Under Armour sales growth

THE BACKGROUND

US-homegrown sportswear brand Under Armour was founded in 1996 by the former captain of University of Maryland’s football team, Kevin Plank, in his grandmother’s basement. Having first-hand experience with clothing unsuitable for sweaty sports led him on a path to find a better fabric.

The first T-shirt from the brand was made from moisture-wicking fabric, which contained fibers that drew sweat off the skin for faster evaporation. It was the perfect material to keep athletes cool and dry.

In the first year, the company generated $17,000 in revenues by selling it to college football teams.

Under Armour sales growth

Two years later, Under Armour signed its first league-level deal to become the official supplier for NFL Europe in 1998. Fast forward to 2005, after the company struck deals with media powerhouses like Warner Bros, ESPN, NBC, and organizations like NHL, MBL, and USA Basketball — it eventually went IPO and raised $157 million.

In 2010, the company’s annual sales topped $1 billion for the first time.

Confident with double-digit growth in the last few years, Under Armour eyes an aggressive $10 billion valuation in 2020, up from the $4 billion valuation in 2016 but with recent headlines reporting the company’s decline in quarterly sales for the first time, is the goal feasible?

THE CHALLENGE

Under Armour underwent scrutiny after posting its Q3 2017 earnings report, revealing the company’s first quarterly sales decline (-5%) since going public in 2005. The news drove the company’s stocks down by more than 20%.

Under Armour sales growth

Under Armour’s growth has been going down after hitting its first $1 billion revenue in 2010. Source: Quartz

Citing the weakening sportswear market in North America, Under Armour is joined by Nike in disappointing growth of this quarter. But is it really lacking consumer demand when competitor Adidas successfully grew its business in North America by 32% in the first half of 2017?

Under Armour CEO Kevin Plank admitted that the company celebrated fast growth too early.

“I think we probably were a little braggish,” said Plank.

“This is now about more than external factors; it demonstrates issues with the brand and its proposition,” wrote Neil Sanders, Managing Director of research firm GlobalData Retail.

Another analyst from the firm also mentioned that Under Armour “does not have the clarity or a sense purpose in the way that Lululemon or even Nike does.”

In the US, the company is mostly a wholesale brand and heavily dependent on its wholesale partners, which made up 65% of its 2016 revenue. Meanwhile, its direct-to-consumer (DTC) segment — a mix of the company’s offline and online footprint — only contribute 31% of the revenue.

So when the partners are getting disrupted by online and their retail stores are closing down, the company’s performance is also highly impacted — or to quote Quartz:

“It’s selling products that customers aren’t buying, at stores where they’re not shopping — and when they’re shopping, they don’t want to pay full price.”

THE STRATEGY

“Under Armour is not so broken that it cannot be fixed. But the days of glory, when it would post double-digits uplifts in sales, are over. Now is the time to work out, slim down, and become more competitive,” said Sanders.

To face the ‘difficult environment’ that the company will likely face into the next year, Under Armour needs to reduce its cost structure and restructure the business in a way that suits the pace of the company’s not so rapid growth anymore.

Plank declared 2017 to be a reset year for the company and announced it was going to cut 2% of its global workforce (roughly 280 job cuts), mostly at its HQ.

“After 6.5 years of more than 20% top-line growth that ended in the fourth quarter of last year, we are clearly operating in a different environment, particularly in our largest market (of) North America,” said Plank.

Not all is bleak for Under Armour. Although North America slumping its sales in the international market is exceeding expectations with 35% quarterly revenue growth to $350 million.

The company also plans to put more focus on its direct to consumer segment, especially ecommerce.

Under Armour’s direct-to-consumer sales, including ecommerce, grew 15% year-on-year while overall sales decreased 4%. – DigitalCommerce360

“We’re protecting and prioritizing international expansion, ecommerce development, footwear design development, areas like that while we continue to dig in deep and kind of right-size the cost structure,” said CFO David Bergman.

In Asia, the company saw 89% of sales growth in Q2 to $93.6 million, driven by customers from China, Taiwan, and Korea. The company’s interest in Southeast Asia has also increased. The company, through retailer Triple, plans to open 35 stores in total across the region including Vietnam, Brunei, Indonesia and Thailand.

“Establishing the retail network in rapidly growing markets such as Southeast Asia is regarded as the key element to leverage this brand marketing strategy,” said Toshi Sakurai, GM of consumer service Mitsui APAC (invested in Triple, the sole operator of Under Armour Asia).

Under Armour sales growth

Under Armour online stores in Southeast Asia are operated out of Singapore.

THE FUTURE

“As we look to close out 2017, we do not expect these conditions to improve. And although it’s too early for us to provide an outlook for fiscal 2018, our initial assumptions anticipate continued strength across our international and direct-to-consumers businesses,” said CEO Kevin Plank.

Double-digit growth again on its home turf might not be in the cards for the company anytime soon, but with a $231 billion global appetite for sportswear growing steadily, Under Armour only needs to play to its strength in the international arena.

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