Krause Fund Research
Fall 2016
Consumer Discretionary
Under Armour, Inc. (NYSE: UA)
Recommendation: HOLD
November 14, 2016
Analysts:
Target Price: $36.00 – $39.00
Ben Coverick
Current Price: $31.82
[email protected]
Company Performance Highlights
Dwight Bode
[email protected]
Company Overview:
Under Armour, Inc. emerged in 1996 at the forefront
of the new market of performance apparel.1 Under
Armour’s core business operations are primarily
based in the United States. However, over the past
decade Under Armour has grown substantially in
foreign markets, specifically in Europe and Asia.
Under Armour’s FY2015 performance was another
strong growth year, with $3.8B in net sales up 31%
from 2014’s $2.9B in net sales.1
Stock Performance Highlights
52-week High
$49.51
52-week Low
$30.06
Average Daily Volume
5.28M
Share Highlights
$31.17
Market Capitalization
12.86B
183.39M
Book Value Per Share
4.39
EPS
0.45
Trailing P/E Ratio
8.14%
ROE
15.00%
International Revenue
$454M
Financial Ratios
Current Ratio
Debt to Equity
2.36
55.83%
Forward Ratios
2018 ROA
10.27%
2018 ROE
16.20%
Key Investment Information
•
•
Current Trading Price (11/14/16)
Shares Outstanding
ROA
•
Under Armour’s rapid growth, especially
internationally, is necessary in the future to
keep up with Nike’s performance.
Under Armour’s investments need to
provide further stability in production to
maintain competitive industry ratios.
Sports Apparel Industry expected to grow by
$83B to a $196B industry by 2020, which is
an opportunity Under Armour needs to
capitalize on.
70.71
1
Future Opportunities
One Year Stock Performance
Growing Customer Base: Under Armour has recently
closed a few major deals to increase sales. Kohl’s
and Sporting Direct International, United Kingdom’s
version of Dick’s Sporting Goods, will begin selling
Under Armour products beginning in 2017 in half of
their retail outlets2. Outside of retail stores, they are
growing customer by growing direct-to-customer at
an impressive rate.
The graph below represents Under Armour’s stock
performance compared to the S&P 500 Index YTD.
The purple line represents the performance of Under
Armour and the green line represents the
performance of the S&P 500.
Source: Bloomberg
Source: Market Realist
International Growth: Over the past five years
specifically, Under Armour’s international presence
and growth has significantly increased. Last year’s
overseas sales were $454M compared to 2011’s
$89M1.
Products: Under Armour’s products continue to be
at the top of the industry in terms of innovation.
Recently, it has been with the addition of the
Stephen Curry shoe line, which has grown the
company’s footwear segment exponentially3. The
company recently launched a new Under Armour
Sportswear clothing line in an effort to enter into the
normal retail clothing sector4.
Executive Summary
We are issuing a HOLD rating for Under Armour, Inc.
(UA) for the Krause Fund portfolio. This decision is
based on Under Armour’s growth expectations,
product innovation, and market share. Under
Armour’s twenty-six straight quarter run at 20% or
more quarter-over-quarter growth is impressive. We
believe that this growth will continue into the future
for Under Armour1. However, in the short-term,
Under Armour still lacks in market share relative to
the main competitor Nike. With less deep pockets
and the needing to catch up, Under Armour will be
required to invest heavily in the coming years. Long
term, the company will perform well based off past
history. In the short term, heavy investments in
footwear, fitness technology, and innovative apparel
will cause the company to be less profitable.
Source: Bloomberg
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Macroeconomic Outlook
Real GDP
The third quarter advanced estimate has real GDP
growing at a rate of 2.9 percent. This is the fastest
pace in over two years6.
Source: U.S. Bureau of Economic Analysis
The biggest drivers of the growth are seen through
consumer spending, net exports, and inventory
spending. If consumers are making more purchases
and businesses are confident to be stocking up on
inventory, it is a positive sign for retail sales going
forward6. Business inventory added 0.61 percentage
points, which is a great sign considering it was
dragging down the number for the last 5 quarters6.
Business investment, strong in Q2, is beginning to lag
behind. This is due to uncertainty that is highly
prevalent in the current economy6. With the election
over and more news on interest rates in December,
we expect a clearer picture of things to come. With a
growing economy, we expect business investment to
pick back up going forward.
Source: U.S. Census Bureau via Trading Economics
This is another positive sign for the retail space. In
the last 3 months, consumers have been shying
away from retail spending. In October, the
consensus is that it will stay up at 0.5%. September
data and October’s expectations paint the picture
that the consumer is beginning to feel more
comfortable spending again, which is a sign of good
things to come moving forward7.
US Consumer Confidence
To further support the claim that consumers are
becoming more comfortable, we took a look at the
US Consumer Confidence data. In November,
consumer confidence hit a 5 month high, with a
reading of 91.6. This is up from 87.2 in October of
20168. Historically, dating back to 1952 the US
average is 85.928. This data supports that US
consumers are confident about the future and the
current conditions.
US Retail Sales
U.S. retail sales picked back up after decelerating
0.2% in August. This was below consensus. Since
then, sales have picked back up much quicker than
expected, growing 0.6% in September, which beats
the expectations of only 0.4%7.
Source: Trading Economics
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Strength of the Dollar
The U.S. dollar has hit an 11-month high9.
Expectations of Donald Trump cutting taxes,
boosting fiscal policy, and future fed rate hikes are
driving the change. Under Armour, who is currently
heavily focused on international sales, will see a
negative impact due to the currency headwinds. As
long as the dollar continues to strengthen, Under
Armour will see downward pressure on their bottom
line profits. The following graph takes a look at the
U.S. Dollar over the last 5 years and the last couple
years shows an overwhelming trend of growing
strength9. As the U.S. continues to be a strong
economy relative to the rest of the world, the trend
does not look like it will be reversing.
U.S. Dollar Index Historical Chart
Source: MacroTrends.net
Asia Pacific
Under Armour’s presence in the region is
predominately in China. China, a hot-spot for
growth, has seen a slow-down in recent years.
However, relative to the rest of the world, China is
still growing at a rapid rate. In the September
quarter, the Chinese GDP grew at an annual rate of
6.7%, which is far more than its North American
counterparts10.
Euromonitor, China will exceed the United States
and become the world’s largest apparel market by
201911. The future in the region looks optimistic, so
Under Armour has a tremendous opportunity if they
can capitalize on their investments here.
Latin-America
Latin-America, plagued by low commodity prices,
political uncertainty, and financial market volatility
creates an environment that does not provide a
large opportunity for Under Amour in the near
future. Latin America’s economy is projected to
decelerate by 0.6% this year after seeing no growth
at all in 201512. With the current conditions, their
does not appear to be a large consumer base for
Under Armour’s products. This summer, consumer
confidence fell in 6 out of the 7 countries surveyed
that make up the region and have yet to pick up
significantly in recent quarters12.
However, thinking longer term, Latin-America will
provide another consumer base for Under Armour.
Although not as large as other countries, the middleclass has grown 11% since 200112. As a region that
primarily profits from exports, when commodity
prices bounce and countries like China begin to pick
back up, the region will start to see more favorable
growth. Long term, poverty appears to be dropping,
incomes continue to grow, and as the region
develops, it provides an opportunity for Under
Armour to grow revenue.
China has also continued to display retail sales
growth within their economy. In September, retail
sales rose 10.7% year-over-year10. This is the highest
it has been since December 2015. According to the
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economies begin to recover, they will be at the
forefront to take advantage of the opportunity.
Industry Analysis
Overview
Our team identifies Under Armour to be operating in
the Sports Apparel Industry, which primarily consists
of providing products that are comfortable and agile
during physical movements. The industry is
dominated by a relatively small number of
companies that include: Nike Inc., Adidas, Under
Armour Inc.
Source: The Atlantic
Europe
Europe has seen relatively slow-growth in recent
years. In their most recent quarter, Q3, the economy
grew at a nearly flat pace of 0.3%. Also, inflation has
recently hit a two-year high with a reading of 0.4%13.
ECB President has called under 1% the danger zone
for inflation and attributes it to slow growth and low
oil prices14. The region has adopted policies of heavy
quantitative easing as they try to stimulate inflation
back to 2%, address their employment bottleneck,
and to start heading into a growth phase14.
Under Armour is specifically targeting the Europe
market as a long term strategy to grow their brand
internationally. They are primarily in the region
doing partnerships with major sports programs like
the Tottenham Hotspurs and Scottland’s Andy
Murray. In the short term, the European economy
has been slow to recover from the economic crisis
and has become a place of uncertainty due to Brexit.
Because of that, it does not provide an opportunity
for Under Armour to make a lot of money. However,
going forward, if Under Armour can grow their brand
in the region, when many of the world’s largest
Source: 1010data Facts for Econ Insights
Over the past decade the sub-industry has gone
through an extreme low period during the recession
years. However, following the recession there has
been a notable acceleration. The acceleration has
been linked to the importance of globalization. With
a saturated United States market, many companies
are attempting to tap into emerging and foreign
markets to continue economic success15.
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Source: Bird of Gold; MGI; HHTWS; McKinsey analysis
Industry Drivers & Trends
Increasing Disposable Income:
The Sports Apparel Industry is largely dependent on
consumer’s ability to afford its trendy sports apparel.
