Under Armour

Company Summary & Analysis

Noel Anderson
11/16/2010
PRT503-601

Executive Summary

Anderson

Under Armour is a sport performance apparel company specializing in undergarments

that pull moisture away from the skin without holding the moisture in the fabric during
physical activity and competition. Recently, Under Armour has expanded to athletic
performance footwear and other athletic apparel. Under Armour has its headquarters in
Baltimore, Maryland, USA and was founded in 1996 by Kevin Plank (see Brief History
below). Under Armours main competitors are Nike, Adidas, and on a larger scale,
cotton. Under Armour sales their products through retail stores in the US, Canada, and
internationally as well as through their own retail outlets and specialty stores, website,
and catalog.
Financially, Under Armour is in very good standing and has been from the founding of
the company. Like Nike, Under Armour started as a small business using word of mouth
to spread the word of the quality of the product. The Under Armour product was used
and endorsed by top-level athletes. This, along with a savvy marketing campaign, has
made Under Armour a serious competitor in the sports performance apparel market.
Under Armour now has an official apparel supplier contract with several major US
universities including the University of Maryland and Texas Tech University. These
contracts are worth anywhere from $11-$17.5 million dollars. After years of focusing on
football products, Under Armour is looking to expand into the international market by
making more soccer-specific clothing and shoes. It is an official supplier to professional
soccer teams in Mexico and Germany. Most recently, Under Armour is expanding into
the basketball shoe market. Under Armour is once again using an in-your-face ad
campaign featuring Milwaukee Bucks star, Brandon Jennings, Washington Wizards bad
boy, Gilbert Arenas, and Memphis Grizzlies rookie, Greivis Vasquez.
Under Armour has had a tremendous amount of success early in the companys history,
so the question is not so much is Under Armour successful? but more so can it
continue to be?. As you will see from the financial data that follows, Under Armour is in
a very good position now and for the future. Revenues and profits are steadily
increasing and expenses seem to be holding steady. Under Armour continues to invest
money into research and development for new products and technologies to make their
existing products better as well as sponsorship and advertising campaigns that continue
to solidify their brand as one of the top in the sport performance apparel business.

Company Profile

Anderson

Brief History
Under Armour was founded in 1996 by Kevin Plank, a former University of
Maryland football player, who was frustrated with taking off a sweat-soaked t-shirt
that he wore under his football pads everyday after practice.
Plank generated $17,000 of revenue simply by word of mouth in 1996 and was
using his grandmothers basement in Washington D.C. as a factory to
manufacture the moisture-wicking sportswear.
By 1997, Plank had $100,000 worth of orders to fill and found a factory in Ohio
where he could manufacture the shirts.
Oakland Raiders quarterback Jeff George appeared on the cover of USA Today
wearing an Under Armour mock turtleneck.
Georgia Tech football orders 350 shirts and NC State soon followed suit.
In1998, Under Armour turns its first profit.
In 1999, Plank sends samples of his product to Oliver Stones costume design
team that is working on the football movie, Any Given Sunday. The character
Willie Beamen (played by Jamie Foxx) wears an Under Armour jockstrap in the
film.
Plank purchased an ad in ESPN the Magazine in 1999 that generated $750,000
in sales.
Plank finally adds himself to the company payroll three years after founding the
business.
In late 2007, Under Armour opened its first retail location in Annapolis, Maryland,
not far from its Baltimore corporate headquarters.
In September of 2008, Under Armour signed a 5-year $17.5 million contract with
the University of Maryland to become exclusive athletic apparel and equipment
supplier of all varsity sports at the school. A 5-year $11 million contract with Texas
Tech was signed in November of the same year.
In 2008-2009, Under Armour inked a kit sponsorship deal with Hannover 96 of
the German Bundesliga. This was Under Armours first foray into professional
soccer.
In early 2009, CEO, Kevin Plank cuts his own salary from $500,000 to $26,000
after Under Armour failed to meet revenue goals for 2008.
As of 2010, 17 football teams have uniforms and equipment supplied by Under
Armour including: University of Utah, Boston College, Auburn University,
University of Hawaii, University of Maryland, University of South Carolina,
University of South Florida, and Texas Tech University.
In 2010, Toluca and Estudiantes Tecos become the first two teams in the
Mexican Premier Soccer League to sport uniforms provided by Under Armour.
In late 2010, Under Armour unveiled their new line of basketball shoes and
introduced Brandon Jennings of the Milwaukee Bucks as the face of their ad
campaign.
In November of 2010, Sports Business Journal reported that Tom Brady signed
an endorsement deal with Under Armour in exchange for a stake in the company.

