Back in 2014, Under Armour (NYSE:UAA) CEO Kevin Plank predicted that his company would grow from $3 billion in annual sales to $10 billion by 2020. The company had revenues in 2015 of nearly $4 billion and needs to grow the top line by about 20% a year for the next five to reach his goal. Can Under Armour get there?
Under Armour's revenue increased 28% YOY in 2015 and management expects 25% growth in 2016. This slowing growth rate shouldn't concern shareholders. Revenue growth is still comfortably above the 20% annual hurdle needed to reach $10 billion in 2020 and there is reason to believe that growth can accelerate again.
Under Armour is entering its 20th year and has been a phenomenal success story. It has done so operating almost exclusively in North America. Ten years ago the business did only $6 million in overseas sales. That figure had risen to $454 million in 2015. While international growth has been tremendous (up 69% YOY compared to 23.6% for North America) revenue generated outside of North America still accounts for less than 12% of the company's total. Management expects this number to rise to 18% by 2018.
Nike, which is a blueprint for what Under Armour can hope to grow into, gets about half of its revenue from North America. Under Armour management expects to double the size of its North American business by 2018. For international to grow from 12% of total sales to 18% over this same time period shows how much potential there is overseas. Eventually, revenue generated from the North American business should be matched or surpassed by international.
Under Armour has done a wonderful job of selecting athlete endorsers. Its roster includes a baseball MVP, football MVP, boxing champion, world class dancer, the greatest female downhill skier of all time, and two athletes -- golfer Jordan Spieth and NBA star Stephen Curry -- who the company is building entire business lines around. Footwear sales grew 94.5% in Q4 2015 on a YOY basis. Much of this is due to the success of Curry's signature basketball sneaker and the opportunities for growth are huge. Footwear makes up only 17% of Under Armour's total business. This is impressive considering that the company had no offerings in the space until it launched football cleats in June 2006. Nike generates the majority of its revenue from footwear. In North America it constituted 61% of total sales in Q2 2016. In Western Europe and China it was even higher at 65% and 64%, respectively.
Similar to the international growth trajectory discussed earlier, it's highly likely that footwear, which is Under Armour's fastest-growing product category (outside of connected fitness), will continue to become a more important part of the overall business. Nike built its sneaker business largely around Michael Jordan. Replicating that level of success with Curry is unlikely, but Under Armour is well on its way to building a powerful brand that can chip away at Nike's dominant position.
Under Armour is planning to enter the golf footwear market in 2016 with the help of Jordan Spieth, who comfortably resides atop the world rankings. Nike built its golf business, including clubs and balls, with Tiger Woods. Under Armour is doing the same with the top player of his generation and this move will add incremental revenue without cannibalizing the sales of its other products.
Connected fitness is a small part of the business but is the fastest-growing product category and could soon become a significant part of total revenues. Revenue from this segment grew 177.8% in 2015 and 221.8% in Q4 2015 YOY. Even with rapid growth it comprised only 1.35% of total revenue. All big businesses begin as small businesses and we've already seen the success Under Armour has had growing its footwear business from zero to $677 million in a decade and international from $6 million to $454 million in that same time.
Under Armour's four mobile apps have been collectively earning more than 130,000 new users a day in 2016. Partnerships with HTC and IBM, the launching of a smart shoe that automatically tracks your steps, and a couple of connected-fitness-related acquisitions in 2015 have Under Armour well-positioned to grow this business. Perhaps this segment won't make up a significant portion of the company's 2020 sales. However, when Kevin Plank makes a prediction for $50 billion in sales years or decades down the road connected fitness will be playing a major role in helping the company get there.