Therefore, disposable income is a large driver in
determining whether the industry will have strong
performance. A positive outlook and growth in many
countries around the world has translated into the
increase of sports apparel sales. In countries such as
China the overall disposable income is up to $4.7B
compared to $2.8B in 2011. The United States has
also seen similar growth up to $41.0B from 2011’s
$37.8B. Historical evidence, pictured below,
indicates that the purchasing of clothing and
disposable income are directly linked17.
another $83B in sales by 2020, which is over 30%
growth from today15. What we wear is dependent on
the society that influences the consumers. Across
the world, healthy living and fitness are becoming a
more intricate part of everyday life. For example,
since 1980, the United States high school sports
participation rate is up from 25% to 35% today17.
China is another nation where active living is
becoming more and more the social norm. The
Chinese government plans to build 60% more
sporting facilities throughout the country in an
attempt to provoke further active lifestyles across
the nation17. Overall, the world society is moving
away from the old fashioned styles of a couple
decades ago and moving to a “ath-leisure” style,
which for many is believed to be the trend of the
future.
Counterfeit Products:
The sports apparel industry provides higher quality
products but come with a higher end price tag. Over
the course of the past decade, the industry has come
under threat from local suppliers replicating the
products and distributing them at a lower more
affordable price. During 2010, the United States
Immigration and Customs Enforcement Agency
estimated that the value of counterfeit trade during
that year was approximately $600M18. Specifically, in
the Sports Apparel industry, Adidas lost upwards of
$12M due to counterfeit products18. The exposure
that the industry has with counterfeit is relatively
high. Counterfeit merchandise is prevalent in all
parts of the world and poses a sales threat in the
Sports Apparel Industry.
Competitive Environment
Source: Statistic Canada, Distributive Trade Division
Fashion Trends:
Sports Apparel and footwear sales have jumped 42%
to $270B over the past seven years2. Analysts at
Morgan Stanley predict that the industry could add
Comparable Company Analysis:
Our group identified two primary competitors:
Adidas AG and Nike, Inc. (NYSE: NKE). These
companies were chosen based on market
capitalization, sales growth, and brand recognition.
The following comparisons were chosen at the
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discretion of our team to represent the competitive
industry of sports apparel.
Although VF Corporation has high performance in
the revenue for the sporting goods industry, we do
not believe they are a direct competitor of Under
Armour, because VF Corporation focuses primarily
on outdoor sporting. Under Armour focuses on
performance based sporting apparel.
Source: Statista
Although Under Armour is not the leader of the
Sports Apparel Industr0,y there are multiple
promising signs that Under Armour will soon begin
to threaten Nike, Inc. for the top position. First,
Under Armour is by far the youngest competitor,
recently going public in 2005. The company has
shown exponential growth since its initial public
offering growing its revenue from $281M in 2005 to
2015 $3.96B, a 1,309% growth1. In comparison to its
main competitors, Adidas has only grown sales by
155% and Nike at 136%19 20. Under Armour also has
the highest growth expectations through 2018 at
25% per year growth. Whereas Nike and Adidas are
expected to grow at 9.2% and 15% respectively1.
Secondly, these company’s brand image is a major
part in their financial success or demise. That being
said, Under Armour has many more major influential
athletes that market their products21. These athletes
include: Stephen Curry, Cam Newton, Jordan Speith,
Tom Brady and Michael Phelps. Some argue that
these athletes have been a major part of their most
recent success. Adidas is specifically lacking in this
crucial segment of the Sports Apparel industry. Their
most notable athletes are Derrick Rose, Ricky Rubio,
and Dwight Howard. In terms of Nike’s athletic
sponsorships, many would argue that they have the
best athletes, such as Michael Jordan, Lebron James,
and Cristiano Ronaldo. Athletic sponsorships are a
very impactful way of marketing your company21.
Source: HedgeEye
Another field that Under Armour, Adidas, and Nike
compete for in terms of brand recognition is in the
sponsorship of college and professional sports
teams. This is an important element due to the fact
that the entire team would be wearing the
company’s brand during the actual games, rather
than just making commercials for the company.
Colleges typically earn between $1M and $15M
annually with these sponsorship contracts23. Nike
has historically dominated these sponsorships with
about 53.1% of college’s wearing Nike apparel on
game day, compared to Under Armour’s 11.7% and
Adidas’s 24.2%23. However, this may be taking a
change in the coming years due to contracts expiring
in the major five power conferences. A study
recently done at Louisville University breaks down
how much money universities earn per fan23.
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dollars of revenue come from China and saw Chinese
revenue up 21% in their recent earnings23. On the
flip side, Under Armour only saw roughly 454 million
in total international revenue1. In terms of growth
opportunities for Under Armour, Nike is also
positioned well ahead in the footwear space with
62% of the market share.
Source: The Cardinal Connect
This study shows that if universities are interested in
earning maximum returns from the three major
athletic apparel companies, that Under Armour is
the best option. This is a great potential opportunity
for Under Armour to pitch their company
sponsorship and gain market share in the collegiate
sporting universe.
Source: The NPD Group Inc.; Retail Tracking Service
Nike is able to be more profitable, due to the lack of
competition in these types of spaces, which is a big
reason why they post nearly twice the net profit
margin of Under Armour.
Source: Bloomberg
Under Armour’s comparison to Nike is the most
important, as Nike dominates the industry and is the
purest comparable company. Most notably, Under
Armour trades at a way higher premium. As a
growth company, noted by their 30.09% 5-year
growth rate, the future expectations are priced into
the stock. On Nike’s side, they are veteran in the
space. However, they are still experiencing growth
and relative to the market, they trade at a slight
premium as well. Nike still sees near double digit
revenue growth and grew net income 6% in their
most recent quarter23. Nike, as a pioneer in the
space, already has the large market share that Under
Armour is trying to steal. Nike had $3.07 Billion
Going forward, Under Armour is going to have to
continue their growth in order to keep up with Nike.
Nike is clearly superior in the space, most efficient,
and well established. However, if Under Armour can
continue their growth, capture Nike’s market shares
in key spaces, and begin to be more efficient with
their investments going forward, then they have the
opportunity to become the elite brand.
Porter’s Five Forces
Competitive Rivalry: HIGH
Competition is intense in the sports apparel industry.
Customers can switch very easily among brands,
making it a constant fight for business. Marketing
and advertising becomes a huge impact as
companies try to grow their brand name and
differentiate from the pack. Apparel is also easily
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duplicated, requiring companies to spend money
investing in innovative and new product lines.
Bargaining Power of Suppliers: LOW
Raw materials for this industry can be supplied from
numerous sources, limiting the power of the
suppliers. Under Armour, Nike, Adidas, etc. are all
large enough that they can make large volume deals
with suppliers in numerous countries. Also, Under
Armour has no contractual agreements with their
suppliers, allowing them to have the freedom to
move around and constantly negotiate costs1.
Bargaining Power of Customers: MEDIUM
This industry has two major types of customers:
retailers and consumers. In terms of retailers, they
have the ability to squeeze margins, because apparel
companies rely on them to sell a large volume of
their products. They have many products they can
sell, with no obligation for any particular, so they
demand more of the companies that want into their
store. In terms of direct consumers, they have power
as well. In sports apparel, there are many major
brands, which allows for them to easily convert or
move around. Companies like Under Armour must
work with these customers, as building a loyal and
strong customer base is vital.
Considering the history and future trends, the
demand for sports apparel does not seem like an
issue.
Company Specific
Analysis of Recent Earnings:
On October 25th, 2016, Under Armour reported
better-than-expected Q# earnings. Under Armour
reported earnings per share of $0.29 with $1.47
billion in revenue, which topped analyst
expectations of $0.25 in earnings, with $1.45 billion
in revenue2. However, the stock fell around 14%
following the announcement. The sharp decline was
driven by management’s guidance.
Under Armour, reporting its 26th consecutive quarter
of +20% growth in revenue, has seen clearly seen
tremendous growth in the past. Annual sales grew
27%, 32%, and 28% in 2013, 2014, and 2015
respectively2. Going forward, management is
projecting a slowdown, with sales growth in the next
two years being in the “low 20s”. The full-year 2016
revenues are projected to be a growth of 24%2.
Threat of New Entrants: LOW
This industry is extremely hard to succeed in and
requires a lot of capital. This makes becoming a
major player extremely difficult. Younger companies
do not have the capital to afford the marketing and
advertising that goes in to building a brand. Even if a
company is able to afford growing, they still have to
gain market share and grow in an extremely
competitive environment.
Threat of Substitutes: LOW
The future of sports looks bright and the correct
apparel is needed. So as long as there are sports,
there will always be a need for the apparel.
Source: Under Armour via Fourtune
With that being said, Under Armour still is optimistic
in the future, reiterating their 2015 investor day
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goals of $7.5 billion in revenue and $800 million in
operating income by 20182.
Products and Costs
Under Armour is known for producing high quality
products that range from hot and cold gear to
footwear.
2015 REVENUE BREAKDOWN
Accessories
9%
License
2%
Connected
Fitness
1%
Source: Market Realist
Footwear
17%
Apparel
71%
Source: Under Armour Financial Statements
A majority of Under Armour’s revenue is through the
sale of its apparel1. Looking forward, this is a very
positive trend due to Global Industry Analysts and
Wall Street Journal’s expectation for a growth of
$89B or a 7.1% CAGR of the Sports Apparel
Industry17. The drivers of this growth are
represented in our industry outlook. As this growth
of the industry continues, Under Armour is expected
to receive the benefits of this through their sales of
performance based apparel.
