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Why Lone Pine initiates new position in Under Armour

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Lone Pine and Under Armour

Stephen Mandel’s Lone Pine Capital’s new positions included Comcast (CMCSA), Canadian Pacific Railway (CP), Williams Companies Inc. (WMB), and Under Armour Inc. (UA). Top positions sold were Monsanto Co. (or MON), Qualcomm Inc. (QCOM), and Wyndham Worldwide (or WYN).

Lone Pine initiated a new position in Class A shares of Under Armour Inc. (UA) last quarter that accounts for 1.14% of the fund’s total second quarter portfolio.

UA

Overview of Under Armour

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Under Armour is a leading developer, marketer, and distributor of branded performance apparel, footwear, and accessories. The brand’s moisture-wicking fabric products are sold worldwide. They’re worn by athletes at all levels, from youth to professional, on playing fields around the world. The products are also purchased by consumers with active lifestyles.

The company’s net revenues include net sales and license and other revenues. Net sales include sales from its primary product categories—apparel, footwear, and accessories. License and other revenues mainly include fees that licensees pay to the company. They pay the fees to use UA’s trademarks on core products like socks, team uniforms, baby and kids’ apparel, eyewear, and inflatable footballs and basketballs. The fees also cover the distribution of UA’s products in Japan.

Shares rise in March on stock split

Shares of the Baltimore-based company went up in March. The board approved a two-for-one stock split of its outstanding common stock. UA said the “stock split may broaden our investor base and improve the trading liquidity of our stock.”

The stock had dropped earlier in February on news that the U.S. speed skating team’s underperformance at the 2014 Winter Olympics in Sochi was due to UA’s high-tech racing suits. The team later replaced the suits with an older version that was also designed by UA. UA announced that it will still be the National Team’s exclusive competition suit provider through December 31, 2022. The company said it has uniform-exclusivity agreements with three national governing bodies, including U.S. Bobsled and Skeleton, U.S. Gymnastics, and Canada Snowboard.

Revenues up 34% for 2Q14

UA’s second quarter net revenues surged 34% to $610 million. Net income of $18 million and diluted earnings per share (or EPS) of $0.08 remained flat—compared to the same period last year. This reflected the planned timing of marketing and innovation expenses.

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Direct-to-consumer net revenues represented 31% of total net revenues. They grew 38% year-over-year (or YoY). International net revenues represented 8% of the total net revenues for the second quarter. They grew 80% YoY. UA said revenues increased across all segments—apparel, footwear, and accessories—due to expanded offerings in apparel and footwear.

Launches marketing campaign directed at women

The company recently launched a marketing campaign directed at women. The campaign will promote its products for female customers—athletes and women with active lifestyles. The campaigns feature world champion downhill skier Lindsey Vonn, American Ballet Theatre soloist Misty Copeland, U.S. Women’s National Soccer Team standout Kelley O’Hara, and supermodel Gisele Bündchen.

News reports also noted that the company was recently outbid by Nike Inc. (NKE) in a shoe endorsement deal with NBA superstar Kevin Durant. UA wants to expand its share in the basketball market, the reports noted.

Trends favor the athletic apparel market

A Wall Street Journal report cited Barclays analysts who forecast that the U.S. athletic apparel market is expected to increase by nearly 50% to more than $100 billion in retail by 2020. Sterne Agee analyst Sam Poser cited SportScanInfo and stated that UA’s athletic wear market share has risen from 20.2% last year to 24.2% this year in the U.S. In contrast, Adidas has fallen to the number three position. Its market share declined to 7.7% this year. Nike leads in terms of market share.

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