Under Armour (NYSE: UA) was rising by more than 5% on Friday after the company announced that it will renew its sponsorship of the U.S. speed-skating team for eight more years. Under Armour will remain the National Team's exclusive competition suit provider through 2022, leaving the controversy about the quality of the suits in the past. This is great news for investors in the company.
Dressed for success
The U.S. speed-skating team didn't perform as expected in the Sochi Olympics, and that's a fact. The reasons for the disappointment are up for debate, but the good news for Under Armour is that the suits appear to have no responsibility in slowing down the athletes.
Under Armour´s Mach 39 models were criticized by some athletes, who were claiming that slits on the back could be a drag on performance. However, things didn't improve for the U.S. team after changing the suits for older and well-tested models.
Jillert Anema, coach of the widely successful Dutch skating team, provided a sharp and incisive assessment of the situation in an interview with CNBC: "We have found something that makes the suit very fast," Anema said. "It's the man in the suit."
The U.S. team has now publicly acknowledged that Under Armour is not to blame for its disappointing results during the competition. According to the press release, Mike Plant, President, U.S. speedskating said:
US Speedskating remains extremely grateful to have such a supportive partner and to have access to Under Armour's game-changing innovations, which have helped propel countless athletes around the world to championship results. The length and scope of this agreement send a strong signal about Under Armour's commitment to our athletes and will best position them to skate with confidence and a competitive edge well into the future.
Under Armour takes pride in the quality and the degree of technological innovation in its products, so leaving this controversy behind is a big win for the company. Perhaps more important, management did the right thing from the beginning, facing the situation as soon as possible, and traveling to Sochi to make all the necessary adjustments.
CEO Kevin Plank was quite frontal about the issue: "Everyone is looking at it saying what adjustments can be made... It's all very fair and this is our business." he said on an interview with Bloomberg TV on Feb.14.
As it turned out, the suits were not the problem, but if quality had been an issue, the company was ready to take responsibility. This is in stark contrast to the attitude Lululemon Atletica (NASDAQ: LULU) took when facing quality complaints.
Chip Wilson, Lululemon's founder, who back then was also the company's chairman, said in an interview with Bloomberg TV on November of 2013: "Frankly, some women's bodies just actually don't work."
Understandably, this produced further disappointment and even infuriation among Lululemon's customers, so it's no wonder why the company has been reporting uninspiring sales figures during the last several quarters.
Under Armour has big plans for expansion. The company is venturing into different sports disciplines, and strengthening its international presence, so brand building is a crucial variable in the company´s growth strategy.
Under Armour has a big presence in football, and it has recently signed new partnerships to outfit the University of Notre Dame and the United States Naval Academy. In addition, the company is expanding into soccer in Latin America with Colo Colo in Chile and Cruz Azul in Mexico.
While industry titan Nike (NYSE: NKE) produced nearly $26.3 billion in revenues during the last four quarters, Under Armour's sales are less than 10% of that amount. Building brand recognition to grow into different countries could be central if the company is going to continue closing the gap in the coming years.
Nike makes more than 50% of sales from global markets, while Under Armour made only $37 million in international revenues in the fourth quarter of 2013 -- 5% of total revenues during the period. International could be the main growth driver for Under Armour in the coming years, and the company needs to make sure to build a solid and reputable brand if it's going to succeed overseas.
For a company like Under Armour, with many years of rapid growth ahead of it, building a solid brand image can be crucial, especially when it comes to international markets, where Under Armour is still relatively unknown in comparison to giants like Nike. Management handled the Sochi situation remarkably well, and Under Armour´s brand is as strong as ever to continue expanding into new markets for years to come.
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