Under armour earnings per share 2016

Case Study Finance

Running header: UNDER ARMOUR

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.

Pricing

Average high and low price of shares evaluation UA trend in stock value over a 5-year

span. UA average in 2012 is 13.86 and average in 2016 is 38.71. This reflects growth in value.

UA 5-year average high is 28.50 with a 5-year growth at 23.5%. UA 5-year average low is 28.04

with a 5-year growth at 24.2%. UA has had steading increase since 2012 while in 2015 a slight

decrease has occurred. Reference graph to show trends of average, max and min over the course

of 2012 to 2016. This shows an increase in the value of UA while a slight drop in 2016. There

was a spike in high category in 2015, this might contribute to the slight fall in 2016 (GuruFocus

LLC, 2017).

.

(GuruFocus LLC, 2017)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

2012 2013 2014 2015 2016

Average

Max

Min

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Earnings per share (EPS), a profitability measure, shows UA profit allocated to each

outstanding share of common stock. Earnings per share shows UA profitability (Cherewyk

2017). UA has an 5-year average EPS of 0.43 which includes a 9.8% growth. Earnings per share

have slightly increased over a 5-year period, 2012 at 0.31 and 2016 at 0.45. Nike in recent one

year span has some 14.3 earnings per share while the industry has -.07(GuruFocus LLC, 2017).

Price to book ratio compares a stock per share to book value. Book value provides a

measure for investors to compare perceived market asset value against the value of the company

(Cherewyk 2017). UA has a 5-year growth of 24.1%. UA has raised consistently, in 2012 at 1.95

and 2016 at 4.63.

Stock Performance

UA does not offer dividends and this is reflected in the market growth. UA focused on

growing the company would explain why they do not offer dividends. Examining UA stock

performance, the focus will be on price-earnings ratio average, return on equity and financial

leverage because UA does not offer dividends.

UA price-earnings ratio average over the a 5-year span is 63.66. In the individual

category of high price earnings ratio, in 2015 at 79.64 and a low-price earnings ratio in 2012 at

39.26. The price earnings ratio has grown over the 5-year span with a spike between 2012 at

39.97 to 2013 at 59.16. In comparison to the clothing industry, one year price earnings ratio is

15.1 while Nike, the appeal industry leader, held a ratio of 17.7. Comparing the industry and

competitor’s ratios to UA, UA is well above both. (GuruFocus LLC, 2017).

Return on equity for a 5-year span is 13.9%. UA has a high 15.9% in 2012 and a low in

2016 at 9.7%. A large drop in percentage dropped in 2015 at 13.7% to 9.7% in 2016. In

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comparison to the industry over a 1 year span with 22.4 and Nike at 7.2 (GuruFocus LLC, 2017).

Both Nike and UA are below the industry.

UA financial leverage for the 5-year span is 1.6. The high in 2016 at 1.79 and the low in

2012 at 1.42. This shows a steady increase over a 5-year span with a jump in 2014 at 1.55 to

2015 at 1.72. The industry for one year show 1.1 while Nike shows 0.2. UA is above both Nike

and the industry in finical leverage category (GuruFocus LLC, 2017).

Valuation Forecast

UA price forecast for next year based on the 5-year data has a high of $31.71 and a low of

$31.18. This shows a .53 difference between high and low. Book value forecast for next year

shows 1.11 and last year growth at .92 (GuruFocus LLC, 2017). The price forecast shows a price

variance which is expected, UA still maintains a high price value. Based on this data UA is

showing an increase in book value reflecting they will remain to grow and be profitable.

Stock Analysis Summary

That data shows that UA is a healthy and growing company. UA has price growth over 5

years of 31.3%. Earnings per share have been steady with a 5-year growth of 9.8%. In

comparison to Nike with a 5-year growth of 7.4 and the industry at -0.7. This reflects that the

industry down and this would directly impact Nike and UA performance. UA not offering

dividends shows UA is focused on growth and expanding however, by not offering dividends

some investors might not want to invest if the goal is ear dividends from the investment. This

could cause UA to pull funding from inside the company.

Stock evaluation of UA shows that price-earnings ratio is well above the industry and

Nike. While this is high, UA is low in return on equity, where the industry is 22.4. This could

correlate with UA choice to not provide dividends.

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Future growth for UA appears to be on track and positive. The company is not in the

negative on any categories discussed. UA is comfortably aligned with the industry and Nike as

one of the main competitors. Bases off this data and information UA is performing and projected

to continue to grow.

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Comparative Analysis

In this section of the paper, a comparative analysis will follow. This section will compare

the previous sections of the paper. This will show a well-rounded explanation of the data and

how it relates to UA business goals and data. Using this information will allow for an investment

example to correlate with UA data.

Overall Company Performance

UA has displayed consistent growth analyzing the financial report, and stock growth.

This correlates appropriately with UA goals and focus on company growth as shown in SWOT

and PESTLEanalyst. Furthermore, UA shows a consistent growth pattern using the average high

and low data for a 5-year span. This shows an average growth over the 5-year period of 35.78.

The stock growth has an average growth of 5-year period 9.8% (Gurufocus LLC, 20170).

The SWOT and PESTLE analysis in relationship to this data correlates with business

goals and future. UA made business objectives to focus investing in growth through expanding

clothing line to women and children. Another focus of UA was to invest in expanding market

share. UA focused on expanding internationally and wholesale distribution (Hellman, 2015).