In an effort to remain the leader of innovation in the
industry, Under Armour launched a new product line
this September, which tends to differ from its typical
performance based 4. The new line, Under Armour
Sportswear, offers customers everyday apparel such
as sweaters, jeans, t-shirts, khakis, and various
casual shoe styles. Although this is a major shakeup
in its historical business model Under Armour has
historically performed strong after the release of
new products.
Under Armour’s footwear product line last year grew
by a tremendous 57% on the year to $677M24. This
large growth has been linked to the Stephen Curry
shoe line, which according to retailers has been
taking some market share away from Nike’s Lebron
James shoe line24. The addition of Stephen Curry,
who is the defending MVP of the NBA, shoe line has
boosted shoe line sales tremendously and Under
Armour is targeting its annual footwear sales to
$1.7B by 201824.
The costs to produce Under Armour products are
comparable to its rivals Nike and Adidas who post
Gross Operating Margins of 45.72% and 48.24%
respectively, to Under Armour’s 47.30%15. In terms
of the future of costs for Under Armour’s
manufacturing will continue to remain about the
same percentage of sales as it is now. However,
lower oil prices and an increase towards direct-tocustomer sales will help Under Armour increase their
current profit margin of about 5.94% to be more
competitive with Nike’s 11.25%. Under Armour, in
terms of profit margin, is better than Adidas’s
3.27%25. Overall, Nike has a high profit margin due to
a few elements that Nike, as a mature company, still
has the upper hand on compared to Under Armour.
One is that Nike pays a significant lower tax rate.
This is because Nike produces higher revenue
streams from overseas markets that have lower tax
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rates26. In terms of manufacturing, Nike is moving to
a more highly automated manufacturing technology,
which is assisting in decreasing Nike’s labor costs by
50%26. Finally, Nike has historically had much higher
direct-to-costumer sales relative to Under Armour.
However, as of 2015, Under Armour has caught up
to Nike’s 30% growth rate of DTC sales26. Overall,
Under Armour is looking into the future with a
positive outlook on lowering their costs, growing
sales internationally, and increasing direct-tocostumer sales. All of these will tremendously help
their profit margin in the future.
Fitness Tech:
The Connected Fitness is made up of MapMyFitness,
Endomondo, and MyFitnessPal. The goal is to provide
technology that helps train, perform, and improve.
MapMyFitness allows users to map out, record, and track
their workouts with detailed statistics. Endomondo
allows users to track and share their fitness and health
statistics. MyFitnessPal is a nutritional application that
allows users to track their calorie count and create diet
plans. Together, these applications create a greater
fitness experience, while allowing Under Armour to
better understand their target market. In 2015, it only
accounted for 1.3% of total revenue, but it is expanding
rapidly1. Connected fitness revenues grew 40% in Q3 to
20 million. They are adding 125,000 users per day and
continuing to invest more27.
They are now developing and beginning to roll out the
HealthBox system. They have a set of physical products
including a UA band to measure heart rate, steps, and
sleep, as well as a scale to track weight and body fat
percentage27. They’ve also began selling a chest strap and
wireless headphones that can both track your heart rate,
while running. These products are relatively new, but
with the fast growth they have seen in Connected Fitness,
we and the company are both optimistic. Under Armour
is well positioned to capture market share in the Fitness
Technology space, which is a popular trend.
Catalysts for Growth
Footwear Expansion
Under Armour is seeing success in attempting to
grow their footwear business. In 2012, the footwear
line was only a $239 million part of the business, but
now is approaching $1 billion in revenue for the firm.
Footwear is outpacing apparel growth by 2.0x to
2.5x and the company is expecting that footwear
could soon be larger than apparel28. In the first nine
months of 2016, footwear sales increased 54% from
a year ago, while apparel revenue jumped only
19%24. This year, during the back-to-school shopping
season, Under Armour saw their footwear market
share double28. If Under Armour can continue to
grow their apparel sales and market share, then
Under Armour will become very large.
International Growth
Under Armour has seen tremendous growth in
international markets after expanding overseas. For
example, Q3 2016 saw international revenues up
74% (80% without the effects of currency). That
makes it now 15% of total revenue. This is largely
due to growth in China2. When Under Armour
started selling in China it was 2010 and they did
about $1 million in revenue1. They are now
projected over $150 million for the 2016 year (which
represents a 157% increase YTD)2. Under Armour
will continue this growth. They are currently only at
239 partner stores internationally, which is
expanding as they are on track to have added 150
partner stores in 20162. They are also getting plenty
of e-commerce business overseas, and with
countries like China seeing massive growth in
internet usage, Under Armour will get another
international business boost.
Partnership with Kohl’s
Kohl’s will now sell Under Armour products. The CEO
says this will be rolled out beginning right away in
201729. Kohl’s primary shopping demographic is
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women29. This allows Under Armour to build on their
women’s business, which is needed after a slow
down.
is also more profitable being able to sell at full price,
rather than working with a distributor. Direct-toconsumer revenue has grown from 14% of total
revenue in 2008 to 30% in 201531.
Source: Morgan Stanley via Business Insider
The graph shows that women’s sales has seen high
periods of growth in the last 3 years, but slowed
down, before becoming negative in 201530. The
graph demonstrates the opportunity for growth in
the women’s apparel market, and the partnership
with Kohl’s could recreate that opportunity30. The
graph below shows how Piper Jaffrey’s survey of
women revealed Kohl’s is consistently the number
one choice for their clothing shopping.
Source: Piper Jaffrey via Business Insider
Direct-to-Consumer Sales
With the closing of Sport’s Authority and the
struggles of brick-and-mortar stores, Under Armour
needs to be able to adapt their business model. So
far, they have been doing a good job of transitioning
to selling directly with consumers. This has not only
allowed them to survive via maintaining sales, but it
Source: Bloomberg
Under Armour has achieved this direct-to-consumer
growth primarily through the e-commerce space. Ecommerce sales grew 29% in their most recent
quarter31. Under Armour should continue to see this
growth going forward through the expansion of their
Connected Fitness platform and international
growth. The Connected Fitness platform has allowed
Under Armour to capture data on geographic
profiles, sleep, weight, diet, and exercise, given them
information to better structure their websites. In
terms of websites, they have also expanded into four
new countries. They’ve launched websites in Mexico,
Australia, New Zealand, and Chile bringing the total
to 30 global sites. These developments in technology
have grown global mobile traffic, which makes up
57% of their total e-commerce traffic. In 2011, it was
only 5%31. The increase in mobile-friendly
technology appears to be a huge success and space
for growth moving forward.
SWOT Analysis
Strengths: Under Armour’s biggest strength is their
ability to maintain rapid growth. With 26
consecutive quarters of 20% or more revenue
growth, Under Armour has shown no sign of a slowdown. With the CEO Kevin Plank maintaining his goal
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of becoming a bigger business, but still growing fast,
we think that Under Armour has a strong future.
Weaknesses: Their biggest weakness is that Under
Armour is still so heavily dependent on retail stores.
Although they are beginning to transition, it still is a
weakness for the company, as brick-and-mortar
stores are not performing well.
Opportunities: Under Armour’s biggest opportunity
is in the growth of their international sales. The
growing middle class and sports apparel industry
offers opportunities to continue capturing new
markets. Under Armour also has the opportunity to
capture the footwear market. With the help of
Stephen Curry’s new shoe line, they have seen great
success and the opportunity to get closer to Nike.
Threats: Competition in the space is their biggest
threat. A veteran Nike company has far greater
market share and efficient operations. Under
Armour needs to invest heavily both nationally and
internationally to effectively compete with Nike
swoosh. Heavy investment poses a risk and requires
significant capital for the company.
Valuation Analysis
After our analysis of the economy, industry, and
Under Armour we are issuing a HOLD rating of the
Under Armour, Inc. (UA). We reached our target
price, of $36.00-$39.00, by finding the intrinsic value
of the stock by using a few different valuation
methods. Although we used various valuation
method’s such as the Discounted Cash Flow Method,
Economic Profit Model and Dividend Discount
Model, we have come to the conclusion that our DCF
analysis has provided the best valuation going into
the future of Under Armour. Throughout all of our
valuation models we have moved our intrinsic value
of the stock forward to November 14, 2016.
Forecasting Revenues
After our analysis of the economy, industry, and
Under Armour we are issuing a HOLD rating of the
Under Armour, Inc. (UA). We reached our target
price, of $36.00-$39.00, by finding the intrinsic value
of the stock by using a few different valuation
methods. Although we used various valuation
method’s such as the Discounted Cash Flow Method,
Economic Profit Model and Dividend Discount
Model, we have come to the conclusion that our DCF
analysis has provided the best valuation going into
the future of Under Armour. Throughout all of our
valuation models we have moved our intrinsic value
of the stock forward to November 14, 2016.
Forecasting Revenues
Revenue Decomposition
Our team broke down revenue into two distinct
different categories, based on product type and
geographic location. Forecasting our revenues, we
believe that Under Armour will continue to go a
relatively historical rate in the coming years. We
made this assumption based on their consistent
revenue growth numbers over the course of the last
twenty-six quarters. Another reason why we
continue their growth at such an elevated level is
due to expectations that the Sports Apparel industry
is expected to grow by an additional $83B in sales by
the year 2020.
Product Revenue Decomposition
We believe that Under Armour’s continued speed of
growth is due to their capitalization of the footwear
product. The numbers we forecasted are aligned
with management expectations in the future with
footwear sales at $2.0B compared to our forecast of
$1.85B by 2018. Another product we expect
significant growth is Connected Fitness. Under
Armour was able to reach their ambitious goal of
165 million users by the end of 2016. That, in
combination with the results in the recent quarter,
13
gave us proof of concept and steady strong growth
in the future.
