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Under Armour's Sweating 1Q17, But Why?

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Part 3
Under Armour's Sweating 1Q17, But Why? PART 3 OF 7

This Could Drive Under Armour’s Growth in 2017

International sales to remain strong in fiscal 2017

While Under Armour’s (UAA) top-line growth spree came to a halt in 4Q16 on weakness in North America, in overseas markets, UAA continued to show momentum, growing by an impressive 55% YoY (year-over-year) in 4Q16. For fiscal 2016, international revenues rose 63%.

The company has seen strong growth in its international business, which has expanded ~60% in the past three years. The share of this business has risen from ~9% in fiscal 2014 to ~15% in fiscal 2016. The company expects international sales to continue growing and touch ~20% of total revenues in fiscal 2017.

This Could Drive Under Armour&#8217;s Growth in 2017

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DTC versus wholesale

UAA’s DTC (direct-to-customer) channel is a key focus area and sales driver for UAA. Like most apparel players, Under Armour is moving toward DTC and away from wholesale in order to gain better control over its brand.

DTC accounted for ~30% of the company’s total sales and grew 27% in fiscal 2016, as compared to a 19% increase in wholesale sales, which suffered badly in North America due to retail bankruptcies.

Footwear sales to continue the strong momentum

Footwear, which accounts for 20% of Under Armour’s total sales, has also been a key growth driver. Footwear sales have grown by five times over the past five years and have outpaced the growth rate of the company’s apparel business. In 2016, apparel sales rose 15%, while footwear was up 50%.

Under Armour has plans of expanding footwear further and has projected $1.7 billion in annual footwear sales for fiscal 2018, as compared to $1 billion in fiscal 2016.

While noting the key top-line drivers for fiscal 2017 in the company’s 4Q16 conference call, Under Armour CFO (chief executive officer) David Bergman put it this way: “Similar to 2016, we expect our footwear, international and direct-to-consumer businesses to be the largest drivers of our top-line results outpacing the total rate of growth.”

ETF investors seeking to add exposure to UAA can consider the iShares US Consumer Goods ETF (IYK), which invests 0.16% of its portfolio in the company.

In the next part of this series, we’ll talk margins.

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