Shares of Under Armour (NYSE:UAA) have vaulted nearly 50% higher to a new all-time high so far in 2015, spurred by the athletic apparel specialist's impressive second-quarter report last month. To be sure, Under Armour's revenue increased 29% year over year to $784 million, marking its 21st consecutive quarter of achieving at least 20% top-line growth. And though net income simultaenously fell 17% to $15 million, or $0.07 per share, that decline was primarily due to the impact of Under Armour's recent large acquisitions in the Connected Fitness space.
If anything, this goes to show the usual headline figures often don't suffice to help Under Armour investors understand what truly drives the business. Lucky for us, Under Armour management spends roughly an hour on a conference call with analysts each quarter to add color on their results. Here are five of the most important points they discussed during this quarter's call:
1. The impact of sponsored athletes is "overwhelming"
"The recent accomplishments of Stephen, Misty, and Jordan are somewhat overwhelming and heavily impactful. [...] There is of course the immediate benefit to our brand. This brand heat is driving huge amounts of incremental traffic to our e-commerce platform across the globe, with our basketball traffic up more than 300% year-over-year, while our social channels added more followers on Instagram during the recent NBA finals than we did in all of 2014."
-- Under Armour CEO Kevin Plank
If one thing seems sure, it's that Under Armour's notoriously selective approach to sponsorship is paying off handsomely. Plank is referring here, of course, to NBA MVP Stephen Curry, American Ballet Theater principal dancer Misty Copeland, and PGA Masters champion Jordan Spieth, all of whom Under Armour sponsored early in their respective careers.
In addition to the Curry-driven increase in basketball website traffic, Spieth's tournament win aided a 60% jump in traffic to the golf section of UA's site. And even before Copeland was promoted to her current principal dancer position with the ABT in June, Plank had already singled out her compelling "I Will What I Want" ad campaign as a game-changer, driving massive numbers of new customers to Under Armour's website late last year.
2. Connected fitness is gaining steam
"We remained in the early stages of incumbent potential of what the world's largest digital health and fitness community, with now over 140 million athletes to help us build consumer engagement and drive healthier lifestyles. We're growing our community at more than 30% year-over-year. And so far in 2015, these users have voluntarily logged over one billion workouts, and more than five billion foods have been logged in to our apps. This level and detail of data will empower us to provide actionable insights back to our community that will help them lead a healthier lifestyle, and we believe the brand equity that can provide us is immeasurable."
As I suggested, earlier this year some investors were stunned when Under Armour announced that it will spend an incredible $560 million to acquire two "connected fitness" app makers, including Denmark-based Endomondo for $85 million, and San Francisco-based MyFitnessPal for $475 million. Combined with its existing apps, its late-2013 purchase of MapMyFitness for $150 million, and incremental growth in each of these platforms since then, Under Armour's 140 million-athlete digital community is the world's largest of its kind.
What's more, keeping in mind Under Armour has previously suggested that this community is expected to generate meaningful subscription and advertising revenue in the next few years, Plank also succinctly added, "Ultimately the more people exercise, the more athletic footwear and apparel they will buy."
3. Under Armour doesn't just want to fill your closet
"Our athlete success pushes us to see beyond just maximizing the revenue opportunities in any given quarter. It forces us to think clearly about what we need to do better and how we need to organize to be more than just an American sports brand to go from changing the way athletes dress to changing the way athletes live."
Plank also knows that Under Armour's journey to become the largest apparel and footwear company in the world needs to be more than just a money grab. To the contrary -- and while many investors might overlook this seemingly canned statement as insincere -- I'm encouraged that Under Armour wants to do more than just fill our closets. Rather, it wants to change the way we live, and in doing so will inevitably become a more integral part of our lives. Of course, profits will follow that worthy goal. And as a longtime Under Armour shareholders myself, this is exactly the kind of sticky business I strive to find for my own portfolio.
4. Marketing expenses are about to increase
"In a period where we have seen unprecedented success from our athletes on a global stage, we believe we have a unique opportunity to position ourselves more aggressively in key long-term growth categories such as basketball and golf, which we believe can create brand halos across the Under Armour portfolio. As a result, we expect to spend more than originally planned in marketing throughout the remainder of the year."
-- Under Armour CFO Brad Dickerson
Next, while it might be tempting to rest on their laurels given the recent successes of their sponsored athletes, Under Armour management is instead deliberately seizing the opportunity to grab even more share in the crucial basketball and golf markets. But to achieve that goal will require more aggressive marketing investments in the meantime. Dickerson also elaborated this is the main reason Under Armour raised its full-year revenue outlook (to $3.84 billion) while at the same time maintaining the higher end of its previous operating income guidance range (now at $405 million to $408 million).
5. International growth rates will soon decelerate
"International growth is expected to ease from the growth rate achieved in the first half of 2015 as we begin the cycle for our entry into Latin America, as well as new distributor partnerships launched during the second half of 2014. From a cadence standpoint we expect relatively consistent net revenue growth rates during the third quarter and fourth quarters."
For perspective, international net revenue rose 93% year over year in the second quarter, but still represented only around 11% of Under Armour's total sales. As I cautioned last year, however, achieving global growth is expensive and complicated for a U.S.-centric business like Under Armour. In addition to the added demands of managing international accounts receivable and inventory levels, expanding into new international markets also requires huge investments in things like manufacturing capacity, real estate, as well as relationships to secure new distribution channels and additional volumes of raw materials. So in the end, while you can be sure Under Armour will continue to work diligently to expand the global scope of its business, investors shouldn't be alarmed to see overseas growth temporarily slow on a year-over-year basis as it laps the initial ramp for each respective international market it enters.