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Dear Nike: Under Armour Is a Significant Threat. Here's Why

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If you want to truly understand Under Armour (NYSE: UA  ) , there's only one thing you need to know: Founder and CEO, Kevin Plank, will not stop until he catches Nike (NYSE: NKE  ) as the biggest sports-apparel and footwear company in the world. Plank is akin to Jeff Bezos of, or Steve Jobs, formerly of Apple. These types of personalities are solely focused on one goal, and they're highly determined and relentless. Investing with them often proves to be very successful.

Under Armour's latest move to increase brand exposure is a wise one. It also demonstrates how the company is willing to go well beyond expectations. 

Olympic sponsorships
The Winter Olympics will take place in February. It's likely that you will be watching some of the events. If you happen to watch the U.S. Speedskating Team, U.S. Bobsled & Skeleton Team, or Canadian Snowboard Team, pay close attention to the attire being worn. You will notice that it's Under Armour's moisture-wicking technology. This gives Under Armour potential for increased brand exposure on a global level. 

Under Armour had already sponsored the U.S. Bobsled & Skeleton Team, but the U.S. Speedskating Team and Canadian Snowboard Team are first-time sponsorships, tripling the brand's exposure potential compared to previous Olympics. Of course, if one of these teams wins a gold medal, then exposure is greatly enhanced.

Keep in mind that while Under Armour is everywhere domestically, being worn by kids, men, and women, including non-athletes, it's well behind Nike globally. This year's Olympics could act as a springboard for global growth. 

If you look a little deeper into this story, you will see what makes Under Armour a unique and special company.  

Extremely impressive technological advancements
When it comes to the Nike versus Under Armour competition, Under Armour knows it's an underdog. Under Armour has a market cap of $9.6 billion, well shy of Nike's $68.5 billion market cap. But this is exactly what motivates Under Armour to make bold moves. This boldness has proved to have positive effects over the past several years. Take a look at Under Armour's top-line growth since 2009:

UA Revenue (TTM) Chart

Under Armour revenue (trailing-12 months) data by YCharts

But that's still not enough for Plank and Under Armour. Plank recently displayed his boldness by approaching Lockheed Martin (NYSE: LMT  ) for its engineering expertise. Plank wanted Lockheed Martin to help create the best speedskating suit in the world, as aerodynamically advanced as possible.

Lockheed Martin agreed, and after high-speed cameras taking pictures of the skaters in motion during practice as well as computational fluid dynamic models to analyze air flows around skater body positions, the U.S. Speedskating Team will now be wearing the best, fastest, and most aerodynamic speedskating suits in existence. This fits right into Under Armour's tag line of "Making Athletes Better." 

Another example of Under Armour's highly innovative ways, the company noticed that athletes would often unzip their suits at the neck due to discomfort, but this would slow them down. What did Under Armour do? It created a wraparound zipper that avoids the throat area. Sounds simple, but no one else had thought of it in the past.

Growth begets growth
Under Armour's highly innovative nature might concern Nike, but what Nike should really be concerned about is that as Under Armour's top line continues to grow, so does its marketing power. Under Armour uses 11% of revenue annually for marketing. The Olympic sponsorships for this year wouldn't have been possible without consistent top-line growth over the past year.

If these sponsorships prove to be successful, by global brand presence and sales increasing, then Under Armour's top line will continue to grow, and it will have an opportunity to spend more money (11% of that revenue annually) on marketing and sponsorships in the future.

The bottom line
Nike is one of the most well-run and fiscally sound companies in the world. It has enormous brand power globally, it continues to see steady growth, and it currently offers a dividend yield of 1.2%. Under Armour doesn't pay a dividend, but that's only because it's using the majority of its cash flow for reinvestment in its business.

Barring any economic calamities, Under Armour's top line should continue to grow. The company's Olympic sponsorships should act as positive catalysts, and Under Armour's highly innovative nature gives it strong potential to increase market share from Nike over the long haul. 

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Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 11, 2014, at 11:53 AM, shoedoggie wrote:

    According to SportsOneSource:

    Nike's footwear market share in US: 59.1%, up 300 basis points; UA's Footwear Market share in US: 2%, up 50 basis points

    Nike's Apparel Market share in US 28.4%, up 325 basis points. UA's apparel market share in US: 15.5% up 285 basis points

    Nike running away from UA in the US. UA can never catch them at this pace

    I do not see Olympic advertising helping UA. Ask yourself why Nike not making similar effort?

  • Report this Comment On January 11, 2014, at 5:24 PM, tdotsports1 wrote:

    Have you ever been in a store that sells both? UA shines very brightly as the dominant brand. Innovative and has the "it" factor IMO. Anytime I visit a retailer kids, young adults (especially woman) are all over the UA section and barely take notice of Nike (apparel).

    Shoes might be tough, but UA is growing very quickly in that department as well. If they ever gain serious traction in Asia sky's the limit.

    Don't forget they are just now getting into China and Europe. They are just now targeting woman. You sell the UA brand short my friend - Nike is definitely worried.

  • Report this Comment On January 14, 2014, at 10:29 AM, CoraSchlesinger wrote:

    UA and Lockheed Martin are developing the aerodynamic suit in conjunction w/ US Olympic speed-skater, Patrick Meek. He's been testing it under lock and key at the UA plant in Baltimore, and is raving about it. Meek is competing in the 5000m Men's Speed Skating, one of the kick-off Olympic events, on Feb 8 @ 15:00.

    Partners, Under Armor

    For UA, this means international free publicity, at the games, and likely beforehand, given that commentators are in sore need of new angles to pitch, aside from the ceaseless personal tragedies of the competitors. This is free-lunch for journalists and somewhat "sexy" copy. Whether Meek wins or not, there will be an immediate impact on world UA brand recognition, with likely sales increase, both in and ex-US. UA has its toe in the water internationally, so it wouldn't be starting from ground up.

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Dan Moskowitz

Dan Moskowitz spends the majority of his time researching stocks. He believes that fundamentals, and logic pertaining to industry trends, win out over the long haul.

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