Earlier this week, Under Armour (NYSE: UA ) presented at a Bank of America-sponsored retail conference, and laid out the plan that the company has for the next few years. Predictably, management is going to focus on growth both domestically and internationally. What is interesting for investors is the tack that Under Armour is going to take to achieve that growth: New products and new types of stores will make up the backbone of growth. On top of that, the company is working on a change in its product and consumer mix, in a bid to attract new customers.
Here's a look at the new products that the company has in the pipeline, and how that's going to help bring those customers in, along with a look at Under Armour's international potential.
The future of sportswear
In my mind, Under Armour and Lululemon (NASDAQ: LULU ) are the most consistently innovative sportswear companies in the market right now. While other brands may release new products and have big splash ideas, no one is working as hard to change the way we dress for sports than these two. In this week's presentation, Under Armour CFO Brad Dickerson highlighted the brand's newest additions. The two that caught my eye were the Spine running shoe, and the new Armour39 line.
The Spine is notable more for investors than for athletes, as far as I can tell. While reviews of the line have been positive, the more important point is that it marks a bigger move into running for Under Armour. So far, the company has competed mainly in cleated shoes and, within that category, mainly in baseball and football. Dickerson estimated that the U.S. market for those shoes was about $500 million. That's a great place to start, but it's nowhere near the $6.9 billion estimated market for running shoes. The Spine line -- ha! -- will help Under Armour break into the bigger, higher margin running market.
The company also presented its upcoming Armour39 branding. While it isn't on shelves yet, it's already generating a good deal of talk among athletes and gadget geeks. The product will measure heart rate, calories burned, intensity, and a proprietary metric called WILLpower. While the target audience is high-performance athletes, I imagine the company will generate a great deal of positive press and name recognition. It's also one more product that could be part of the company's running line.
Women are athletes, too
This may come as a surprise but, apparently, women are working out these days. I know -- what a shock. Under Armour has a long-term goal of generating 50% of its revenue from female athletes. That's been a challenge for two big reasons. First, the company mainly sells though third-parties that often dedicate less space to women's wear. Last year, 71% of sales were through distributors and, since only a third of sports apparel sales are in women's, that category gets less floor space.
Under Armour wants to change that by opening more of its own locations. Those shops will have 50% of the floor dedicated to women, which should help drive new sales. Clearly, the company has learned something from Lululemon about how much women will pay to workout. Lululemon increased comparable sales by 18% last quarter, and its ability to continue driving people though the door must be intriguing to Under Armour as it sets out to expand its footprint.
The second factor that has made Under Armour a hard sell to women has been its product mix. Cleated shoes are still the company's main footwear line, and neither baseball nor football are big women's sports. On the apparel side, the company is only up to 30% of revenue going to women's appare.l That would be about $415 million in revenue last year, which isn't even $100 million more than Lululemon made in one quarter last year. If that doesn't scream potential, I don't know what does.
The bottom line
I lied a second ago. The other thing that screams potential is this -- Under Armour only earned 6% of its revenue internationally last year. If it's really going to compete with Nike, then it has a long way to go on that front. Nike pulled in 56% of its revenue outside of North America last quarter.
Under Armour may have a lock on innovation, but it's a long way off on sales. That's a good thing, though -- it means that there's lots of room for growth. I like Under Armour's brand, its plan, and its potential. This is one company with a very bright future.
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