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How Important Is This Controversial Industry to Under Armour's Growth?

By Jason Hall - Jan 26, 2014 at 8:00AM

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Will Under Armour's massive growth, partly driven by its active role in hunting and outdoors apparel, help it close the gap between it and Nike?

A walk around the two floors at the Sands Expo and Convention Center during the SHOT Show last week was an experience in how deep and wide the firearms and shooting industry's roots are, and in more companies than one might imagine from the surface of it. As much as the Shooting, Hunting, Outdoor Trade Show and Conference is about firearms and tactical equipment, many of the companies on hand aren't remotely in the gun business. Jarden (NYSE: JAH)  subsidiaries like Coleman and Esky coolers, and the company's more than 50 other outdoor, fishing, and athletic apparel brands, aren't directly involved, but certainly aren't out of place.

But of all the companies featured at the SHOT Show, the one that stood out as having the least to do with the firearms business, but maybe the most to gain, was Under Armour  (UAA 5.48%). Will this innovative sports apparel maker's deep involvement in hunting apparel and footwear help it close the gap between it and industry behemoth Nike  (NKE 2.98%)? And is this just a reach for market share, playing on its growing name recognition? You'd be surprised at how far from the truth that is. 

Not just taking advantage of a niche: It's in the company's DNA
Under Armour released this video in November, featuring Willie Robertson of Duck Dynasty fame, along with a number of popular athletes, like Lindsey Vonn and golfer Jordan Spieth. The message? UA makes athletes better:

While Robertson might not strike many as an "athlete," rest assured, hunting is a physically challenging activity. If you've spent several hours in freezing conditions wading through water, or sitting in a deer stand in late December in Michigan, or on a Montana plain an hour before sunrise, you know the physical toll that it takes on you, and the value of well-designed apparel and footwear. 

UA Hunt apparel features scent control to keep hunters better hidden.

A good pair of boots that keep your feet both dry and warm (but not too warm) might be the difference between frostbite and an easy hunt. Under Armour's UA Siberia hunting boots, which retail for $209.99, are just one example of how lucrative this market can be.

The company's UA Ridge Reaper hunting show on the Outdoor Channel features hunts in extreme places and environments, is heavy on Under Armour apparel, and features several Under Armour executives. In the Giant in the White Out video, below, VP of Product (and employee No. 2) Kip Fulks talks about how hunting and the outdoors are at the roots of the company, with two of the three founding partners being "huge outdoorsmen."

For Under Armour, it's an obvious market where it can compete with innovative and technologically advanced products. As Fulks says, "Now, hunters are so sophisticated ... They all expect so much more. Under Armour is always trying to find ways to make athletes better." 

Sticking to your core strengths
Nike is focusing on international growth in its traditional sporting markets to grow. Having expanded EPS at a rate of 15% per year since 2003, the company faces a big challenge to maintain this enormous growth rate. CEO Mark Parker had this to say last year:

Over the next decade, we will see the world's middle class population grow by 1 billion consumers. ... And then there's the new partnerships that help stretch the boundaries of what's possible. For example, our relationships with more than 70 physical activity experts around the world helped create what we call Designed to Move, and that's a commitment and an action plan to give kids greater access to sport and keep them physically active. These early positive experiences make athletes and athletes for life.

At the center is the Nike, Inc. portfolio  ... We have 5 very powerful high-energy brands, each with its own meaningful connections to athletes and consumers all over the world. 

If there's any company in the world that can execute on its plan, and maximize the power of its brand, Nike, with fantastic leadership and a founder still involved, is it. 

Sometimes your core is a lot of things
Jarden's collection of more than four dozen brands -- just in sporting goods alone -- is enough to make an analyst's head spin. Simply put, the company has fingers in a lot of pies besides outdoor products and sporting goods, including familiar brands like Rival, Sunbeam, and Crock-Pot. For investors, how can we have any faith that this disparate mix of companies and brands will have any unifying goal or result? CFO Ian Ashken had this to say in an interview with Fortune.com:

We try to leave the businesses alone at the sales and marketing level. But we build a world-class infrastructure for costs, because ... getting the widget on the shelf at the right time, at the right cost, is critical to being a successful company... 

The company has executed on this plan in recent years, turning a $59 million loss in 2008 to more than $243 million in net income in 2012. Shares are up more than 300% during that time. 

Hunting and outdoors are part of the path to massive growth
Management told us at its investors day in 2013 that Under Armour will nearly double sales by 2016, and earnings by almost as much. Whatever your stance on hunting and the outdoors, Under Armour is certainly sticking to its strengths by focusing on this segment of the market, and there's a good bet that hunting and outdoors enthusiasts will be more than a small part of the company's continued success. 

Fool contributor Jason Hall has no position in any stocks mentioned. The Motley Fool recommends Nike and Under Armour. The Motley Fool 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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