Anderson

Mission Statement and Goals

The Under Armour mission statement is to make all athletes better through passion,
science, and the relentless pursuit of innovation.
According to Apparel Magazine, one of Under Armours key goals is to convert
athletes who wear cotton over to performance enhancing fabrics (because) if a
consumer makes a decision to buy a performance enhancing garment, 8 times out
of 10, they are choosing Under Armour. This goal is directly related to Under
Armours market share.
Another one of the companys goals is to continue to develop new technologies that
will make their products best-in-class. Some of the technologies that Under Armour
is currently working on are antimicrobial fabrics, ultraviolet protection factor textiles,
and stretch and recovery fabrics.
Under Armour not only looks to provide performance enhancing undergarments for
world-class athletes, but they also hope to provide head-to-toe clothing for athletes
of all kinds. This started with the introduction of their football cleat line in 2006 and
has continued to 2010 with the introduction of their first line of performance
basketball shoes. Under Armour is also breaking into the world of soccer with the
addition of cleats, uniforms and performance gear.
As far as specific financial goals for 2010, Under Armour predicted net revenue
between $990 million to $1.01 billion (an increase of 16%-18% over the 2009 net
revenue. The company also projected diluted earnings per share of $1.11 to $1.13 or
a 21%-23% increase from 2009.

Anderson

Economic Issues
The first major economic issue facing Under Armour is their obvious competition with
industry giants Nike and Adidas. Not only have these companies been around much
longer than Under Armour, but they also have over ten times the number of employees
(Under Armour only employs 3,000). This puts Under Armour more on par with a
company like Columbia Sportswear as far as size goes. When you consider this and the
ability Under Armour has had to gain a share of the market with Nike and Adidas in such
a short time, you begin to realize what a truly amazing story the Under Armour brand is.
Under Armours quarterly revenue growth is around 22% while the industry average is
closer to 8% according to Yahoo! Finance.
This leads us to another economic issue for Under Armour. Is the company growing too
fast for its own good? Some analysts on Wall Street have said yes because Under
Armour has consistently been one of the most often short sales on Wall Street. Growth
is not an uncommon problem for manufacturing companies with a success story like
Under Armours. Does the company have the manpower and resources to meet the
demand of its growing customer base and still have enough money to put back into the
company in the form of research and development of new technologies and products.
As stated above, one of Under Armours main goals is to lead the industry in developing
new textile technologies that continue to enhance the performance of their customers.
Another economic issue facing Under Armour is the decrease in competitors use of
professional athlete endorsements. Nike and Adidas have both recently cut back the
number of professional athletes they officially endorse. Meanwhile Under Armour is
breaking new ground in athlete endorsements. In November of 2010, Under Armour
signed New England Patriots quarterback, Tom Brady to be the face of their 2011
football ad campaign. As part of his contract, Brady received equity in the company. In
the same way that Under Armour has been a leader in technological advances for
textiles, they have also been a leader in business and marketing.

