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Can Under Armour’s Apparel Category Overcome the Weather in 4Q15?

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Jan. 22 2016, Updated 8:07 a.m. ET

Historical and projected performance for UA’s apparel category

Apparel is a core product category for Under Armour (UA), representing 74.3%, or $2.3 billion, of sales in 2014. Under Armour’s projected sales of $4.9 billion in the category by 2018 imply an annual growth rate of 20.7% compounded over the period.

In the first nine months of 2015, UA’s apparel sales came in at $1.9 billion, up 22.2% year-over-year.

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Apparel sales drivers

In 2015, Under Armour leveraged the success of its products, including Under Armour Baselayer and Storm. Chief sporting categories fueling growth in apparel include team sports, training, running, and outdoor. Its golfing category has also benefited from the success enjoyed by PGA Tour Player of the Year Jordan Spieth.

Under Armour is looking to make premium offerings and to sell more through the direct-to-consumer (or DTC) channel. DTC representation in the sales mix has steadily risen. These changes would have the impact of improving product margins.

Outlook

However, Under Armour’s expansion of successful categories such as ColdGear and Storm may have hit a speed bump in 4Q15 due to unseasonably warm temperatures, which affected the sales of items such as coats and hats.

Discounting activity for winter clothing was high in 4Q15. This is part of the reason US retail sales in December posted a month-over-month fall of 0.1%. This has been a secular factor affecting the results of several retailers including Macy’s (M).

Winter clothing typically retails at higher margins. This may affect the average selling prices of apparel for Under Armour and prove to be a drag on margins. This factor may also affect the results of Under Armour’s rivals VF Corporation (VFC) and Columbia Sportswear (COLM).

That said, geographic, channel, and product expansions are likely to provide a boost to UA’s apparel category sales in 4Q15. Apparel sales should also get a boost from the growing community of connected fitness users, of which an estimated 63% are female.

UA, VFC, and COLM together make up 1.2% of the holdings in the Vanguard Consumer Discretionary ETF (VCR). VCR provides exposure to 383 stocks in the consumer discretionary sector.

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