Geographic Revenue
We grew international revenue as a percentage of
their total sales going forward. We increased that
percentage going forward after examining the
growth of Nike’s international revenues. Nike now
has over 50% of their revenues coming from
overseas. We ended with, and believe, that ten years
from now Under Armour will have followed a similar
path and will have 30% of their revenues coming
internationally.
Cost of Goods Sold
We kept the cost of goods sold at the same
percentage of sales it has been historically, which is
49.42%. We liked this number, because in the last 5
years, it has never been more than 0.50% different
on either side. This demonstrates its consistency
historically. Going forward, we have no reason to
believe it will be adjusted by more. Under Armour
has no set contracts with suppliers and hedges the
risk of price fluctuations. Also, as a young company,
they are still not a mature enough position to
sacrifice any quality or bargain as much with
suppliers. Also, we examined the cost of goods sold
for Nike. There cost of goods sold is nearly 54% of
revenue every year exactly. This led us to believe
that cost of goods sold remains relatively constant
with these companies and there was not much room
for Under Amour to improve on cost.
Weighted Average Cost of Capital
Our weighted average cost of capital came out to be
12.56%. The value was heavily influenced by the cost
of equity, as the weight of equity and debt is 93.6%
and 6.4%, respectively.
at historical data to derive the beta calculation. We
also used the terminal to calculate the expected
return on the market. We then used the closing price
of the 30-year treasury as of 11/14/2015 in order to
derive our risk free rate. We used these values to
derive a value of 13.19%.
Cost of Debt:
We used the default spread on Under Armour’s Baa2
rating and the risk free rate to calculate their pre-tax
cost of debt. We then adjusted for taxes to find the
after tax cost. We reached a value of 3.54%
Discounted Cash Flows and Economic Profit
The model that we are most confident in is are these
two. The intrinsic value we derived from them is
$37.10 dollars a share as of 11/14/2016. This puts
the value $5.93 above the closing price of that day,
which means there is approximately 19% upside. We
believe this model is the best way to value a
company, especially since they do not have
dividends. We strongly believe in our future
projections for the company and prefer these
models, because they greatly impact this valuation.
Dividend Discount Model
We completed the Dividend Discount Model and
derived the intrinsic value of the stock at $13.98. We
believe that the Dividend Discount Model is not an
accurate representation of the intrinsic value of the
stock. The Dividend Discount Model is not accurate
because our company does not currently pay out
dividends, nor has it ever historically. We do not see
any indication that Under Armour will be paying out
dividends in the near future.
Cost of Equity:
We used the CAPM model to derive the cost of
equity. We used the Bloomberg terminal, and looked
14
Relative Valuation
According to the relative P/E analysis, the price of
Under Armor’s stock based on 2016’s EPS should be
$48.94. This is much higher than the current stock
price. The industry trades at an average P/E ratio of
29 in 2016. We believe that this number is
abnormally high, considering it normally trades
around a P/E ratio of around 18. The high multiple of
the industry is hard to justify, and we are not putting
much weight on this result.
Sensitivity Analysis
Beta vs. Risk Free Rate
This analysis shows that when volatility is low and
the risk free rate is low that Under Amour is worth a
lot more. This leads us to believe that in a stronger
market, where investors are confident in the market
and the bond yields are low, then Under Amour’s
stock will perform exceptionally well. However,
Under Armour does not do well in a high risk
environment. The company has a lot of growth
expectations priced in and trades at a high multiple
so if volatility picks up then there are drastic price
movements.
CV Growth of ROIC vs CV Growth of NOPLAT
This analysis shows that there is not a whole lot of
upside if Under Armour becomes more efficient.
Under Armour lags Nike in terms of returns on
investments. We wanted to see how beneficial it
would be for them to become more efficient. We
concluded that it is was significantly beneficial to
improve upon their steady phase efficiencies.
WACC vs CV growth of NOPLAT
WACC is an important measure to analyze with
Under Armour, because it is almost entirely made up
of the cost of equity. We wanted to look at what
would happen if Under Armour was growing slower
than expected in the long term, but they were able
to decrease WACC. The table shows that WACC is far
more significant than long term growth. If the
company can lower their WACC, it will dramatically
increase the Valuation.
COGS as % of sales vs SG+A as a % of sales
These two costs are critical to Under Armour so we
wanted to evaluate how it drives their valuation. We
found that these costs are nearly identically
significant as valuation drivers. They are both highly
sensitive and even 0.5% moves in either direction for
both costs can change the valuation by a significant
amount. If Under Armour can lower these costs in
the future, which is a difficult task in the industry, it
could create significant value.
Beta vs. Equity Risk Premium
Being that Under Armour’s WACC is nearly almost
entirely cost of equity, the beta and equity risk
premiums are two of the most influential drivers of
the discount rate. If Under Armour’s beta, moves
closer to 1.00 then it moves the intrinsic value to
over $63 per share. Under Armour, being a highgrowth stock, carries a lot more risk than other
companies. If it can capture the trust of investors
and increase stability, then they have an opportunity
to gain massive upside.
Important Disclaimer
This report was created by students enrolled in the
Security Analysis (6F:112) class at the University of
Iowa. The report was originally created to offer an
internal investment recommendation for the
University of Iowa Krause Fund and its advisory
board. The report also provides potential employers
and other interested parties an example of the
students’ skills, knowledge and abilities. Members of
the Krause Fund are not registered investment
advisors, brokers or officially licensed financial
professionals. The investment advice contained in
15
this report does not represent an offer or solicitation
to buy or sell any of the securities mentioned. Unless
otherwise noted, facts and figures included in this
report are from publicly available sources. This
report is not a complete compilation of data, and its
accuracy is not guaranteed. From time to time, the
University of Iowa, its faculty, staff, students, or the
Krause Fund may hold a financial interest in the
companies mentioned in this report.
16
References
1. Under Armour, Inc. (2016). 10-K Annual Report
2015. Retrieved from investor.underarmour.com.
2. Under Armour, Inc. Second Quarter 2016
Conference Call
3. Bernstein, Andrew. "Steph Curry’s Shoes Are
Driving an Under Armour Revenue
Surge." Reuters. Fortune, 25 July 2016. Web.
4. Smith, Ray A. "Under Armour Bets on High-End
Clothing Line." WSJ. Wsj.com, 13 Sept. 2016.
Web.
5. Turner, Nick. "Under Armour Expects to Hit $7.5
Billion in Revenue by 2018." Bloomberg.com.
Bloomberg, 16 Sept. 2015. Web.
6. Matoloni, Lisa. "Bureau of Economic Analysis." US
Department of Commerce, BEA,. N.p., 28 Oct.
2016. Web.
7. "U.S. Retail Sales | 1992-2016 | Data | Chart |
Calendar | Forecast | News." U.S. Retail Sales |
1992-2016 | Data | Chart | Calendar | Forecast |
News. Trading Economics, 14 Nov. 2016. Web.
8. "United States Consumer Sentiment | 1952-2016
| Data | Chart | Calendar." United States
Consumer Sentiment | 1952-2016 | Data | Chart
| Calendar. Trading Economics, 14 Nov. 2016.
Web.
9. "U.S. Dollar Index Historical Chart." MacroTrends.
N.p., 31 Oct. 2016. Web.
10. "China GDP | 1960-2016 | Data | Chart |
Calendar | Forecast | News." China GDP | 19602016 | Data | Chart | Calendar | Forecast |
News. Trading Economics, 14 Nov. 2016. Web.
11. "China to Overtake US as Largest Apparel Market
by 2017." Euromonitor International Blog. N.p.,
02 Sept. 2016. Web.
12. GLOBAL CONSUMER CONFIDENCE (n.d.): n. pag.
The Nielsen, Apr. 2016. Web.
13. Jones, Claire. "ECB Cuts Rates to New Low and
Expands QE." Financial Times, 10 Mar. 2016.
Web.
14. Orlowski, Ralph. "What's Wrong with Europe's
Quantitative Easing Strategy?" World Economic
Forum, 5 Feb. 2016. Web.
15. "Sports Apparel Market." Allied Market Research,
1 Oct. 2015.
16. "United States Disposable Personal Income |
1959-2016 | Data | Chart." United States
Disposable Personal Income | 1959-2016 | Data |
Chart. Trading Economics, 14 Nov. 2016. Web.
17. "Athletic Lifestyles Keep Apparel Sales Healthy."
Morgan Stanley. N.p., 30 Oct. 2015.
18. Melik, James. "Popular Trainer Brands Lose out to
Fakes." BBC News. N.p., 19 July 2013.
19. Nike, Inc. (2016). 10-K Annual Report 2015.
20. Adidas, AG (2016). Annual Report 2015
21. By Dr. Karla Mccorm. "Athletic Endorsements and
Their Effect on Consumers’ Attitudes and
Consumption." Athletic Endorsements and Their
Effect on Consumers’ Attitudes and Consumption
(2013): n. pag. Florida State University.
22. Duverge, By Gabe. "The University of Louisville
Greatly Benefits From Their Deal With Adidas." –
The Cardinal Connect. N.p., 21 Jan. 2014.
23. Nike, Inc. First Quarter 2017 Conference Call
24. Germano, Sara. "Under Armour Results Jump on
Strength of Stephen Curry Shoe Line." WSJ.
Wsj.com, 21 Apr. 2016. Web.
