%
Net Revenue by Region
Regions Q3 FY15 Q3 FY14 % increase
North America $1.1B $848M +25%
International $130M $86M +52%
Connected Fitness $14M $4M 221%
Total $1.2B $938M +25%
Source: 10-Q
● First Billion dollar quarter
Analyst Feedback Before & After Earnings Call
Average = $109.59 Median = $110.00
Average = $105.83 Median = $105.00
Analyst Feedback Before & After Earnings Call
Analyst Universe
Analyst Review of Q3 Earnings Call
● Future growth of Connected Fitness (SAP platform) - targeted consumer experience
● International retail and footwear expansion ● New e-commerce site ● Apparel growth for Womens & Casual
activewear (ex. polo shirts, chinos)
● Robust revenue ● CFO search is a positive catalyst ● China retail strategy a new growth driver
○ Direct retail expansion in China: aims for 1,000-1,500 stores
○ 70% of stores to be run by distributors by 2018
● China footwear aggressive growth
UA warrants a higher valuation relative to peers
Balanced by accelerated investments in key drivers:
Key Reasons for Stock Behavior
Higher mix of footwear revenues
Higher air freight costs
Unanticipated FX Pressure
Gross Margin Impact
M&A of connected
fitness
New opportunities
Management transition
Investments
● Partnership allows creating a single user database with insights on consumer purchase habits
● Advent to targeted marketing
New Findings & Future Guidance for Investors
Expand to Casual Activewear
Connect Fitness & SAP Partnership
Adding Talent in Women’s Footwear
● Hiring ● Women’s footwear focus
● Long-term investment in apparel for outside the gym (eg. polo shirts, chinos)
● Innovations in apparel functionality
Metrics 2015 2016 % increase
Rev $3,923 $4,937 25.8%
EBIT (Operating Income)
403.8 484.0 19.9%
Operating Margin (OI/Rev)
9.7% 10.6% 9.0%
EPS $1.10 $1.30 28.4%
Analyst Conclusions via Ratio and Metrics Analysis
SHOULD WE BUY UNDER ARMOUR STOCK?
Common-Size Income Statement
● Net profit margins ( ) : Operating margins ( ) + Non-operating margins ( )
Ratio Analysis-Profitability● ROE = Net Income / Equity ● Decrease of ROE: Increase on Equity > Increase on Net Income
● 3 Main attributes to Equity increase ○ Exercise of stock options ○ Issuance of common stocks ○ Converted convertible stocks
Ratio Analysis-Assets Turnover
● Loosen credit sales policy -> Credit risk ● Increasing inventory turnover on Q3-2015 due to credit sales
Ratio Analysis-Solvency Ratio
● Steady decline from 2010 to 2013
● Strong recovery from 2013 to 2014
● Strong Liquidity
Ratio Analysis-PE Band
78.3
● The standard deviation band: ○ Measures the historical variation/volatility from
the average PE ○ 95% fall within the range
● Recent performance suggested PE ratio: ○ Unpredictable of the future pattern
61.0
Source: All data and estimates from Bloomberg, LP
Relative Valuation: Method of ComparablesAs of November 30, 2015
($ in millions, except per share data)
Source: All data and estimates from Bloomberg, LP
Relative Valuation: Method of ComparablesAs of November 30, 2015
($ in millions, except per share data)
Source: All data from Bloomberg, LP
Absolute Valuation: Discounted Cash Flow MethodAs of November 30, 2015
Source: All estimates from most recently published analyst reports
Leading Investment Bank Estimates (DCF Inputs)As of November 30, 2015
Source: All estimates from most recently published analyst reports
Leading Investment Bank Estimates (DCF Inputs)As of November 30, 2015
Discounted Cash Flow Output
Market Price as of November 30th, 2015:
Therefore: Fairly Valued!
THEORETICAL VALUE PER SHARE$85.54
$86.22
Our Criteria: If absolute value + / - 10% of its current market price, Under Armour over / under valued
SHOULD A BANK LEND TO UNDER ARMOUR?
Credit Analysis
Notes: [1] Total Debt to Assets ratio calculated as total liabilities divided by total assets, net of goodwill.
Financial Strength Debt & Commitments Capacity to Repay
Concluding Remarks
EQUITY INVESTMENT
● On comparable basis: overvalued
● Absolute value vs Market Price; fairly valued
● High risk/return potential; growth stock
Debt Covenants - Additional issuance of debt is not permitted without our approval
- The Company must maintain an Interest Coverage Ratio of at least 3.5x - The Company must not exceed a Leverage Ratio of greater than 2.5x
DEBT INVESTMENT
● Strong balance sheet
● More than enough operating strength to sustain additional debt
Is Under Armour’s growth sustainable?