Anderson

Revenue & Expenditure Summary

Over the past year, Under Armours revenue has increased from $222 million to over
$328 million. This is a striking increase when compared to the relative steadiness of
their expenses which has only increased from just below $90 million to just over $110
million during the same time period. This shows that Under Armour is finding ways to
increase revenue while keeping expenses down. Anyone with even a limited
understanding of business knows, more revenue and fewer expenses means good
times!
350,000,000
300,000,000
250,000,000
200,000,000

Revenue

150,000,000

Expenses

100,000,000
50,000,000
0
38716.0

38806.0

38897.0

38989.0

Assets & Liabilities Summary

Over the past three years and within the four quarters of this past year, Under Armours
total assets have steadily increased from $390.6 million in 2007 to $642.8 million by the
end of the third quarter in 2010. Total liabilities have not had as much variance and have
only slightly increased from 2007 to present, moving from $110.1 miilion to $181.4
million.
700,000,000
600,000,000
500,000,000
400,000,000

Total Assets
Total Liabilities

300,000,000

Current Assets

200,000,000

Current Liabilities

100,000,000
0
38351.0
38806.0
38989.0
37985.0
38716.0
38897.0

Anderson

Financial Analysis/Ratios
Current Ratio
Current ratio measures whether a company has enough resources to pay off its debts
over the next 12 months. It is calculated by dividing current assets by current liabilities.
A 2:1 ratio is usually considered to be favorable. Here are Under Armours current ratios
for the past three years:
2007: 3.37:1
2008: 2.98:1
2009: 3.73:1
Essentially this means that for every $1 that Under Armour owed in 2009, they had
$3.73 to pay it off with. This is a very favorable situation for Under Armour and it looks
like it is only going to improve as they are projecting event better numbers for 2010 and
2011.
Total Debt Ratio
Total debt ratio is calculated by taking total assets, subtracting total equity, and then
dividing by total assets. Essentially, this measures the percentage of debt for every
dollar in assets. Usually a lower ratio is better, but it depends on the industry. Under
Armours Total Debt Ratio for the past three years is as follows:
2007: 0.282
2008: 0.321
2009: 0.267
It appears that Under Armours Total Debt Ratio is fairly steady and at a comfortable
level. In 2009, for every dollar in assets, just under 27 cents would be needed to pay off
debts.
Receivables Turnover and Days Sales in Receivables
Receivables Turnover is calculated by dividing sales by accounts receivable. This ratio
measures how well a company extends credit and how well they collect their debts.
2007: 5.80
2008: 7.71
2009: 9.29
This shows that Under Armour had almost ten times as much sales as they did
accounts receivable in 2009, or in other words, they do a great job at collecting their
debts.

Anderson

Days Sales in Receivables simply divides 365 days by the Receivables Turnover and
by doing so calculates the number of days it takes a company to collect their credits.
2007: 63 days
2008: 48 days
2009: 40 days
Between one and two months seems to be about average for most companies,
especially large ones. What is interesting here is that Under Armour is getting faster
and faster each year at collecting their debts. This is definitely a good sign.
Profit Margin
Profit margin is calculated by dividing net income by sales. The goal of every company
is to maintain a high profit margin and it is an indicator of how well a company sets their
prices and controls costs.
2007: 8.6%
2008: 5.3%
2009: 5.4%
While Under Armours profit margin is down over the past three years, in quarter three
of 2010 it has jumped back up to 10%. This is good news for Under Armour moving
forward.
Future Trends
Under Armours future is extremely bright. 2010 looks to be their first year to break the
$1 billion mark for net revenues. The signing of additional athlete endorsement deals
and team sponsorships is a positive sign as well. Under Armour will gain a lot of
exposure in the coming weeks as college football enters bowl season. The
Southeastern Conference Championship features two Under Armour Schools, Auburn
and South Carolina. In the longer-term, the company expects to continue to grow by as
much as 25% in 2011. From the numbers analyzed in this report, it looks as though
Under Armours projections are right on target.

Anderson

Addendum/Appendix
Balance Sheet, Income Statement, and Competitor Analysis taken from:
http://finance.yahoo.com/q?s=UA
Addition information taken from:
http://files.shareholder.com/downloads/UARM/1067689626x0x412123/a24a9883-b9ad4a59-b4a4-8b73af14b83e/UA_News_2010_10_26_Corporate.pdf
http://en.wikipedia.org/wiki/Under_armour
http://hoopshype.com/sneakers/under_armour.htm
http://blogs.forbes.com/steveschaefer/2010/11/08/tom-brady-under-armourshareholder/?partner=yahootix
http://www.gobros.com/under-armour/under-armour-about-us.php