The key to Under Armour's 30% revenue growth
The strong results posted this quarter truly demonstrate the balanced growth of our brand across product categories, channels and geographies. -- UA CEO Kevin Plank
Apparel sales continues to boom
Under Armour CEO Kevin Plank reportedly has a white board in his office that has, written in the middle, the sentence "don't forget to sell shirts and shoes." For all of the other interesting avenues the company is taking, it looks like it's main focus on making great apparel and expanding its mass appeal is not being forgotten.
In this quarter, apparel sales grew $111 million, or 20% over Q1 2015, to $667 million. During the last year Under Armour has continued to expand its product lines with "HeatGear" and "ColdGear" training clothes for specific seasonal activities. They have also increased the focus on women's gear, including sports bras for the first time. The apparel segment boasts a lot of great styles that consumers apparently really like, judging by how well it's selling.
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The footwear investment is only beginning to pay off
The second part of Plank's quote -- not forgetting to sell shoes -- seems to have been taken very seriously indeed. Last quarter footwear was the most impressive segment by year over year growth, which jumped 64% to $264 million, now representing more than a quarter of total sales.
Basketball shoe sales led the way, with MVP Steph Curry's continuing dominance on the court helping to sell UA Curry shoes. Under Armour is planning to launch the Curry 2.5 this month in time for the NBA playoffs, where the Golden State Warriors, led by Curry, have a strong chance of winning for a second straight year. The Curry 3's are planned to come out in the fall.
Running is still Under Armour's largest footwear category by sales, and the Speedform Gemini 2 and Gemini 2 Record Equipped, (which includes a chip that connects the shoe to the users MapMyRun app) were launched early in Q1. In March, the company released its Speedform Slingshot, a lightweight shoe with a smaller sole that is made with custom-engineered yarn called "dyneema" which is said to be 15 times stronger than steel by weight.
Other interesting Q1 footwear releases include the three golf shoes launched in April, one of which Jordan Speith was wearing during the US Masters golf tournament. Plank noted in the conference call that the Drive One was one of the best selling products on UnderArmour.com. Also released this spring was the first 3D-printed cross-trainer called the UA Architech, which had a limited 96 pair release that sold out in just 19 minutes. All of these premium shoe releases helped average selling prices (ASPs) to grow, which along with increased demand, helped segment revenue soar. Under Armour said last September that it forecasts for $1.7 billion in footwear sales by fiscal year 2018.
International expansion will drive growth over the next few years
International sales grew 56% year over year during the quarter to nearly $150 million. International sales still only represent less than 15% of total sales, but this will change quickly in the coming quarters and years as Under Armour is making an aggressive drive into new markets around the world.
China has become an even more important market for Under Armour as it's started to a gain a foothold there. This has been helped by China's growing affinity for basketball, and Under Armour's visibility with NBA MVP Steph Curry. Under Armour is busy expanding partnerships and distribution in China, which should continue to pay off in coming quarters and years.
Other than China, Under Armour continues to grow in Europe where it now has more than 250 physical distribution points, as well as in Latin America and Africa. Under Armour's growth strategy in these countries includes partnerships, local sports sponsorship's, and country-specific e-commerce channels of which Under Amour now has 26 total.
Long term investment in digital growth
Under Armour's investment into digital growth through acquisitions of apps such as MapMyFitness and MyFitnessPal, as well as its own Record app, has certainly not been cheap over the last couple of years. However, this is an investment that CEO Kevin Plank and company executives are passionate about. The investment is already paying off in terms of audience, as Under Armour now has more than 160 million registered users and that number continues to grow.
The company released a line of all-new Connected Fitness products this year including a fitness and sleep-tracking wrist band, a heart rate-monitoring chest strap, a bluetooth scale, wireless headphones, and connected shoes that track a users run stats. Under Armour is working to make more apparel "connected" in the future. While it will be interesting to see what happens with new hardware in coming years, its the digital platform and audience that could help to really boost sales among all categories.
The connected wrist band, chest strap, and scale that Under Armour showed off at CES. Image: Under Armour.
Connected Fitness accounts for only about 2% of Under Armour's total sales. Instead of working to monetize this platform -- beyond subscription costs for premium versions of the apps -- Under Armour is using this as a tool to engage with its customers so it can continue to effectively sell more apparel and footwear.
How Under Armour will meet its $7.5 billion goal
The 30% revenue growth year over year, as well as the last six years of more than 20% revenue growth each quarter, is not only the result of investment in so many categories, but also execution. Now the company has set a goal of $7.5 billion in annual sales by 2018, which would be nearly double the $3.96 billion sales in 2015. Growth drivers like international expansion and Connected Fitness will help the company to get there. Just by looking at how well Under Armour has succeeded in its other categories indicates that it is likely to continue posting such incredible sales results.
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