Under Armour (NYSE:UAA) has been getting attention in a lot of different sports lately, from basketball and golf to ballet and gymnastics. However, one of its most successful segments over the next few years will probably be running. Here's how Under Armour is investing in its running category, and why it's a segment investors should watch.
Trying out the new SpeedForm Fortis
As a runner, I was excited to try out Under Armour's newest running shoe, the SpeedForm Fortis, released earlier this year. I wasn't disappointed.
This newest edition in the UA SpeedForm line of running shoe has a neoprene-like mesh top that's light and flexible, a smooth one-piece interior (actually created in a bra factory so that there are no insoles or seams connecting the sides and the bottom), and a "charged" foam sole that's supportive in the heel but flexible near the ball of your foot where it matters most.
At around $110 a pair, these shoes are not for the low end of the market. That's OK. Under Armour just needs to prove that the product is worth this premium price. So far, this generation of SpeedForm is doing that, and the next generation recently announced seems to be even more advanced. "SpeedForm remains a key growth story for our brand," said UA COO and CFO Brad Dickerson during the July 23 conference call.
The next generation in UA Running
The next line of SpeedForm running shoes was released at Under Armour's investor day on Sept. 16. Two new shoes, the SpeedForm Slingshot and SpeedForm Amp, are expected to be released in 2016. During the investor day presentation, EVP of Innovation Kevin Haley said we should think of these new shoes as "SpeedForm 4.0."
The biggest new feature is the Slingshot's custom engineered yarn, called "dyneema," which makes up the fabric top of the shoe. Haley said that the new material is 15 times stronger than steel by weight, so strong that it has to be cut by lasers instead of scissors. Yet it's also light and breathable, not to mention highly conductive, which provides added cooling during a workout.
With the SpeedForm Amp, Under Armour has taken the custom fit manufacturing of the one-piece interior and manufactured the whole shoe around that. Most shoes have a "lasting board," a flat, firm part of the sole that doesn't have much to do with functionality but is part of the manufacturing process. By removing this lasting board, engineers were able to get an even more custom feel. Amp is meant to be exactly contoured to the shape of your foot.
Why this matters for UA investors
Haley went on to say that these are premium products sold at premium prices, which not only builds the brand but also builds the business as the shoes gain in popularity. These shoes are going to be an important part of Under Armour's goal of reaching $1.7 billion in footwear sales by 2018, a lofty goal of 40% annual growth over each of the next three years.
However, that goal doesn't look to be unreasonable. Under Armour reported 40% YOY sales growth in footwear in the most recent quarter -- thanks primarily to product expansion in running shoes as well as the Stephen Curry signature product -- and UA running is just starting to pick up speed. If these new shoes coming next year are as impressive as they seem, expect sales to continue sprinting.
The growth of UA running is just one more reason that Under Armour has been performing so well lately, recently reporting that it plans to reach $7.5 billion in annual sales, about double its 2014 sales, by 2018. With so much success in all of its categories recently, such as basketball, golf, and especially running, there's plenty of reason to think $7.5 billion will be only a checkpoint on a much longer sales marathon.
Bradley Seth McNew owns shares of Under Armour. The Motley Fool owns and recommends 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.