Under armour financial analysis

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Under Armour: A Financial Analysis

Portland State University

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Abstract

In this article, Under Armour will be evaluated through finical analyst. Under Armour is a

sports clothing line placed in the retail market. A company overview will provide the company

history and current market. In this section using SWOT and PESTLE analyst will provide well

rounded examination as the company in the economy and functionality. Financial overview and

ratios will provide tables and calculated ratios that relate to liquidity, asset management, debt

management and profitability. To evaluate Under Armour as it’s a company furthermore, a stock

analysis will be provided. In this section, stock analysis calculations compared to the retail

industry and Nike will provide data comparatively. Finally, comparative analysis will provide an

interpolation of the stock data. An example of $100,000 investment will be used as a method to

express investment options with Under Armour. In conclusion, using data and research Under

Armour will be evaluated and analyzed.

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Table of Contents

Abstract ............................................................................................................................... 3

Under Armour: A Financial Analysis .................................................................................. 7

Company Overview ............................................................................................................ 7

History............................................................................................................................. 7

Current Market ................................................................................................................ 7

Strategic Analysis................................................................................................................ 8

SWOT ............................................................................................................................. 8

PESTLE .......................................................................................................................... 9

Strategic Summary ........................................................................................................ 10

Financial Statements and Ratios ........................................................................................11

Liquidity .........................................................................................................................11

Asset Management .........................................................................................................11

Debt Management ......................................................................................................... 12

Profitability ................................................................................................................... 13

Financial Statement Overview ...................................................................................... 13

Stock Analysis ................................................................................................................... 14

Pricing ........................................................................................................................... 14

Stock Performance ........................................................................................................ 15

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Valuation Forecast ......................................................................................................... 16

Stock Analysis Summary .............................................................................................. 16

Comparative Analysis ....................................................................................................... 18

Overall Company Performance..................................................................................... 18

Overall Industry Performance ....................................................................................... 18

Overall Market Performance......................................................................................... 19

Example Investment...................................................................................................... 19

Conclusion ........................................................................................................................ 20

References ......................................................................................................................... 22

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Table of Tables

Table 1 - Liquidity Ratios .............................................................. Error! Bookmark not defined.

Table 2 - Asset Management .......................................................... Error! Bookmark not defined.

Table 3 - Debt Management ........................................................... Error! Bookmark not defined.

Table 4 - Profitability ..................................................................... Error! Bookmark not defined.

Table of Figures

Figure 1 – Under Armour 5-Year Stock Performance (gurufocus.com,2017) .... Error! Bookmark

not defined.

Figure 2-NASDAQ 5 Year Perforamnce (marketwatch.com, 2017) ........... Error! Bookmark not

defined.

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Under Armour: A Financial Analysis

This section will provide a general introduction to the company Under Armour (UA)

history and current market position. SWOT and PESTIL analyst will be used to provide detailed

information regarding UA stability and value as a company.

Company Overview

UA is an athletic appeal company, providing products with innovative technology.

Focused on providing quality items that keep athletics comfortable for the duration of activity.

UA provides a range of products for men, women, and youth in the form of tops, bottoms, shoes,

and accessories. UA mission stated on website is “To make all athletes better through passion,

design and the relentless pursuit of innovation” (Under Armor, 2017).

History

UA was founded in 1996 by CEO Kevin Plank. The company is currently based in

Baltimore, Maryland (Hellman, 2015). Plank started UA business with developing a compression

T-shirt for athletes. The T-shirt was engineered with technology to limit moisture retention and

keep athletes cool and comfortable even in hot conditions (Under Armor, 2017). UA is a

growing business, developing new products and technology in apparel and footwear.

Current Market

UA went public in November 2006, pushing the company to grow and gain stock value.

The current market for UA is growing overseas and focused on capturing new markets

internationally. UA products are marketed towards professional and college athletes. UA was

ranked #5 sports brands by Forbes magazine (Soni, 2014). As UA continues to grow it gathers

more ground against its competitors Nike and Adidas.

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Company Summary

UA is a long-term company with steady growth since beginning in 1996. UA continues to

focus towards potential business opportunities for growth. To understand UA company using a

strategic analysis will follow. Using a SWOT and PESTLE analyst will support UA goals and

objectives.

Strategic Analysis

Strengths, Weaknesses, Opportunities, Threats (SWOT) and Political, Economic, Social,

Technological, Legal, Environmental (PESTLE) analysis will be used in the following section.

