Under Armour’s Strong Performance Should Continue

Athletic-gear maker Under Armour (NYSE: UA  ) has been on a tear this year, with shares up almost 30% already in 2014. The company's solid run has been helped by its fantastic fourth-quarter results, which propelled the stock to record highs.

Under Armour's rise in recent times has been fantastic, especially considering that the company plies its trade in a highly competitive market that has bigger and more established rivals such as Nike (NYSE: NKE  ) and Adidas (NASDAQOTH: ADDYY  ) .

Looking ahead, Under Armour has numerous strategies under its belt that should help it to sustain its athletic performance. But before jumping into the company's prospects, let's take a brief look at its recent results.

In the fourth quarter, Under Armour's net income rose 28%, driven by strong sales of running shoes, fleece, and winter-wear items. Revenue rose 35% to $683 million, comprehensively beating the analyst consensus of $620 million. The company's sales were helped by demand for its football workout shirts, shoes, and sports equipment. Looking ahead, Under Armour expects to gain market share from its more established rivals on the back of strategic tie-ups and innovative products.

Jogging ahead
Under Armour recently announced a partnership to design outfits for two of the most prestigious collegiate sports programs in the U.S. Also, the company signed an agreement to design jerseys for two well-known soccer clubs in Chile and Mexico -- Colo Colo and Cruz Azul. In addition, Under Armour has signed an agreement to design outfits for American ballerina Misty Copeland. 

Moving on, Under Armour's fitness segment is also seeing rapid growth, driven by innovations in online health tracking. The company purchased MapMyFitness, one of the world's largest open technology platforms for fitness tracking, leading to expansion in digital-fitness tracking. Since the world is more connected nowadays, this move from Under Armour will allow its customers to track their fitness effectively.

The success of this acquisition is evident from the fact that in the first week of January, the company added 400,000 new users. MapMyFitness has an existing community of more than 21 million users, so Under Armour has a huge market to explore through this acquisition. 

As far as apparel innovation is concerned, the company's latest ColdGear infrared technology proved to be a key growth driver. This tech provides athletes the necessary warmth with a light weight outfit in cold weather conditions, increasing its appeal among customers. The company expects better sales of ColdGear in 2014. Moreover, Under Armour is planning to bring more ColdGear-enabled products to the market. 

Earlier, it had followed a similar strategy with its Charged and Storm Cotton apparels by introducing more variations. The strategy had helped Under Armour generate $300 million in combined revenue from Charged and Storm Cotton in 2013, just three years after the two product lines were launched. So, Under Armour is following a tried and tested strategy with ColdGear to enhance its performance.  

Moreover, Under Armour is increasingly focusing on female customers, who are increasingly wearing athletic apparel outside of the gym and making it a style statement. The company expects this trend to continue in the future as well.

In the footwear segment, Under Armour's latest product, the SpeedForm shoe, is expected to gain good traction this year. The company is focusing on the shoe's lightweight characteristics and precise fitting and construction to increase market share amid stiff competition. 

A look at the competition
In the U.S., Nike is a strong player. The company is launching a new range of shoes for different segments this year. Nike is also working on the development of self-lacing shoes, which are expected to hit the market by 2015.

Such moves on Nike's part have helped the company to capture market share from the likes of Adidas, even in Europe. According to Euromonitor, in 2012, Adidas commanded a 13.2% share of the Western European sporting-goods market, while Nike stood at 12.4%. However, Nike reported an 8% sales increase in Western Europe in the first quarter of fiscal 2014, while Adidas reported a decline of 6% in its latest quarter.

So, Nike's huge size, deep pockets, and brand are big threats for Under Armour, and the company needs to continue its innovative streak in order to keep its market share intact and grow further. However, Under Armour has a long way to go before it breaks the dominance of Adidas and Nike.

For example, with the FIFA World Cup around the corner, both Nike and Adidas are gearing up to benefit from the blockbuster event. Adidas is the official partner of the event, while Nike sponsors crowd-favorite Brazil. In fact, both Adidas and Nike sponsor some of the top teams which are favorites to win the title, while Under Armour is not in the running.

Takeaway
Under Armour's focus on innovation has backed the company's solid growth so far. There's no doubt that the competition in this market is very tough, but Under Armour has been able to make its mark. Expected earnings growth of 23.4% over the next five years is proof of Under Armour's bright prospects. With international growth and more products in the pipeline, the company should be able to perform well in the future.

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