Overall Industry Performance

UA accounts for a major share of the sports fashion clothing industry. Some example of

competitors are Nike, ESPN, Adidas, and Sky Sports (Soni, 2014). According to Forbes in 2014,

UA ranked #5 as most valuable business brands in sports with Nike as #1. ESPN #2, Adidas #3

and Sky Sports #4. Nike is one of the larges sport clothing companies in the world and leader in

the industry. Using Nike, the primary example to compare with UA financial performance.

Over a 5-year average Nike has 7.4 earnings per share and in 2016 most recent year a

14.3. UA earning per share average over 5-year period is 0.43 while in 2016 with an average of

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0.45. This is considerably lower than Nike however, Nike is the top leader in the industry. Nike

book value per share ending in 2016 was 7.2 while UA 4.63. UA has shown steady growth with

book value per share over the a 5-year period (GuruFocus LLC, 2017).

While Nike is the top performer and leader in sports clothing line, UA has shown

consistent growth over a 5-year period. UA was founded in 1996 and has shown market growth

and development gaining larger market share.

Overall Market Performance

UA is specifically a sports clothing line falling into the retail industry. The retail industry

has shown fulgurations in the markets and this directly relates to UA performance. In most recent

year 2016, the market has dropped showing a -0.7 in earnings per share. UA shows a spike in

2015 at 0.53 and then a drop in 2016 to 0.45 (GuruFocus LLC, 2017). This fluctuation might

relate to the drop in the market. The market shows a financial leverage of 1.1 while UA shows

1.79 in 2016. UA has been consistently growing in financial leverage over a 5-year period

showing the value in equity has grown.

Example Investment

Based on the analysis provided, UA net year growth is expected at 34% give or take 41%.

Therefore, based on a 4-year growth model the minimum closing stock value forecast for next

year is estimated at $41.41 and the maximum at $67.74. Th growth rate is -7% to 75%.

Therefore, the minimum required return is risk free 5% because -7% presents a loss. Given a

risk-free return fate of 5% the net realized return is 29% however, could be as low as 12%. This

investment would be appealing to a risk natural or risk friendly investor. A risk neutral investor

would be indifferent to the finical risk and a risk friendly investor would be risk adverse. Since

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the threshold for risk is rather large when looking at UA these two types of investors would be

the best fit for this example.

Conclusion

This article has shown research regarding UA company overview with a strategic analyst,

financial overview and ratios, stock analysis and comparative analyst. UA is one of the leading

sports clothing line with top competitors such as Nike, Adidas, ESPN and Sky Sports. Using data

from Nasdaq and GuruFocus to calculate data and provide evaluation. The financial report year

used 2012-2016 with average 5-year ratio calculation and 4-year evaluation for stock growth.

UA was founded in 1996, while still a young company UA is a long-term company. UA

has accelerated growth and managed to climb the list competing against Nike and Adidas. Both

leading in the sports clothing retail market. UA goals and focus is to expand and grow into the

international market. UA is primarily domestic however has made significant progress to

worldwide distribution.

The SWOT analysist shows UA in a stable environment with small fluctuations

depending on the retail market. The company mission stayed consistent with healthy growth and

product development. UA goal is to provide sports clothing backed with technology and this has

remained consistent throughout the development of the company. PESTLE highlights political,

economic, social and technology and SWOT focus on strengths and weakness of UA. PESTLE

highlights UA use of third-party manufacturing and the product growth with capturing women

and children products.

By analyzing financial ratios and stock values, UA is shown as a healthy company with

progressive growth. Financials shows consistent growth except for 2016 drop that effected the

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retail market and Nike UA direct competitor. SWOT showed motives to grow and this is shown

in the 5-years of UA financial ratios and stock analysis.

UA shows market growth of 34% for 2017, this is a healthy potential for growth and has

been consistent with the 5-year growth analysis. However, the growth rate range is -7% to 75%

showing a large range creating risk. Using the example of the 5% risk free investment, this

would be the best option because -7% provides a potential loss.

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References

Cherewyk, Peter (2017) 8 Simple Investing Ratios You Need to Know. Retrieved from

https://d2l.pdx.edu/d2l/le/content/638977/viewContent/2962066/View?ou=638977

CSI Market (2017). Retail financial strength, leverage, interest, debt coverage and quick ratios.

Retrieved from

http://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?ind=1301

Folger, Jean. (2014). Investopedia. What is considered a high debt-to-equity ratio and what does

it say about the company? Retrieved from

http://www.investopedia.com/ask/answers/063014/what-considered-high-debttoequity-

ratio-and-what-does-it-say-about-company.asp

GuruFocus LLC (2017). Under Armour Inc (UAA) Book Value per Share. Retrieved from

https://www.gurufocus.com/term/Book+Value+Per+Share/UAA/Book-Value-per-

Share/Under-Armour-Inc

Hellman, Justin (2015). Under Armour: A Short SWOT Analysis. Value Line. Retrieved from

http://www.valueline.com/Stocks/Highlights/Under_Armour__A_Short_SWOT_Analysis

.aspx#.WO_0j4jyvIU

Kis, Marton (2015). Copy of swot & pest analysis: underarmour. Prezi. Retreived from

https://prezi.com/jgqt3ul-caun/copy-of-swot-pest-analysis-underarmour/

NASDQ (2017). NASDQ’s Hompeage for Retail Investors. Retrieved from

http://www.nasdaq.com/

N/A (2017) Under Armour, Inc. About Under Armour. Retrieved from

http://www.uabiz.com/company/about.cfm

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Soni, Phalguni (2014). SWOT Analysis: Balancing Under Armour’s Strengths And Weaknesses.

Market Realist. Retreived from http://marketrealist.com/2014/12/swot-analysis-

balancing-armours-strengths-weaknesses/

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