Investor's Business Daily, April 10th, 2007
After getting off to a running start with football cleats, Under Armour aims to gain more traction in the performance footwear field.
The Baltimore-based company made its mark with noncotton performance sports apparel designed to keep athletes cool and dry while playing sports or working out. It entered the performance footwear market last June with a line of football cleats. Since then, Under Armour UA has grabbed more than a 20% share of the category in the U.S. market.
"By most every measure, it had a very successful launch with the football cleats," said analyst Jeffrey Klinefelter of Piper Jaffray, which has an investment banking relationship with Under Armour. "The success of their apparel afforded them key shelf space and in-store signage. I think its retail partners were very receptive to the launch."
Playing on the success of the football shoes, in late 2006 Under Armour debuted a line of baseball and softball cleats.
Now management wants to branch out further with a line of noncleated performance footwear. Executives weren't available. But the company is gearing up for the launch. It's bolstered its design and sourcing teams in this area, opened a footwear office in China and created an infrastructure to grow its footwear business beyond cleats, said Chief Executive Kevin Plank in a conference call.
Based on early testing, the noncleated shoes could debut as soon as 2008, he added.
"They obviously got into cleated footwear for that to be a springboard into the noncleated category," said analyst John Rouleau of Wachovia Securities. "Just like everything else they've done they'll do it one step at a time. At some point, I expect them to launch a performance shoe geared to exercising, cross training or running and expand outside of that into the next category."
Under Armour's products are made of synthetic fabrics. They're designed to wick sweat away from the skin and help regulate body temperature. These features help athletes feel more comfortable and in turn help enhance performance.
T-shirts
From its start with a line of compression T-shirts, the company has upped its offerings to include everything from yoga pants and running suits, to shorts and football leggings. It has variations on its gear tied to weather and sports activity.
It's expanded its line using a "building block" approach, says Rouleau. For instance, based on the success of football cleats, it launched baseball cleats. At some point, it may get into soccer cleats, he adds.
He expects it will eventually come out with a more mainstream everyday athletic shoe.
The company's cleated shoes offer some of the technical benefits found in its clothes. They feature an interior lining and mesh venting to wick moisture away from the foot and keep the wearer cool and dry.
Rouleau expects the company to offer similar benefits with its noncleated footwear.
"They're not trying to do something the market has never seen," he said. "They're trying to offer a competitive, compelling performance product with the latest and greatest technology built into it."
A lot of the technology, he says, is on the fabric and material side.
Under Armour faces tough competition in both cleated and noncleated performance footwear. Performance athletic footwear is a category dominated by established brands such as Nike NKE and Adidas.
But so far, Under Armour has fared well competing with these players.
"Their brand transitioned very nicely from performance apparel to performance footwear," said analyst Klinefelter.
Its sales in the category have been impressive. In 2006, footwear sales were $26.9 million. Rouleau expects such sales to rise to about $45 million this year.
One feather in its cap: The National Football League named Under Armour an authorized supplier of footwear.
The company will compete in noncleated footwear the same way it's competed in apparel and cleated shoes, says Rouleau: It offers a technical product that gives the user a performance edge.
Still, it's going to tread carefully as it moves into noncleated footwear, says John Horan, publisher of Sporting Goods Intelligence, a weekly newsletter.
"You wouldn't see them making a frontal assault on Nike's basketball business," he said. "What they've been good at is focusing on the team jock athlete."
New Products
In the noncleated footwear category, the company may come out with fitness and training products, which would work well for that type of athlete, he says.
Under Armour is also poised to expand in other areas. For instance, this fall it will launch ski outerwear -- jackets and pants.
Meanwhile, the company is faring well on the financial front. In the fourth quarter, earnings tripled to 24 cents a share. Sales climbed 55% to $135.3 million.
Analysts polled by Thomson Financial see this year's earnings rising 22% to 96 cents a share, then another 30% in 2008.
One area where the company has seen strong growth is its women's business. In 2006 women's apparel sales grew to 20% of overall apparel sales from 13% in 2004, said CEO Plank in a conference call.
"The women's category is kind of exploding," said analyst Rouleau.
In the past, a lot of athletic companies didn't focus on women's-only type of products, he says. Now Under Armour and others are developing products geared exclusively to women. At the same time, more women are adopting an active and athletic lifestyle, he adds, which is benefiting Under Armour.
Copyright 2007 Investor's Business Daily, Inc.