Using this format will show a rounded exploration of UA role in the market. UA is a growing

company and examining SWOT and PESTLE to show its value.

SWOT

UA is a strong and growing company, showing a 20% annual profit increase. UA is #2 in

domestic sportswear sales, wholesale contracts with large retailers such as Dicks Sporting Goods

contributed to 3.1 billion dollars in 2014. The innovative technology used in UA clothing is the

foundation of the company and one of its strongest attributes (Hellman, 2015).

Brand image and trendy advertising is an additional example of UA strengths. Celebrity

and athlete endorsement create a “cool’’ marketing image for the brand. Endorsement contracts

with Tom Brady, Stephan Curry and Jordan Spieth to name popular athletes that endorse UA

(Hellman, 2015).

Some of the weaknesses UA faced are the cost of doing business and heavy investment

spending. Obtaining celebrity and athletic endorsement is positive for the brand image, however

the contracts are expensive. Product innovation and supply chain upgrades for example cost the

company high dollars. UA is also focused on overseas expansion. Although these investments are

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for the future growth of the company, it can cause low dividend payout and this may not be

appealing to investors (Hellman, 2015). UA recently purchases MyFitnessPal, Endomondo and

MapMyFitness costing the business a combined $710 million dollars. Although this is a large

investment, the benefits purchase these fitness apps can add to market research and product

development (Hellman, 2015).

UA newest product is footwear and this has created room for growth and opportunity. In

hopes of international growth footwear might be a positive path to take. UA interest in marking

products for golf, tennis, basketball, and soccer may give them an advantage over some of the

competitors. Wholesale distribution to Foot Locker and Finish Line could make huge strives for

UA (Hellman, 2015).

UA has a strong hold on domestic distribution and are focusing on expanding overseas.

Opening factory outlets domestically and internationally to gain market share is a priority. UA

has also acted in hiring international leadership teams and market consultants in regions to have

a better understanding of the markets (Hellman, 2015).

The industry of fashion and athletic clothing is competitive, with that comes threats. UA

top four competitors are Nike, ESPN, Adidas, and Sky Sports (Soni, 2014). Nike being the main

competitor, UA focuses on brand image. Nike being viewed as “corporate”, UA makes efforts to

be the opposite of this (Hellman, 2015). UA has also made poor choices with athlete

endorsement. Trying to capture up and coming altheas they run a risk of failure with popularity.

A shift to focus on proven, household names athletes runs a lower risk (Hellman, 2015).

PESTLE

PESTLE is a acronine for political, economic, social, technology, legal and environment.

This is a way to evaluate these areas of UA. UA primary distribution is domestic however the

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products are manufactured 3rd party overseas. Politically, this could contribute to tax policy and

overseas government regulations (Kis, 2015). Economic factors such as labor costs and inflation

rates could directly affect the cost of goods. As inflations continues to raise this would have a

direct connection to the stock market and stock value of UA (Kis, 2015). Brand image and

enlarging market share, UA provides clothing line for women and youth. Social factors such as

these put a positive spin on the brand. Consumers become more concerned with being healthy

and lifestyle choices, this could contribute to UA growth. Finally, technology is a part of UA

brand, utilizing social media, research and development contribute to UA success and product

research (Kis, 2015).

Strategic Summary

By analyzing UA through SWOT and PESTEL the company has clear objectives to focus

on growth, brand image and future expansion. UA strengths highlight the value UA hold in the

retail market, while a weakness is the cost of doing business and choices to invest within the

company. This could show a goal towards long term growth goals. The PESTEL analysis

highlighted UA presents politically, economically, socially and technology. UA is a manufacture

3rd party plants, this may lead to environment, legal and moral issues. UA hopes capture a larger

market with brand image and growing the company with investing in technology.

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Financial Statements and Ratios

Evaluating the financial health of UA will be done by examining the company’s liquidity,

asset management, debt management and profitability. These major categories will illustrate the

overall performance of the UA in 2014, 2015 and 2016. Using data from the retail industry to

compare to UA will provide a reasonable range to evaluate UA in these financial categories.

Liquidity

Quick ratio measures how well a company can meet its short-term financial liabilities.

The quick ratio for the retail industry is consistent within a range of 0.20. The quick ratio for the

retail industry trend shows as 2014 at 0.21, 2015 at 0.25 and 2016 at 0.20. This rend shows a rise

in 2015 (CSI Market, 2017). UA is above the industry trend in quick ratio, showing 2014 at 2.40,

2015 at 1.49 and 2016 at 1.53 (NASDQ 2017). This UA has decreased liquidity from 2014

however is above the industry average.

