Under Armour Case Study

Brenna Hackler

Under Armour Case Assignment

BUSN 6200

9-3-16

Case Assignment 1: Under Armour

In 2005, an unconventional athletic apparel startup, Under Armour, entered the public market. The new corporation’s management sought to create a consumer following by proving their high-tech, temperature-regulating activewear products could live up to the corporate promise of: “doing something for you…making you better”. Albeit pretentious at first glance, this corporate mission was almost immediately ‘backed-up’ a by a deluge of free product endorsements by renowned athletic celebrities. Similarly, the consumer public has also clamored over UA products more and more each year, leading to the company’s unprecedented quick growth as a contender in the athletic apparel industry.  Since its inception, Under Armour profits have increased from $17,000 in 1996 to over 1 billion in 2010. Today, the company’s corporate headquarters are located in Baltimore, MD. It  currently retails products in over 23,000 sports vendor locations. Customers can also purchase Under Armour products on the web and in catalogs.

Continued growth of Under Armour will require constant innovation of efficient solutions for overcoming several strategic obstacles. This assignment seeks to: A.) uncover factors likely to affect the company’s future viability (both positively and negatively), and, B.) provide insights into developing effective future business strategies and mitigating threats.

1.a

Strengths:

• Expanding product line and continuing innovation
• Technologically advanced products with proven athletic performance impact
• Strong social responsibility efforts such as “project glory” (bringing manufacturing back to US) and involvement in youth athletic organizations.
• Diversification via recent acquisitions of digital app maker MapMyFitness , and fitness app maker Endomondo, give additional revenue source for growth capital.
• Consistent revenue growth year-over-year to 2015
• Sales growth for 25 quarters straight
• Brand loyalty
• Sports figure and team sponsorships/endorsements
• Strong marketing efforts and retail presence
• Strong company management with practical experience in both general and sports apparel industries
• Sales from foreign markets are now 15% of total, up from 12% last year and 9% in 2014

 Weaknesses: 

• Relatively new company with presence in few markets compared to major competitors
• High product pricing and niche patronage
• Consumer Products Safety Commission recall of UA cups, baby sports outfits, and voluntary recall of chin straps.

• Products primarily target men.
• Narrow focus, tunnel vision on the ultimate goal of shoe sector dominance
• Outsourcing of materials, limited number of suppliers, and economic impacts on material cost.
• Gross margin declined from 49.0% in 2014 to 48.1% in 2015
• Operating income is expected to grow more slowly than earnings in 2016 due to lower profits in shoe/overseas sales (which are becoming a growing company focus).
• Higher P/E Ratio than competitors caused analysts to downgrade stock from “buy” to “hold” rating
• Missed earnings forecast for first time in 25 quarters
• Q2 2016 negative EPS of -.12/share,
• Debt increased 42% in Q2 2016

Opportunities:

• Expansion to overseas markets/export opportunities
• Charitable causes and sponsorships including NBA and NFL selection create maximum brand visibility
• Efforts to bring back US manufacturing may win niche customers
• Diversification via more acquisitions
• Increasing number of retail outlets.
• China Year to date revenue up by 164% for UA
• 10% annual Chinese retail market growth expected until at least 2020
• New partnership with Kohls, to replace bankruptcy of major retail partner Sports Authority
• New markets in United Kingdom, Germany, and the Netherlands
• Revenue from products yet to be released on a large scale: such as new golf shoes and the first 3D-printed athletic shoe
• Entrance into intelligent and interactive fitness/health app market via recent acquisitions
• Partnership with IBM to integrate AI into products
• Domination of millennial consumer base due to endorsements by more current/popular athletes

Threats:

• Greater brand recognition of major competitors such as Nike and Adidas
• Product recalls involving potential injuries to athletes and also to children (particularly defaming)
• Chinese labor costs increasing
• Historical neglect of patenting materials and intellectual assets
• Increasing production costs and lower margins may worsen due to increasing focus on shoes
• Fluctuating petroleum costs impact procurement of materials.
• Rising interest rates may make borrowing growth capital for overseas expansion more difficult
• Production offsets have not fully counterbalanced margin decreases from heavy marketing, supply chain and digital investments.
• Substitute products available from competitors due to few patents
• Strong U.S. dollar makes foreign profits increasingly difficult.
• Rising manufacturing costs in China may put pressure on already-lower foreign margins
• “Project Glory” efforts may raise manufacturing expenses compared with foreign plants
• Negative earnings per share could prompt inventors to sell, deflate stock price
• Current obstacles may lower the stock’s price significantly, because of its current and historic inflated P/E ratio
• Low margins and increasing debt threaten historic fast growth rate
• Huge inventory threatens profits via product obsolescence
• Poor current cash position makes revenue growth through new acquisitions difficult

1b.  

Many of the SWOT strengths described above lead directly to SWOT opportunities. Opportunities can also be found by eliminating weaknesses. Threats result from weaknesses which cannot easily be eliminated, or from circumstances outside organization control. For example, many of the UA profitability “weaknesses” have the potential to directly affect stock price and investor demand. Conversely, the fact that UA has always been an expert innovator creates an opportunity for success in new/foreign markets. That is, there is a greater possibility of success from meeting new customer needs. In some cases, something can be both a strength and weakness, and lead to both opportunities/threats. One example of this is the “Project Glory” initiative by UA to build more US-based manufacturing facilities. Although UA may win many US customers who sympathize with the made in America cause, higher domestic production costs may offset any profits from this endeavor.