Sports apparel company Under Armour (NYSE:UAA) (NYSE:UA) has had a tough go of it lately. The stock has dropped 60% in the last 12 months on slowing revenue growth in the U.S. and in its footwear and women's businesses. While many investors are running for the hills, there was a bright spot in the recent earnings report: the international business.
MVP of Q3: International
Under Armour's international regions knocked out another quarter of solid revenue growth. Overall, international grew 35% to $305 million, representing 22% of total revenue. CEO Kevin Plank noted that the international result was in stark contrast to what is happening domestically for the company. "Our international business, by every cut, continues to exceed our expectations, strategically and financially," he said during the conference call with analysts.
Let's take a look at the numbers for the quarter.
|Region||Revenue ($M)||YOY Growth %||Operating Income ($M)||YOY Growth %|
The international business is continuing to be more profitable as operating income grew 64% overall, with the Asia-Pacific region carrying the highest operating margin of all the international regions, coming in at 26%. It is understandable why Plank said that the international business is exceeding expectations on all fronts. CFO David Bergman said the growth in the Asia-Pacific region was "driven by continued strength in China, Australia and Korea, as we see the UA brand resonate well with consumers across key categories ... "
The company's international segment is now almost a quarter of total revenue, but it wasn't always that way.
The growing importance of international
In 2013, Under Armour's international revenue came in at $138 million for the entire year and made up less than 6% of overall revenue. Now even the smallest geography, Latin America, is on pace to eclipse that mark and the total international business will easily achieve over $1 billion in revenue for 2017. Due to the growth, the company has started to break out its international business in three reporting regions, and all are growing at a healthy double digit-rate.
While international year-to-date revenue growth has dropped to 46%, Bergman said the company is "expecting a very large Q4 revenue for international," and that the full-year revenue outlook outside of North America will "be up greater than 50%."
While the company is trying to regain footing in the U.S. within a shifting retail landscape, having its international business growing at solid double-digits will continue to diversify the company's revenue and help balance out weakness domestically. Plank said that it's full speed ahead, indicating that "internationally, we continue to execute against our strategy, seeing strong growth in all regions and channels."
2018 and beyond
In September 2015, the company set a lofty goal of $7.5 billion in revenue for 2018. While the company won't hit the overall number, it turns out that international is on pace to achieve the goals set at that investor day event. The company had targeted 18% of overall sales, or $1.35 billion of that $7.5 billion number, to come from international sources. With the company projecting to hit $1.1 billion in internataional revenue this year, the goal for next year should easily be met.
The company said its 2018 projections would be available on the February earnings call, and that it would provide more details on the overall business in a yet-to-be scheduled 2018 investor day. Plank said that " ... our initial assumptions anticipate continued strength across our international and DTC [direct-to-consumer] businesses ..." COO Patrik Frisk called the international opportunity "enormous."
While Under Armour hasn't defined the size of "enormous" yet, Nike recently had an investor day where it did. Nike expects three-quarters of its growth over the next few years to come from outside the U.S. Given that the sneaker giant had $16.9 billion in international revenue in fiscal year 2017, it seems there's plenty of opportunity for Under Armour to sell shirts and shoes internationally.
My favorite quote from the UA earnings call was from Plank, when he said, "And obviously, our international business is kicking really well for us."
Investors should watch to make sure the company's international business continues to "kick it."