Over Christmas I went back home to Broken Arrow, Okla. -- not exactly a thriving metropolis, I know, but it's a typical Midwestern town.
During that visit, my dad and I went down to the Bass Pro Shops, and after finishing target practice on fake squirrels ($0.25 for 15 shots), we strolled over to the hunting section to pick through some cold-weather hunting gear.
And there, in Broken Arrow, we saw Under Armour (NYSE: UA) logos on a shockingly bright orange long-sleeved shirt -- coordinated perfectly with the first camouflage UA shirt I'd ever seen.
This company knows what it's doing
OK, so Oklahoma is hardly Japan, and one instance of seeing camouflage Under Armour hunting gear does not an investing thesis make. And it's true that outside of the Northeast, Maryland-based Under Armour is still battling Goliaths like Nike (NYSE: NKE), Columbia Sportswear (Nasdaq: COLM), and Adidas. What it did show, however, is that Under Armour is gaining ground in the athletic apparel market.
The fine print
Started in 1996 by a former football player, the company delivers innovative, high-performance athletic gear created by scientists and tested by professional athletes. It sells its wares through major retail stores, including Dick's Sporting Goods (NYSE: DKS), Hibbett Sports (Nasdaq: HIBB), and Sports Authority.
In addition to the usual channels, it smartly marketed its brand by sponsoring university and high school athletic programs and expanding into golf, women's athletics, and yes, even hunting. It's recently expanded its product line to include loose-fitting items alongside classic fitted sports gear.
Management has acknowledged struggles with inventory management, and they committed to getting inventories in line with net revenues in 2008. And they delivered. Year-end inventory increased only 10% year over year, compared with an increase of 105% year over year at the end of 2007.
The bottom line
Under Armour is doing it right -- and the company has grown revenues at a compound annual growth rate of 44% over the past five years, including 20% top line sales growth in 2008.
Despite this stellar performance, the stock lost 45% in 2008 -- more than the market average. So it goes with high growers. Today, UA trades at a price-to-earnings multiple of nearly 30 -- significantly lower than recent years. And Under Armour has a lot of room left before it runs out of new markets and new targets.
Apparel retailers have taken a hit over recent months, but Under Armour continues to perform. Its innovative products are popular because they deliver on what they promise. They work and they look good -- and they're everywhere. They're on kids, on female lacrosse players, and even in Broken Arrow, Okla.
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