The last few years have been no walk in the park for Under Armour ( UAA -0.13% ) ( UA 0.10% ). After peaking in late 2015, shares withered and have only just begun to recover. Stalling sales -- both in the U.S. and abroad -- were to blame as new competition and changes in Under Armour's business conspired against the company's rosy outlook for the athleisure movement.
But the sportswear stock could be in line to further its rebound after fellow shoe and apparel company Skechers ( SKX -2.62% ) reported resurging international sales in the second quarter and a better U.S. business report. Since Skechers has aspirations similar to Under Armour's, the quirky shoemaker's last quarter could bode well for its larger peer.
International is where it's at
Nike ( NKE 0.14% ) reigns supreme in the world of sports shoes and clothing, and the company continued to gain in popularity in the U.S. during its recently concluded 2019 fiscal year (the 12 months ended May 31, 2019). North American sales grew 7% in the last year to $15.9 billion. The clothing giant is in pole position overseas as well but is much less entrenched, with total sales outside the States equaling $21.3 billion. That's peanuts, as the overall global sports apparel industry is expected to total about $185 billion by 2020.
Nike sees its biggest growth potential over the long term in emerging economies, and the sheer size of the opportunity has its much smaller rivals scrambling to get a piece of the pie as well. Skechers has been pressing its expansion plans outside of the U.S., and 56% of its $1.26 billion in second-quarter 2019 sales came from overseas. Growth outside the U.S. reaccelerated to 19.8% in the second quarter, up from a sluggish first quarter that managed just 9.3% year-over-year growth. When backing out the negative impact of currency exchange rate fluctuations, Skechers international was up 15% and 25.2% in the first and second quarters, respectively. For the sake of comparison, Skechers' U.S. business was up just 1.5% during Q2. That's not great, but it is a big improvement from the 6.3% domestic decline during the start of 2019.
A good time to buy Under Armour?
Under Armour has been in a similar boat. For full-year 2018, North American sales were down 3%, while the international segment grew at a 23% rate. The trend continued in the first quarter of 2019, with North America down again by 3%, but overseas offset that with a 12% advance (or up 17% when excluding negative foreign exchange rate impacts). In spite of the slowdown, expectations were that Under Armour's non-U.S. revenue would improve to drive overall sales higher, and the stock has been rallying on those hopes. Over the last 12 months, shares are up 23%.
There's room for improvement, though. While Nike and Skechers both get more than half of their revenue overseas, Under Armour only fetched 27% of its $1.2 billion in first-quarter 2019 sales internationally. Nevertheless, if Skechers' last report is any indication, consumer spending on other continents -- at least on athletic goods -- is picking up, and Under Armour could be about to post a big improvement in that important metric when it reports on July 30.
Of course, Under Armour has other irons in the fire as well, like its growing digital-based direct-to-consumer business and key relationships with department store chain Kohl's ( KSS -2.89% ) and Dick's Sporting Goods ( DKS -2.67% ). At the end of the day, though, it's the huge potential of international business that is really going to fuel Under Armour's continued positive trajectory -- or send the stock into reverse if the numbers disappoint.
If Skechers' win means an Under Armour win, too, the athletic apparel company looks like a decent buy at these levels. Stay tuned.