Under Armour to become profitable in Europe this year
In its 2Q15 earnings call, Under Armour (UA) announced that it should turn a profit in its European operations for the first time in 2015. And although the opportunity set was vast and the goal of 50% annual growth in international revenue was “realistic,” UA will look to its return on investment and the speed at which it company could turn a profit.[1. As per comments by Kevin Plank, Under Armour’s CEO]
While Under Armour’s international revenue has grown at superlative rates, almost doubling last year, profitability on its overseas business has been way under levels earned in North America. International and other businesses earned an operating margin of -0.7% in 2014. And while that’s projected to improve this year, it pales in comparison to UA’s North America business, which earned margins of 13.3%.
In contrast, all geographic segments posted positive operating margins for Nike (NKE), with margins for Western Europe coming in at 22.4% in fiscal 2015.
And while international revenue will rise as a result of expansion in store footprint, e-commerce, and distributorship agreements, there’s likely to be a gestation period before these can meaningfully affect the company’s bottom line.
Established brands like Nike (NKE), VF Corporation (VFC), Columbia Sportswear (COLM), Adidas (ADDYY), and Puma (PMMAF) have been around for years and currently enjoy more global brand recognition. While the SportScheck agreement is great news (refer to Part 4 of this series), Under Armour faces a competitive environment at many of the same wholesale channels. Foot Locker (FL)—which has over 700 stores in Europe—John Lewis, JD Sports, and SportScheck itself stock multiple brands, including competitors Nike, Adidas, and Puma.
But the near-term trade-off for Under Armour will likely be profitability versus global recognition as a serious contender to multinationals like Nike, Adidas, and Puma. The rewards could be even greater in Asia, where there’s room for several brands to grow in an expanding market.