EUR 850.00 For Business Accounts Only

Morningstar | Under Armour Ends Fiscal 2018 on a High Note as It Enters Final Year of Its Restructuring Efforts

Under Armour has grown into a leading apparel and accessories brand in the U.S. through its focus on developing innovative performance goods in the athletic space. As a result, the firm has won favor with consumers, as evidenced by its ability to charge premium prices for its merchandise, as well as retailers, which value partners that can drive traffic into their stores. Its gains realized on its home turf (the United States) are impressive given that it is competing against established leading players Nike and Adidas. Now Under Armour is building out its network abroad as well as expanding into new categories like footwear and women’s wear. While these expansive plans have driven Under Armour to build out its infrastructure, crimping near-term operating income potential, we think these investments should further support its brand intangible asset and ensure that the company remains a valued partner for retailers. Further, we contend that Under Armour's efforts to expand its sales base, particularly internationally, should solidify the pricing power inherent in the brand, the primary factor behind our narrow moat rating, as it increases brand awareness and garners a higher share of its addressable market over time. Additionally, the company should reach a more scalable sales base over the next few years, enabling margin expansion, which could have reinforcing implications for an improving cost position long term.Despite investments to support its strong brand, the company has fallen victim to tepid consumer demand for athletic apparel recently, particularly as consumers have shown a penchant for fashion-athletic apparel at the expense of performance (not dissimilar from past trends). As such, we view Under Armour’s efforts to expand its direct-to-consumer reach as a prudent means to bolster its brand equity by affording it more control of the consumer experience and better match consumer preferences and demands. We think the launch of its Connected Fitness app, which tracks user data, could offer further insights into consumer trends, enabling Under Armour to better tailor merchandise to local preferences, further stabilizing its brand and pricing power.