Under Armour's 3 Keys to Success

Under Armour has all the tools it needs to be the best thing in retail -- and it's got a track record to back up that potential.

May 3, 2014 at 9:30AM

Good companies have good plans, and -- judging by its plan quality -- Under Armour (NYSE:UA) is a very good company. Of course, it's not just the quality of its plan that makes it strong. Under Armour has also executed on its past plans, built up a strong brand, and moved quickly to take advantage of new opportunities when they rear up.

The competitive space is full of potential threats like lululemon athletica (NASDAQ:LULU) and old-timey champions like Nike (NYSE:NKE). Even so, Under Armour is managing to carve out its own niche and creating a sustainable space for itself. Here are the three biggest drivers that Under Armour has lined up right now.

Putting its best foot(wear) forward
Nike dominates footwear and there's no use denying it. The company generated $11.8 billion in revenue from Nike-brand footwear sales in the first nine months of its fiscal year. For comparison, Under Armour made $2.3 billion in total for all of fiscal 2013. That doesn't mean that Under Armour isn't going to sell shoes, though.

CEO Kevin Plank went so far as to say that Under Armour is "on a trajectory to become a significant player in the global running marketplace." The company's SpeedForm Apollo brand of shoes helped push footwear revenue up 41% in the first quarter. In turn, the company now forecasts that footwear will account for $400 million in sales in 2014 -- up from $300 million in 2013.

Under Armour is trying to work its way into the running shoe space, a multibillion-dollar business in the U.S. For its part, Nike owns the American running market, with estimates of its market share holding well above 50%. In short, Under Armour has plenty of space to grow within the footwear business. This is a great growth opportunity.

International expansion
Under Armour is an American business, with only 9% of its sales occurring outside of the U.S. Management has made international growth a focus recently, and that small amount of revenue was a 79% increase from the same period in the prior year. Europe has been a real winner, with brand recognition up in part because of Under Armour's sponsorship of the Tottenham Hotspurs soccer team in the U.K. Under Armour is in its second year of that sponsorship.

Looking again to Nike, you can see how successful an international business can be. Nike earns over half of its revenue outside of North America. If Under Armour can replicate that success, it could potentially double its current revenue stream. That's obviously years off and doesn't happen for free, but it still highlights how important the international market is for Under Armour.

Women's sales up
Finally, Under Armour is making a concerted effort to get more out of its women's category. The company's studio line of clothing has been a recent standout, and Under Armour hopes that growing sales will result in more demand from wholesale partners. Women's studiowear has been a winner in part due to the weakness that Lululemon has seen over the last year.

Lululemon was one of the founding fathers of athletic clothing worn as street attire -- spend $90 on a pair of pants and then not getting to show them off seems crazy. But after building up the demand, Lululemon dropped the ball on both quality and community engagement, releasing overly sheer pants and fabric that pilled too much, and then alienating customers who complained.

Under Armour was able to swoop in and make a killing. Women's revenue surpassed $500 million in fiscal 2013, up from less than $400 million in 2012. The opportunity for the division is huge, and the longer it takes Lululemon to get its act together, the longer Under Armour -- and Nike -- is going to be able to just run away with customers.

The bottom line
With footwear growth, international expansion, and an increasing focus on female athletes, Under Armour has set itself up for a fantastic ride. While Nike is still the big dog, Under Armour is carving out a solid niche of high-performance gear for itself. The ongoing woes of Lululemon make that an easier exercise, and Under Armour shows no signs of letting up. This company has legs to run a long way.

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Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica. It recommends and owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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