Final ppt under armour

Team Members Brandon Carlson

Qiongxi (Michelle) Luo Aditi Mishra

Panchaya Pimprapoat Xiaochen (Ariel) Song

Under Armour, Inc.

Company Overview

Industry: Sports Apparel and Equipment

Founded: 1996, Baltimore, Maryland

CEO: Kevin Plank

IPO: 2005 (UA)

Market Cap: $18.4 Billion (as of Dec 3, 2015)

Major Milestones

Under Armour was founded as an athletic

apparel company

New headquarter and warehouse

in Baltimore

Entered athletic footwear market

IPO with revenue $281M

Launched women's line

$1B revenue

Consecutive Years of Revenue Growth

$10B

$20B

$30B

$40B

(Founded)

Source: UA Investor Day

Celebrity Endorsement

Company Overview

Source: 2014 10K

Revenue Exposure by Country

Source: FactSet as of October 22, 2015

Trailing Twelve Month Revenue: $3.7B%

%

%

%

Global Expansion

226 stores 11 Countries 1.1 M SQ FT

1000+ stores 40+ Countries 3M+ SQ FT

YE 2014

62% North America

38% International

YE 2018

20% North America

80% International

Major Changes

Acquisitions Change in management

- MapMyFitness [Dec 2013] - Endomondo [Jan 2015] - MyFitnessPal [Feb 2015]

- CFO/COO, Brad Dickerson to step down in Feb 2016

Automated Manufacturing

- “Project Glory” - Physical space in Baltimore - Reduce human touches by up to 30% - Improved supply chain

Connected Fitness Platform

INDUSTRY &

COMPETITIVE ANALYSIS

Global Sports and Apparel Industry

Source: Statista

$132B $135B $141B $146B$152B

$158B $165B$171B

Projected Industry in Billions

Athletic and Sporting Goods in the US

5 Year Expected Growth Revenue expected to increase at an annualized rate of 0.6% to $9.3B

Key information: ● Highly competitive and fragmented with many brands competing ● Many mergers and acquisitions over recent years ● Increasing demand for versatile wear with wider functionality ● More health-conscious and older demographics ● Women = strong consumer demographic ● More collaboration between sports and fashion industry

Major Market Segment 2015 Total volume: $9.1B

Source: IBISWorld, Statista

Competitive Landscape

Source: Yahoo Finance, FactSet

Years as Public Company0 5 10 15 20 25 30 35 40 45

Nike

Adidas

Lululemon

V.F. Corporation

Under Armour

Columbia Sportswear

$111.3B

$27.2B

$3.2B

$18.4B

$6.9B

$40.0

$35.0

$30.0

$25.0

$20.0

$15.0

$10.0

$5.0

$0.0

LTM

Rev

enue

in B

illio

ns

$19.6B

Performance Comparison (IPO Index)

Under Armour

Performance of a $100 Investment at IPO

SWOT Analysis

•Focus on innovation •Strong financial performance •Growing product portfolio •Top-profile endorsement •Highly visible marketing campaigns

•Revenue source is heavily depended on North America •Outsourced manufacturing - little control

•International expansion •Athletic footwear market •Connected fitness •Project Glory •Women’s Apparel growth •Casual activewear •E-commerce

•Low barriers of entry •Rising labor wages •Limited patent ownership •FX volatility

MANAGEMENT PERSPECTIVE &

WALL STREET COMMENTS

Recent Performance

Net Revenue by Product

Products Q3 FY15 Q3 FY14 % increase

Apparel $866M $705M +23%

Footwear $196M $122M +61%

Accessories $104M $85M +22%

License revenues $24M $22M +9%

Connected Fitness $14M $4M +221%

Total $1.2B $938M +28%

Net Revenue by Region

Regions Q3 FY15 Q3 FY14 % increase

North America $1.1B $848M +25%

International $130M $86M +52%

Connected Fitness $14M $4M 221%

Total $1.2B $938M +25%

Source: 10-Q

● First Billion dollar quarter

Analyst Feedback Before & After Earnings Call

Average = $109.59 Median = $110.00

Average = $105.83 Median = $105.00

Analyst Feedback Before & After Earnings Call

Analyst Universe

Analyst Review of Q3 Earnings Call

● Future growth of Connected Fitness (SAP platform) - targeted consumer experience