2014 2015 Change 2016 Change

Current Ratio 3.67 3.13 -15% 2.87 -8% Quick Ratio 2.40 1.49 -38% 1.53 2%

Cash Conversion Cycle 80.79 109.05 35% 89.33 -18% Table 1 - Liquidity Ratios

Asset Management

Asset turnover, measures the efficiency of a company’s use of its assets in generating

sales revenue. In 2016 for asset turnover, it was reported that the retail industry had an 8.52%

revenue increase compared to previous quarter, causing the ratio to increase 2.08. Asset turnover

for retail industry for 2015 at 2.21 and 2014 at 2.22 (CSI Market, 2017). Compared to UA total

asset turnover a steady decree, 2014 to 2015 with a -6% change and -4% change in 2016

(NASDQ 2017. This correlates with the industry fluctuations, showing an decree in 2015.

Inventory turnover (sales) in the retail industry shows 2014 at 9.72, 2015 at 9.32 and 2016 at

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8.79. UA inventory turnover ratio shows a positive 6% change from 2014 to 2015, while a drop

with -3% change in 2016 (NASDQ 2017). This decrease is small and correlates with the decrease

for the industry found in 2016.

2014 2015 Change 2016 Change

Inventory Turnover Ratio 2.93 3.12 6% 3.04 -3% Days Inventory Outstanding 124.61 138.89 11% 129.56 -7%

Days Sales Outstanding Total Asset Turnover

39.33 1.47

39.94 1.38

2% -6%

47.10 1.32

18% -4%

Table 2 – Asset Management

Debt Management

The retail industry total debt to equity has decreased 2014 at 1.05 to 2016 at 0.03 (CSI

Market, 2017). UA debt to equity shows a 30% increase from 2014 to 2015, and an 11% increase

from 2016 (NASDQ 2017). According to Jean Folger written in an article for Investopedia, “A

higher debt-to-equity ratio typically shows that a company has been aggressive in financing its

growth with debt, and there may be a greater potential for financial distress if earnings do not

exceed the cost of borrowed funds.” Therefore, recent debt to equity for the retail market and UA

has dropped showing that the industry is conservative and not focusing on growth. Looking at

UA days payable outstanding and interest charges changes from 2014 to 2015 there is a negative

percentage. The industry debt coverage ranking shows an increase, 2014 at 0.95, 2015 at 8.62

and 2016 at 27.50 (CSI Market, 2017). As UA limits its growth, lowering its debt to equity the

interest coverage would drop as they are related.

2014 2015 Change 2016 Change

Debt Ratio 36% 42% 18% 44% 6% Debt to Equity 55% 72% 30% 79% 11%

Days Payables Outstanding Interest Coverage

83.14 65.14

69.78 27.44

-16% -58%

87.33 15.69

25% -43%

Table 3 – Debt Management

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Profitability

2016 reported a gross margin of 41.41% for the retail industry, which is higher than the

industry average. Revenue increase by 65.94% influencing the gross margin for the industry (CSI

Market, 2017). UA gross margin 2016 at 46%, according to CSI Market this would be above the

market average. UA gross margin has experienced a decrease, 2014 at 49% and 2015 at 48%

(NASDQ 2017). Therefore, UA overall has a high gross margin and has high profitability. UA

profit margin on sales has decrease, from 2014 to 2015 a -13% decrease and in 2016 a -30%

decrease. This shows that sales profit margin has declined.

2014 2015 Change 2016 Change

Profit Margin on Sales 7% 6% -13% 4% -30% Gross Margin 49% 48% -2% 46% -3%

Basic Earning Power Return on Assets Return on Equity

17% 10% 15%

14% 8% 14%

-16% -18% -10%

11% 5% 10%

-19% -33% -30%

Table 4 – Profitability

Financial Statement Overview

UA is a profitable business and shows a good ranking compared to the retail industry

standards. UA liquidity dropped in 2015, however it recovered in 2016. Inventory turnover has a

low percentage and consistent. UA debt ratio has lowered over the past 3 years, this would reflect

UA putting efforts in limiting growth and debt. Finally, UA has strong gross margin showing

they are a profitable and healthy business.

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Stock Analysis

In this section to evaluate UA financially a closer look will be taken at a 5-year span from

2016-2012. Detailed ratios and percentages will be discussed through pricing, stock performance

and valuation forecast.