25. Strider, Jeremiah. "Adidas Vs. Nike Vs. Under
Armour: Which for 2016? (NKE,UA)."
Investopedia. N.p., 26 Jan. 2016.
26. McNew, Seth. "4 Reasons Nike Inc Has Such a
High Profit Margin." The Motley Fool. N.p., 15
Oct. 2015.
27. "UA Record™ Health & Fitness Network | Under
Armour." Under Armour®. N.p., n.d. Web.
28. By Phalguni Soni - Disclosure | Apr 22, 2016 3:40
Pm EST. "Why Under Armour's Footwear Sales
Growth Is Accelerating." - Market Realist. N.p., 22
Apr. 2016. Web.
29. Germano, Sara. "Under Armour to Begin Selling
Products at Mid-Tier Department Store Kohl's."
WSJ. Wsj.com, 26 July 2016.
30. Wahba, Phil. "Under Armour Makes Big Play for
Women With Kohl’s Tie-Up." Fortune. N.p., 25
July 2016. Web.
31. Nijjar, Palbir. "The 3 Most Important Growth
Drivers for Under Armour Inc." The Motley Fool.
N.p., 01 Jan. 1970. Web.
17
Under Armour, Inc.
Key Assumptions of Valuation Model
Ticker Symbol
Current Share Price
Current Model Date
Fiscal Year End
Pre‐Tax Cost of Debt
Beta
Risk‐Free Rate
Equity Risk Premium
CV Growth of NOPLAT
Current Dividend Yield
Marginal Tax Rate
Effective Tax Rate
DCF Price
EP Price
WACC
CV ROIC
Cost of Equity
COGS as Percentage of Sales
SG+A as Percentage of Sales
UA
$31.17
11/14/2016
Dec. 31
3.25%
1.2915
3.01%
7.88%
4.00%
0
32.70%
$ 37.10
$ 37.10
12.56%
13%
13.19%
49.421%
37.319%
Under Armour, Inc.
Revenue Decomposition
Fiscal Years Ending Dec. 31
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
$1,762,150
298,825
216,098
Total Net Sales 2,277,073
License
54,978
Connected Fitness
$ ‐
Total Net Revenues 2,332,051
$2,291,520
430,987
275,409
2,997,916
67,229
19,225
3,084,370
$2,801,062
677,744
346,885
3,825,691
84,207
53,415
3,963,313
$3,521,944
945,552 441,377 4,888,474 103,736 68,254 5,060,464 $4,428,352
1,319,183 561,610 6,246,500 127,793 87,215 6,461,508 $5,568,034
1,840,453 714,594 7,981,788 157,430 111,443 8,250,661 $7,001,025
2,567,700 909,251 10,199,142 193,939 142,402 10,535,484 $7,701,127
2,927,178 1,000,176 11,628,482 213,333 181,962 12,023,777 $8,471,240
3,336,983 1,100,194 12,908,417 234,666 232,511 13,375,595 $9,318,364
3,804,161 1,210,213 14,332,738 258,133 297,103 14,887,974 $9,877,466
4,184,577 1,282,826 15,344,869 273,621 379,639 15,998,129 $10,470,114
4,603,034 1,359,796 16,432,944 290,038 485,103 17,208,085 $11,098,321
5,063,338 1,441,383 17,603,042 307,441 619,866 18,530,348 Apparel
Footwear
Accessories
North America
International
Connected Fitness
Total Net Revenue
2,193,739 2,796,374 3,455,737 4,243,378 5,418,149 6,511,374 8,314,465 9,473,452 9,857,313 10,943,153 11,713,867 11,706,088 12,537,338 137,244 268,771 454,161 748,831 956,144 1,627,844 2,078,616 2,368,363 3,285,771 3,647,718 3,904,622 5,016,895 5,373,145 1,068 19,225 53,415 68,254 87,215 111,443 142,402 181,962 232,511 297,103 379,639 485,103 619,866 $8,250,661
$10,535,484
$12,023,777
$13,375,595
$14,887,974
$15,998,129
$17,208,085
$18,530,348
$ 2,332,051 $ 3,084,370 $ 3,963,313 $5,060,464 $6,461,508
Under Armour, Inc.
Balance Sheet
Fiscal Years Ending Dec. 31
2013
2014
Assets
Current assets
Cash and cash equivalents
$347,489
$593,175
$129,852 (82,355) (159,962) (302,541) (542,388) (251,871) 132,016 526,733 1,035,382 1,570,399 2,134,227 Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Deferred income taxes
Total current assets
209,952
469,006
63,987
38,377
1,128,811
279,835
536,714
87,177
52,498
1,549,399
433,638
783,031
152,242
0
1,498,763
Property and equipment, net
223,952
305,564
$ 1,514,522 $ 1,880,530 $ 2,304,804 $ 2,789,281 $ 3,546,709 $ 4,348,701 $ 5,208,689 $ 6,047,963 $ 6,938,413 $ 7,884,467
538,531 740,698 1,018,760 1,401,208 1,927,228 2,119,951 2,331,946 2,565,141 2,821,655 3,103,821 3,414,203
Goodwill
Intangible assets, net
122,244
24,097
123,256
26,230
585,181
585,181
585,181
585,181
585,181
585,181
585,181
585,181
585,181
585,181
585,181
75,686 72,859 70,031 67,204 64,376 61,549 58,721 55,894 53,066 50,239 47,412
Deferred income taxes
Other long term assets
Total assets
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
479,347 612,510 782,666 1,000,092 1,140,248 1,265,754 1,405,418 1,504,664 1,611,356 1,726,092 971,757 1,241,712 1,586,662 2,027,439 2,311,571 2,566,003 2,849,137 3,050,334 3,266,627 3,499,226
145,774 186,270 238,016 304,138 346,761 384,928 427,401 457,583 490,029 524,922 -
-
-
-
-
-
-
-
-
-
31,094
33,570
92,157 57,614 71,942 89,603 111,282 128,892 144,031 161,061 171,583 182,992 195,415
47,543
57,064
78,582 117,334 149,930 191,581 244,802 279,109 309,831 344,018 368,311 394,427 422,512
$1,577,741 $2,095,083 $2,868,900 $ 3,088,208 $ 3,776,375 $ 4,639,581 $ 5,722,151 $ 6,721,391 $ 7,778,411 $ 8,919,984 $ 10,047,759 $ 11,255,072 $ 12,549,190
Liabilities and Stockholders' Equity
Current liabilities
Revolving credit facility
Accounts payable
Accrued expenses
Current maturities of long term debt
Other current liabilities
Total current liabilities
Long term debt, net of current maturities
Other long term liabilities
Total liabilities
Stockholders' equity
Common Equity
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders' equity
Total liabilities and stockholders' equity
$100,000
165,456
210,432
‐
‐ ‐
‐
‐
‐
‐
‐
‐
$275,000 ‐
200,460 340,389 434,629 554,976 708,663 808,772 899,701 1,001,431 1,076,104 1,157,491 1,246,433
133,729
4,972
22,473
426,630
47,951
49,806
524,387
147,681
28,951
34,563
421,627
255,250
67,906
744,783
192,935
42,000
43,415
478,810
352,000
94,868
1,200,678
397,248
508,350
636,630
653,842
856,687 1,076,533
2,194
-14,808
-45,013
1,053,354 1,350,300 1,668,222
$1,577,741 $2,095,083 $2,868,900
241,800
38,269
34,732
$ 655,191
315,403
106,995
$ 1,077,588
308,973
47,512
27,786
$ 818,900
391,581
136,618
$ 1,347,098
394,806
59,652
22,228
$ 1,031,662
491,634
174,446
$ 1,697,743
504,484
75,614
17,783
$ 1,306,543
623,186
222,755
$ 2,152,485
575,184
84,168
14,226
$ 1,482,350
693,689
254,222
$ 2,430,262
638,494
92,293
11,381
$ 1,641,869
760,651
282,804
$ 2,685,325
708,946
101,308
9,105
$ 1,820,789
834,948
314,781
$ 2,970,517
759,009
108,781
7,284
$ 1,951,178
896,537
338,253
$ 3,185,968
812,829
116,895
5,827
$ 2,093,043
963,416
363,836
$ 3,420,294
870,706
125,710
4,662
$ 2,247,510
1,036,064
391,793
$ 3,675,367
672,761 708,892 745,022 781,153 817,284 853,415 853,415 853,415 853,415 853,415
1,382,872 1,765,398 2,241,829 2,833,526 3,518,858 4,284,685 5,141,065 6,053,389 7,026,376 8,065,421 (45,013)
(45,013)
(45,013)
(45,013)
(45,013)
(45,013)
(45,013)
(45,013)
(45,013)
(45,013)
$ 2,010,620 $ 2,429,276 $ 2,941,838 $ 3,569,666 $ 4,291,129 $ 5,093,087 $ 5,949,467 $ 6,861,790 $ 7,834,778 $ 8,873,823 $ 3,088,208 $ 3,776,375 $ 4,639,581 $ 5,722,151 $ 6,721,391 $ 7,778,411 $ 8,919,984 $ 10,047,759 $ 11,255,072 $ 12,549,190
Under Armour, Inc.
