Under Armour: Global Investment And Funding Plans



Capital expenditure analysis

As mentioned earlier on in this series, Under Armour, Inc. (UA) has no manufacturing facilities for producing its products. All its manufacturing is outsourced to third parties operating outside the US. Capital expenditure (or capex) requirements are therefore relatively modest. Also, despite an aggressive store rollout plan that United Armour, or UA, is currently pursuing, its stores are mostly leased or owned by partners or licensees, which further reduces capex requirements.

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The firm’s capex consists mostly of investments in new distribution centers in the US and abroad, IT infrastructure, investments in in-store retail outlets, expansion of its global corporate office footprint, and international operations, among others. Capex shot up in 2013, coming in at 3.8% of revenues as opposed to 2.8% in 2012.

Outlook for new investments

Under Armour (UA) is primarily a growth company. Historically, it has experienced above-average growth while setting up a strong brand and distribution platform to compete with global giants NIKE, Inc. (NKE) and Adidas AG (ADDYY). Now, the company is looking at growth in both North America, its largest market, and other overseas markets.

The company expects to spend $150 million in 2014 on capex. According to guidance provided by the company, 2015 is likely to see even higher levels of spending. Capex will grow to fund ongoing growth. As well, investment in an additional distribution center in Southeastern US and expansion of the company’s Baltimore headquarters will increase 2015 spending by an additional $90 million.

NKE, ADDYY, and UA are part of the SPDR MSCI World Quality Mix ETF (QWLD), which has exposure to many consumer discretionary stocks, including TJX Companies, Inc. (TJX) and The Gap, Inc. (GPS).

Funding for new investments

Most of UA’s capital expenditure requirements have been funded through cash flow generated by the company’s operations. However, elevated levels of investment in the future could see the company issue more debt or equity, or a combination thereof.


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