● International retail and footwear expansion ● New e-commerce site ● Apparel growth for Womens & Casual

activewear (ex. polo shirts, chinos)

● Robust revenue ● CFO search is a positive catalyst ● China retail strategy a new growth driver

○ Direct retail expansion in China: aims for 1,000-1,500 stores

○ 70% of stores to be run by distributors by 2018

● China footwear aggressive growth

UA warrants a higher valuation relative to peers

Balanced by accelerated investments in key drivers:

Key Reasons for Stock Behavior

Higher mix of footwear revenues

Higher air freight costs

Unanticipated FX Pressure

Gross Margin Impact

M&A of connected

fitness

New opportunities

Management transition

Investments

● Partnership allows creating a single user database with insights on consumer purchase habits

● Advent to targeted marketing

New Findings & Future Guidance for Investors

Expand to Casual Activewear

Connect Fitness & SAP Partnership

Adding Talent in Women’s Footwear

● Hiring ● Women’s footwear focus

● Long-term investment in apparel for outside the gym (eg. polo shirts, chinos)

● Innovations in apparel functionality

Metrics 2015 2016 % increase

Rev $3,923 $4,937 25.8%

EBIT (Operating Income)

403.8 484.0 19.9%

Operating Margin (OI/Rev)

9.7% 10.6% 9.0%

EPS $1.10 $1.30 28.4%

Analyst Conclusions via Ratio and Metrics Analysis

SHOULD WE BUY UNDER ARMOUR STOCK?

Common-Size Income Statement

● Net profit margins ( ) : Operating margins ( ) + Non-operating margins ( )

Ratio Analysis-Profitability● ROE = Net Income / Equity ● Decrease of ROE: Increase on Equity > Increase on Net Income

● 3 Main attributes to Equity increase ○ Exercise of stock options ○ Issuance of common stocks ○ Converted convertible stocks

Ratio Analysis-Assets Turnover

● Loosen credit sales policy -> Credit risk ● Increasing inventory turnover on Q3-2015 due to credit sales

Ratio Analysis-Solvency Ratio

● Steady decline from 2010 to 2013

● Strong recovery from 2013 to 2014

● Strong Liquidity

Ratio Analysis-PE Band

78.3

● The standard deviation band: ○ Measures the historical variation/volatility from

the average PE ○ 95% fall within the range

● Recent performance suggested PE ratio: ○ Unpredictable of the future pattern

61.0

Source: All data and estimates from Bloomberg, LP

Relative Valuation: Method of ComparablesAs of November 30, 2015

($ in millions, except per share data)

Source: All data and estimates from Bloomberg, LP

Relative Valuation: Method of ComparablesAs of November 30, 2015

($ in millions, except per share data)

Source: All data from Bloomberg, LP

Absolute Valuation: Discounted Cash Flow MethodAs of November 30, 2015

Source: All estimates from most recently published analyst reports

Leading Investment Bank Estimates (DCF Inputs)As of November 30, 2015

Source: All estimates from most recently published analyst reports

Leading Investment Bank Estimates (DCF Inputs)As of November 30, 2015

Discounted Cash Flow Output

Market Price as of November 30th, 2015:

Therefore: Fairly Valued!

THEORETICAL VALUE PER SHARE$85.54

$86.22

Our Criteria: If absolute value + / - 10% of its current market price, Under Armour over / under valued

SHOULD A BANK LEND TO UNDER ARMOUR?

Credit Analysis

Notes: [1] Total Debt to Assets ratio calculated as total liabilities divided by total assets, net of goodwill.

Financial Strength Debt & Commitments Capacity to Repay

Concluding Remarks

EQUITY INVESTMENT

● On comparable basis: overvalued

● Absolute value vs Market Price; fairly valued

● High risk/return potential; growth stock

Debt Covenants - Additional issuance of debt is not permitted without our approval

- The Company must maintain an Interest Coverage Ratio of at least 3.5x - The Company must not exceed a Leverage Ratio of greater than 2.5x

DEBT INVESTMENT

● Strong balance sheet

● More than enough operating strength to sustain additional debt

Is Under Armour’s growth sustainable?