Income Statement
Ending Dec. 31
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
$1,472,684
727,148
32,700
712,836
$1,834,921
915,824
39,800
879,297
$2,332,051
1,147,081
48,300
1,136,670
$3,084,370
1,508,564
63,600
1,512,206
$3,963,313
1,970,666
87,100
1,905,547
Selling, general and
Income from ope
Interest expense, n
550,069
162,767
-3,841
670,602
208,695
-5,183
871,572
265,098
-2,933
1,158,251
353,955
-5,335
1,497,000
408,547
-14,628
Other expense, net
Income before in
-2,064
156,862
-73
203,439
-1,172
260,993
-6,410
342,210
-7,234
386,685
Provision for incom
Net income
59,943
$96,919
74,661
$128,778
98,663
$162,330
134,168
$208,042
154,112
$232,573
$5,060,464
$2,500,950
$149,785
$2,409,729
$1,888,519
$521,210
‐$11,494
$0
$509,716
$203,377
$306,339
$6,461,508
$3,193,365
$206,015
$3,062,128
$2,411,376
$650,752
‐$14,271
$0
$636,482
$253,956
$382,526
$8,250,661
$4,077,589
$283,354
$3,889,718
$3,079,071
$810,647
‐$17,917
$0
$792,730
$316,299
$476,431
$10,535,484
$5,206,779
$389,726
$4,938,978
$3,931,746
$1,007,232
‐$22,711
$0
$984,521
$392,824
$591,697
$12,023,777
$5,942,314
$428,699
$5,652,764
$4,487,164
$1,165,600
‐$25,280
$0
$1,140,320
$454,988
$685,332
$13,375,595
$6,610,401
$471,569
$6,293,625
$4,991,650
$1,301,975
‐$27,721
$0
$1,274,255
$508,428
$765,827
$14,887,974
$7,357,840
$518,725
$7,011,409
$5,556,056
$1,455,353
‐$30,428
$0
$1,424,925
$568,545
$856,380
$15,998,129
$7,906,493
$570,598
$7,521,038
$5,970,355
$1,550,682
‐$32,673
$0
$1,518,010
$605,686
$912,324
$17,208,085
$8,504,470
$627,658
$8,075,958
$6,421,900
$1,654,057
‐$35,110
$0
$1,618,947
$645,960
$972,987
$18,530,348
$9,157,950
$690,424
$8,681,974
$6,915,357
$1,766,618
‐$37,758
$0
$1,728,860
$689,815
$1,039,045
$1.69
56%
$2.11
25%
$2.62
25%
$3.26
24%
$3.77
16%
$4.22
12%
$4.71
12%
$5.02
7%
$5.36
7%
$5.72
7%
Net revenues
Cost of goods sold
Depreciation
Gross profit
Net income available per common share
Basic
$0.94
$1.23
$0.77
$0.98
31%
‐37%
27%
Weighted average common shares outstanding
Basic
103,140
104,343
210,696
213,227
EPS Growth
$1.08
10%
215,498 181,649
181,651 181,653 181,655 181,658 181,660 181,660 181,660 181,660 181,660
Under Armour, Inc.
Cash Flow Statement
Under Armour, Inc.
2011
2012
2013
2014
2015
$ 96,919
$ 128,778
$ 162,330
$ 208,042
$ 232,573
36,301
43,082
50,549
72,093
100,940
4,027
(2,464)
1,905
11,739
33,359
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Unrealized foreign currency exchange rate (gains) losses
Loss on disposal of property and equipment
36
524
332
261
549
Stock-based compensation
18,063
19,845
43,184
50,812
60,376
Gain on bargain purchase of corporate headquarters (excludes transaction costs of $1.9 Million
(3,300)
-
-
Deferred income taxes
3,620
(12,973)
(18,832)
(17,584)
(4,426)
Changes in reserves and allowances
5,536
13,916
13,945
31,350
40,391
(33,923)
(53,433)
(35,960)
(101,057)
(191,876)
(114,646)
4,699
(156,900)
(84,658)
(278,524)
Changes in operating assets and liabilities, net of effects of acquistions:
Accounts receivable
Inventories
Prepaid expenses and other assets
(42,633)
(4,060)
(19,049)
(33,345)
(76,476)
Accounts payable
17,209
35,370
14,642
49,137
(22,583)
Accrued expenses and other liabilities
23,442
21,966
56,481
28,856
64,126
Income taxes payable and receivable
4,567
4,511
7,443
3,387
(2,533)
15,218
199,761
120,070
219,033
(44,104)
Purchases of property and equipment
(56,228)
(50,650)
(87,830)
(140,528)
(298,928)
Purchases of businesses, net of cash acquired
(23,164)
-
(148,097)
(10,924)
(539,460)
Purchases of other assets
(1,153)
(1,310)
-
(103,144)
Purchase of long term investment
(3,862)
-
-
-
96,610
-
-
(1,700)
(5,029)
5,029
-
(89,436)
(46,931)
(238,102)
30,000
-
100,000
(30,000)
-
Net cash provided by operating activities
Cash flows from investing activities
Change in loans receivable
Change in restricted cash
Net cash used in investing activities
(475)
(860)
(152,312)
(2,553)
(847,475)
Cash flows from financing activities
Proceeds from revolving credit facility
Payments on revolving credit facility
Proceeds from term loan
-
500,000
-
(100,000)
(225,000)
25,000
-
-
250,000
150,000
-
(25,000)
-
(13,750)
(36,250)
5,644
50,000
-
(4,972)
(3,952)
Payments on long term debt
(7,418)
(44,330)
(5,471)
Excess tax benefits from stock-based compensation arrangements
10,260
17,868
17,167
36,965
45,917
Proceeds from exercise of stock options and other stock issuances
14,645
14,776
15,099
15,776
10,310
Payments of debt financing costs
(2,324)
(1,017)
-
(1,713)
(947)
45,807
12,297
126,795
182,306
440,078
(75)
1,330
(3,115)
(3,341)
(11,822)
(28,486)
166,457
5,648
245,686
(463,323)
Payments on term loan
Proceeds from long term debt
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalants
Net increase in cash and cash equivalents
Cash and cash equivelents
Beginning of period
End of period
203,870
175,384
341,841
347,489
593,175
$ 175,384
$ 341,841
$ 347,489
$ 593,175
$ 129,852
$ 38,556
$
$
Non-cash investing and financing activities
Debt assumed and property and equipment aquired in connection with purchase of build to suit leases
Non-Cash Aquisition of Business
Increase in accrual for property and equipment
5,631
-
-
157
12,137
3,786
56,940
57,739
2,305
3,306
11,233
$
4,922
$ 17,758
85,570
103,284
99,708
1,505
4,146
11,176
Other supplemental information
Cash paid for income taxes
Cash paid for interest
Under Armour, Inc.
Cash Flow Statement
Under Armour, Inc.
Cash flows from operating activities
Net income
2016E
$
306,339 $
2017E
382,526 $
2018E
476,431 $
2019E
591,697 $
2020E
685,332 $
2021E
765,827 $
2022E
2023E
856,380 $
2024E
912,324 $
2025E
972,987 $ 1,039,045
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
149,785
34,543
Deferred income taxes
206,015
(14,329)
283,354
(17,661)
389,726
(21,678)
428,699
(17,610)
471,569
(15,139)
518,725
(17,030)
570,598
(10,521)
627,658
(11,409)
690,424
(12,424)
(2,827)
(2,827)
(2,827)
(2,827)
(2,827)
(2,827)
(2,827)
(2,827)
(2,827)
(2,827)
(45,709)
(188,726)
6,468
139,929
48,865
(8,683)
(38,752)
12,127
413,359
(133,163)
(269,956)
(40,496)
94,240
67,173
(6,946)
(32,596)
29,623
282,236
(170,156)
(344,950)
(51,746)
120,346
85,833
(5,557)
(41,651)
37,829
373,066
(217,426)
(440,777)
(66,121)
153,687
109,678
(4,446)
(53,221)
48,309
491,512
(140,156)
(284,132)
(42,623)
100,109
70,700
(3,557)
(34,307)
31,467
793,935
(125,506)
(254,432)
(38,168)
90,929
63,310
(2,845)
(30,721)
28,582
952,717
(139,664)
(283,134)
(42,473)
101,729
70,452
(2,276)
(34,187)
31,977
1,059,881
(99,246)
(201,197)
(30,182)
74,674
50,063
(1,821)
(24,293)
23,472
1,261,865
(106,693)
(216,293)
(32,446)
81,387
53,820
(1,457)
(26,116)
25,582
1,364,726
(114,736)
(232,598)
(34,892)
88,941
57,877
(1,165)
(28,085)
27,957
1,477,644
(351,952)
(351,952)
(484,077)
(484,077)
(665,801)
(665,801)
(915,747)
(915,747)
(621,422)
(621,422)
(683,564)
(683,564)
(751,920)
(751,920)
(827,112)
(827,112)
(909,823)
(909,823)
(1,000,806)
(1,000,806)
5,583
(315,328)
36,131
(273,614)
2,682
85,421
36,131
124,234
1,832
112,194
36,131
150,157
743
147,514
36,131
184,388
2,815
79,057
36,131
118,003
3,515
75,087
36,131
114,733
3,445
83,311
86,756
4,834
69,063
73,897
5,121
74,994
80,115
5,527
81,463
86,990
394,717
132,016
526,733
508,649
526,733
1,035,382
535,017
1,035,382
1,570,399
563,828
1,570,399
$ 2,134,227
ST DIT
Goodwill
Intangible Asset
Changes in operating assets and liabilities, net of effects of acquistions:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other liabilities
Other Current Liabilities
Other Long Term Assets
Other Long Term Liabilities
Net cash provided by operating activities
Cash flows from investing activities
Property Plant and Equipment
Net cash used in investing activities
Cash flows from financing activities
Excess tax benefits from stock-based compensation arrangements
Change Debt
Change in Equity
Net cash provided by financing activities
Increase (Decrease) in Cash
Beginning Cash
Ending Cash
$
(212,207)
129,852
(82,355) $
(77,607)
(82,355)
(159,962) $
(142,578)
(159,962)
(302,541) $
(239,847)
(302,541)
(542,388) $
290,517
(542,388)
(251,871) $
383,887
(251,871)
132,016 $
$
$
Under Armour, Inc.
