Under Armour Takes on Two Companies With Recent Announcements

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Back in 1996, Kevin Plank founded Under Armour (NYSE: UA) as a performance apparel company. Since that time, the company has continued to expand its product offerings to compete with other large athletic apparel companies. In 2006, the company launched its footwear category to take on Nike (NYSE: NKE), the longtime leader. In 2013, the company has taken two new initiatives to further its competitive edge and diversification.

Under Armour39

In a direct play against Nike’s success with the Nike+Fuelband, Under Armour has launched Armour39. Armour39 is the “first of its kind performance monitoring system for athletes.” The device monitors calories, steps taken, and captures every heartbeat. The device uses Willpower, the first true measure of an athlete on a 0.0 to 10.0 scale. The Armour39 is a device that is strapped to your chest, which is currently priced at $149.99. An additional display watch can be purchased for around $200. That item has sold well and is currently out of stock on Under Armour’s website.

Nike launched the Fuelband in February of 2012. The device tracks steps, calories, and physical activity. Users of the Fuelband can track their results at the Nike+ online community. Strong demand for the product carried the equipment division of Nike in fiscal 2012. That unit saw 18% higher profits, despite the device being sold out on the company’s website several times.

The Armour39 is a big opportunity for Under Armour. With a strong presence in the apparel market, Under Armour needs to make a splash in other categories. Nike has long been the market leader in footwear and has boosted its sales and transformed its Nike Running category with the Fuelband. With the technology we have available in the world, customers continue to look for products with a social and technology aspect. Even though Under Armour is not first to the punch, it can make a splash in the growing athletic tracking market, which in turn can boost sales of other products. 

New stores for women

In another exciting growth move, Under Armour is taking on Lululemon (NASDAQ: LULU). Under Armour Brand House is the first stand-alone Under Armour store to open since 2008 in the United States. The store, in Baltimore, is testing a new store layout that caters more to women than before. The company has ditched its typical locker room men’s performance clothing design. The new store has lighter colors, more open space, and has ten times the number of mannequins in a typical store.

The store will heavily promote Studio and ArmourBra, two recent offerings in the women’s clothing segment. Studio is Under Armour’s take on yoga apparel, which will directly compete with Lululemon. ArmourBra is the company’s expansion past the sports bra into everyday clothing. The store will also offer promotions like “Workout Wednesdays”, which will award customers with free yoga at local studios with apparel purchases.

Expanding the line of women’s clothing has been a priority of Under Armour’s. The company has long had products in Dick’s Sporting Goods and Sports Authority, two retailers where men typically shop. Under Armour now has women’s clothes available at stores like Macy’s and Nordstrom. A quick visit to Macy’s website reveals 257 Under Armour items, of which 60 are in the women’s category.

Back in April, Under Armour announced a partnership with Steele Fitness. This regional fitness chain will open an Under Amour store in all six of its fitness center locations. The stores will offer workout apparel, yoga pants, jackets, and sneakers.

Under Armour is hoping it can take away some market share from yoga pants leader Lululemon. In the most recent fiscal year, Lululemon saw revenue increase 37% to $1.4 billion. Encouraging for Under Armour might be the fact that same store sales increased 16% at Lululemon locations. The company, which has 218 stores, opened 37 new locations in fiscal 2012. Under Armour’s growth in women’s products and new stores can eat away at the market share dominance Lululemon enjoys.

In the first quarter, Lululemon posted a revenue increase of 21%. Same store sales of 7% and the addition of 8 stores in the quarter powered shares higher. The strength of the same store sales for both 2012 and the first quarter of 2013 sets up well for Under Armour. There is plenty of room for multiple players in the yoga apparel market. With Under Armour's strong relationships with retailers and its entry into a new store layout, I expect Under Armour to begin stealing market share away from Lululemon.

Lululemon posts revenue of over $5 million per store, giving the company a high sales per store in apparel retail. Under Armour, with its diverse product line, can have success with its yoga apparel. By not branching off into just yoga stores, but rather partnering with a gym, Under Armour takes away some of the risk. The growth in women's clothing will come from the larger store fronts that cater to both men and women. 

Earnings

In the first quarter, Under Armour saw revenue rise 23% to $472 million. Apparel sales ($346 million) made up the majority of this number. The company said it “continue to see traction with our expanded women’s lines in studio and ArmourBra.” Apparel sales made up 80.0% of fiscal 2012 sales. The increase in women’s apparel might keep that number high, but it could also be lowered by strong sales of women’s shoes or the new Armour39.

Conclusion

Analysts on Yahoo! Finance expect Under Armour’s revenue to increase 22.3% in fiscal 2013. The company is taking on rivals in key categories and working on a new store base, which will help it expand its locations and product offerings in international markets. Both of these new product initiatives came after analysts set their full year estimates. I believe Under Armour could increase revenue closer to the 25-30% range with strong store sales. An increase in key demographics of international markets and women will also power shares higher. Take the ride with Under Armour and enjoy the growth this apparel maker still has ahead. 

 

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Chris Katje has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica, Nike, and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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