Common Size Balance Sheet
Fiscal Years Ending Dec. 31
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Deferred income taxes
Total current assets
Property and equipment, net
Goodwill
Intangible assets, net
Deferred income taxes
Other long term assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities
Revolving credit facility
Accounts payable
Accrued expenses
Current maturities of long term debt
Other current liabilities
Total current liabilities
Long term debt, net of current maturities
Other long term liabilities
Total liabilities
Stockholders' equity
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (los
Total stockholders' equity
Total liabilities and stockholders' equity
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
14.90%
9.00%
20.11%
2.74%
1.65%
48.40%
9.60%
5.24%
1.03%
1.33%
2.04%
67.65%
19.23%
9.07%
17.40%
2.83%
1.70%
50.23%
9.91%
4.00%
0.85%
1.09%
1.85%
67.93%
3.28%
10.94%
19.76%
3.84%
0.00%
37.82%
13.59%
14.76%
1.91%
2.33%
1.98%
72.39%
‐1.63%
9.47%
19.20%
2.88%
0.00%
29.93%
14.64%
11.56%
1.44%
1.14%
2.32%
61.03%
‐2.48%
9.48%
19.22%
2.88%
0.00%
29.10%
15.77%
9.06%
1.08%
1.11%
2.32%
58.44%
‐3.67%
9.49%
19.23%
2.88%
0.00%
27.93%
16.98%
7.09%
0.81%
1.09%
2.32%
56.23%
‐5.15%
9.49%
19.24%
2.89%
0.00%
26.48%
18.29%
5.55%
0.61%
1.06%
2.32%
54.31%
‐2.09%
9.48%
19.22%
2.88%
0.00%
29.50%
17.63%
4.87%
0.51%
1.07%
2.32%
55.90%
0.99%
9.46%
19.18%
2.88%
0.00%
32.51%
17.43%
4.37%
0.44%
1.08%
2.32%
58.15%
3.54%
9.44%
19.14%
2.87%
0.00%
34.99%
17.23%
3.93%
0.38%
1.08%
2.31%
59.91%
6.47%
9.41%
19.07%
2.86%
0.00%
37.80%
17.64%
3.66%
0.33%
1.07%
2.30%
62.81%
9.13%
9.36%
18.98%
2.85%
0.00%
40.32%
18.04%
3.40%
0.29%
1.06%
2.29%
65.41%
11.52%
9.31%
18.88%
2.83%
0.00%
42.55%
18.42%
3.16%
0.26%
1.05%
2.28%
67.72%
4.29%
7.09%
5.73%
0.21%
0.96%
18.29%
2.06%
2.14%
22.49%
0.00%
6.82%
4.79%
0.94%
1.12%
13.67%
8.28%
2.20%
24.15%
6.94%
5.06%
4.87%
1.06%
1.10%
12.08%
8.88%
2.39%
30.29%
0.00%
6.73%
4.78%
0.76%
0.69%
12.95%
6.23%
2.11%
21.29%
0.00%
6.73%
4.78%
0.74%
0.43%
12.67%
6.06%
2.11%
20.85%
0.00%
6.73%
4.79%
0.72%
0.27%
12.50%
5.96%
2.11%
20.58%
0.00%
6.73%
4.79%
0.72%
0.17%
12.40%
5.92%
2.11%
20.43%
0.00%
6.73%
4.78%
0.70%
0.12%
12.33%
5.77%
2.11%
20.21%
0.00%
6.73%
4.77%
0.69%
0.09%
12.28%
5.69%
2.11%
20.08%
0.00%
6.73%
4.76%
0.68%
0.06%
12.23%
5.61%
2.11%
19.95%
0.00%
6.73%
4.74%
0.68%
0.05%
12.20%
5.60%
2.11%
19.91%
0.00%
6.73%
4.72%
0.68%
0.03%
12.16%
5.60%
2.11%
19.88%
0.00%
6.73%
4.70%
0.68%
0.03%
12.13%
5.59%
2.11%
19.83%
17.03%
28.04%
0.09%
45.17%
67.65%
16.48%
27.78%
‐0.48%
43.78%
67.93%
16.06%
27.16%
‐1.14%
42.09%
72.39%
13.29%
27.33%
‐0.89%
39.73%
61.03%
10.97%
27.32%
‐0.70%
37.60%
58.44%
9.03%
27.17%
‐0.55%
35.66%
56.23%
7.41%
26.90%
‐0.43%
33.88%
54.31%
6.80%
29.27%
‐0.37%
35.69%
55.90%
6.38%
32.03%
‐0.34%
38.08%
58.15%
5.73%
34.53%
‐0.30%
39.96%
59.91%
5.33%
37.84%
‐0.28%
42.89%
62.81%
4.96%
40.83%
‐0.26%
45.53%
65.41%
4.61%
43.53%
‐0.24%
47.89%
67.72%
Under Armour, Inc.
Common Size Income Statement
Fiscal Years Ending Dec. 31
Net revenues
Cost of goods sold
Depreciation
Gross profit
Selling, general and administrative expenses
Income from operations
Interest expense, net
Other expense, net
Income before income taxes
Provision for income taxes
Net income
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
100%
49.19%
2.07%
48.74%
37.37%
11.37%
‐0.13%
‐0.05%
11.19%
4.23%
6.96%
100%
48.91%
2.06%
49.03%
37.55%
11.48%
‐0.17%
‐0.21%
11.09%
4.35%
6.75%
100%
49.72%
2.20%
48.08%
37.77%
10.31%
‐0.37%
‐0.18%
9.76%
3.89%
5.87%
100%
49.42%
2.96%
47.62%
37.32%
10.30%
‐0.23%
0.00%
10.07%
4.02%
6.05%
100%
49.42%
3.19%
47.39%
37.32%
10.07%
‐0.22%
0.00%
9.85%
3.93%
5.92%
100%
49.42%
3.43%
47.14%
37.32%
9.83%
‐0.22%
0.00%
9.61%
3.83%
5.77%
100%
49.42%
3.70%
46.88%
37.32%
9.56%
‐0.22%
0.00%
9.34%
3.73%
5.62%
100%
49.42%
3.57%
47.01%
37.32%
9.69%
‐0.21%
0.00%
9.48%
3.78%
5.70%
100%
49.42%
3.53%
47.05%
37.32%
9.73%
‐0.21%
0.00%
9.53%
3.80%
5.73%
100%
49.42%
3.48%
47.09%
37.32%
9.78%
‐0.20%
0.00%
9.57%
3.82%
5.75%
100%
49.42%
3.57%
47.01%
37.32%
9.69%
‐0.20%
0.00%
9.49%
3.79%
5.70%
100%
49.42%
3.65%
46.93%
37.32%
9.61%
‐0.20%
0.00%
9.41%
3.75%
5.65%
100%
49.42%
3.73%
46.85%
37.32%
9.53%
‐0.20%
0.00%
9.33%
3.72%
5.61%
Under Armour, Inc.
Value Driver Estimation
Under Armour, Inc.
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
3.25%
1.30%
34.10%
3.25%
1.40%
34.30%
12.56%
3.25%
1.50%
32.70%
12.56%
3.25%
1.60%
32.29%
12.56%
3.25%
1.70%
32.10%
12.56%
3.25%
1.80%
31.61%
12.56%
3.25%
1.90%
30.95%
12.56%
3.25%
2.00%
30.53%
12.56%
3.25%
2.10%
30.11%
12.56%
3.25%
2.20%
29.63%
12.56%
3.25%
2.30%
29.16%
12.56%
3.25%
2.40%
28.72%
12.56%
3.25%
2.50%
28.29%
Operating Revenues
‐Cost of Goods Sold
‐SG+A
+Interest on PV operating Leases
EBITA
$2,332,051 1,147,081 871,572 5,803 $ 319,201 $3,084,370 1,508,564 1,158,251 9,037 $ 426,592 $3,963,313 1,970,666 1,497,000 13,077 $ 508,724 $ 5,060,464 2,500,950 1,888,519 19,938 $ 690,933 $ 6,461,508 3,193,365 2,411,376 25,482 $ 882,249 $ 8,250,661 4,077,589 3,079,071 32,569 $ 1,126,570 $ 10,535,484 5,206,779 3,931,746 41,626 $ 1,438,584 $ 12,023,777 5,942,314 4,487,164 53,203 $ 1,647,502 $ 13,375,595 6,610,401 4,991,650 67,998 $ 1,841,542 $ 14,887,974 7,357,840 5,556,056 86,909 $ 2,060,987 $ 15,998,129 7,906,493 5,970,355 111,078 $ 2,232,358 $ 17,208,085 8,504,470 6,421,900 141,968 $ 2,423,683 $ 18,530,348 9,157,950 6,915,357 181,450 $ 2,638,491 Income Tax Provision
+Tax Shield on Interest Expense
+Tax Shield on Other Non‐Op +Tax Shield on Operating Leases
Total Adjusted Taxes
$ 98,663 1,000 400 1,979 $102,042
$ 134,168 1,830 2,199 3,100 $141,296
$ 154,112 4,783 2,366 4,276 $165,537
$ 203,377 $ 253,956 $ 316,299 $ 392,824 $ 454,988 $ 508,428 $ 568,545 $ 605,686 $ 645,960 $ 689,815 3,711 4,183 5,590 7,307 8,985 11,232 14,385 18,224 22,905 28,943 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 6,438 8,180 10,294 12,885 16,244 20,473 25,751 32,385 40,776 51,326 $ 213,526 $ 266,319 $ 332,184 $ 413,016 $ 480,216 $ 540,132 $ 608,681 $ 656,295 $ 709,641 $ 770,085 Deferred Tax Liabilities (Previous Year)
$0
Deferred Tax Assets (Previous Year)
45,657
‐$45,657
$0
69,471
‐$69,471
$0 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ 86,068
92,157 118,092 150,848 190,223 243,118 309,847 394,354 501,450 638,955 813,549 ‐$86,068 $ (92,157) $ (118,092) $ (150,848) $ (190,223) $ (243,118) $ (309,847) $ (394,354) $ (501,450) $ (638,955) $ (813,549)
Deferred Tax Liabilties (Current Year)
Deferred Tax Assets (Current Year)
$0
69,471
$ (69,471)
$0
86,068
$ (86,068)
$0 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ 92,157 57,614 71,942 89,603 111,282 128,892 144,031 161,061 171,583 182,992 195,415 $ (92,157) $ (57,614) $ (71,942) $ (89,603) $ (111,282) $ (128,892) $ (144,031) $ (161,061) $ (171,583) $ (182,992) $ (195,415)
Change in Deferred Taxes $ (23,814)
Assumptions:
WACC
Cost of Debt
Normal Cash
Marginal Tax Rate
NOPLAT
Operating Current Assets:
Normal Cash
Accounts Receivable Inventory
Prepaid Expenses Operating Current Liabilties:
Accounts Payable
Accrued Expenses
Net Operating Working Capital
+Net PPE
+PV of Operating Leases
+Net Intangible Assets
+Other Assets
‐Other Long Term Liablities
Invested Capital
$ (16,597)
$ (6,089)
$ 34,543 $ 46,150 $ 61,245 $ 78,941 $ 114,226 $ 165,817 $ 233,293 $ 329,868 $ 455,963 $ 618,134 $193,345
$268,699
$337,098
$ 511,950 $ 662,080 $ 855,631 $ 1,104,510 $ 1,281,512 $ 1,467,227 $ 1,685,599 $ 1,905,931 $ 2,170,005 $ 2,486,540 $30,317
209,952
469,006
63,987
$773,262
$43,181
279,835
536,714
87,177
$946,907
$59,450
433,638
783,031
152,242
$1,428,361
$ 80,967
$ 109,846
$ 148,512
$ 200,174
$ 240,476
$ 280,887
$ 327,535
$ 367,957
$ 412,994
$ 463,259
$ 479,347
$ 612,510
$ 782,666 $ 1,000,092
$ 1,140,248
$ 1,265,754
$ 1,405,418
$ 1,504,664
$ 1,611,356
$ 1,726,092
$ 971,757 $ 1,241,712
$ 1,586,662
$ 2,027,439
$ 2,311,571
$ 2,566,003
$ 2,849,137
$ 3,050,334
$ 3,266,627
$ 3,499,226
$ 145,774
$ 186,270
$ 238,016
$ 304,138
$ 346,761
$ 384,928
$ 427,401
$ 457,583
$ 490,029
$ 524,922
$ 1,677,845 $ 2,150,338 $ 2,755,856 $ 3,531,843 $ 4,039,055 $ 4,497,573 $ 5,009,492 $ 5,380,538 $ 5,781,007 $ 6,213,498 $165,456
133,729
$299,185
$210,432
147,681
$358,113
$200,460
192,935
$393,395
$ 340,389
$ 434,629
$ 554,976
$ 708,663
$ 808,772
$ 899,701 $ 1,001,431
$ 1,076,104
$ 1,157,491
$ 1,246,433
$ 241,800
$ 308,973
$ 394,806
$ 504,484
$ 575,184
$ 638,494
$ 708,946
$ 759,009
$ 812,829
$ 870,706
$ 582,189 $ 743,602 $ 949,782 $ 1,213,147 $ 1,383,956 $ 1,538,195 $ 1,710,376 $ 1,835,113 $ 1,970,320 $ 2,117,138 $474,077
223,952
278,056
24,097
47,543
49,806
$ 997,919
$588,794
305,564
402,373
26,230
57,064
67,906
$ 1,312,120
$1,034,966
538,531
613,467
75,686
78,582
94,868
$ 2,246,364
$ 1,095,655 $ 1,406,736 $ 1,806,075 $ 2,318,696 $ 2,655,099 $ 2,959,378 $ 3,299,116 $ 3,545,424 $ 3,810,687 $ 4,096,360 740,698
1,018,760
1,401,208
1,927,228
2,119,951
2,331,946
2,565,141
2,821,655
3,103,821
3,414,203
784,072 1,002,122 1,280,811 1,637,004 2,092,254 2,674,108 3,417,775 4,368,256 5,583,065 7,135,711 72,859
70,031
67,204
64,376
61,549
58,721
55,894
53,066
117,334 149,930 191,581 244,802 279,109 309,831 344,018 368,311
106,995 136,618 174,446 222,755 254,222 282,804 314,781 338,253
$ 2,703,624 $ 3,510,961 $ 4,572,432 $ 5,969,353 $ 6,953,740 $ 8,051,180 $ 9,367,163 $ 10,818,460 50,239
394,427
363,836
$ 12,578,403 47,412
422,512
391,793
$ 14,724,405 NOPLAT
$193,345
$268,699
$337,098 $ 511,950 $ 662,080 $ 855,631 $ 1,104,510 $ 1,281,512 $ 1,467,227 $ 1,685,599 $ 1,905,931 $ 2,170,005 $ 2,486,540 Beginning Invested Capital $ 706,210 $ 997,919 $ 1,312,120 $ 2,246,364 $ 2,703,624 $ 3,510,961 $ 4,572,432 $ 5,969,353 $ 6,953,740 $ 8,051,180 $ 9,367,163 $ 10,818,460 $ 12,578,403 ROIC
27.38%
26.93%
25.69%
22.790%
24.489%
24.370%
24.156%
21.468%
21.100%
20.936%
20.347%
20.058%
19.768%
$ 511,950 $ 662,080 $ 855,631 $ 1,104,510 $ 1,281,512 $ 1,467,227 $ 1,685,599 $ 1,905,931 $ 2,170,005 $ 2,486,540 $ 457,260 $ 807,338 $ 1,061,471 $ 1,396,920 $ 984,388 $ 1,097,440 $ 1,315,983 $ 1,451,297 $ 1,759,943 $ 2,146,001 $ 54,690 $ (145,258) $ (205,840) $ (292,411) $ 297,124 $ 369,787 $ 369,616 $ 454,634 $ 410,062 $ 340,538 NOPLAT
$193,345
Change in Invested Capital $ 291,709
FCF
($98,364)
$268,699
$ 314,201
($45,502)
$337,098
$ 934,244
($597,146)
Beginning Invested Capital $ 706,210
ROIC‐WACC
27.38%
EP
$193,345
$ 997,919
26.93%
$268,699
$ 1,312,120 $ 2,246,364 $ 2,703,624 $ 3,510,961 $ 4,572,432 $ 5,969,353 $ 6,953,740 $ 8,051,180 $ 9,367,163 $ 10,818,460 $ 12,578,403 10.23%
11.92%
11.81%
11.59%
8.90%
8.53%
8.37%
7.78%
7.49%
7.20%
25.69%
$337,098 $ 229,695 $ 322,370 $ 414,480 $ 529,985 $ 531,465 $ 593,492 $ 673,971 $ 728,950 $ 810,670 $ 906,068 Under Armour, Inc.
Weighted Average Cost of Capital (WACC) Estimation
Fiscal Years Ending Dec. 31
Risk Free
Expected S&P Market Return
Risk Premium
Beta
Cost of Equity
2011
2012
Debt Rating
Default Spread
Pre‐Tax Cost of Debt
Risk Free Free
Tax Rate
After Tax Cost of Debt
WACC
2014
2015
3.01%
10.89%
7.88%
1.2915
13.19%
Baa2
2.25%
3.25%
3.01%
32.70%
3.54%
Cost of Preferred
MV Weight of Equity
BV Weight of Debt
MV Weight of Preferred
Total
2013
N/A
93.6%
6.4%
0.0%
100.0%
12.56%
$ 5,716,266,300.00
$ 394,000,000.00
$ ‐
$ 6,110,266,300.00
12.56%
Under Armour, Inc.
Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs:
CV Growth
CV ROIC
WACC
Cost of Equity
4.00%
13.00%
12.56%
13.19%
Dec. 31
DCF Model
NOPLAT
ROIC
CAPEX
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
$ 511,950 $ 662,080 $ 855,631 $ 1,104,510 $ 1,281,512 $ 1,467,227 $ 1,685,599 $ 1,905,931 $ 2,170,005 $ 2,486,540 22.79%
24.49%
24.37%
24.16%
21.47%
21.10%
20.94%
20.35%
20.06%
19.77%
$ 457,260 $ 807,338 $ 1,061,471 $ 1,396,920 $ 984,388 $ 1,097,440 $ 1,315,983 $ 1,451,297 $ 1,759,943 $ 2,146,001 $ 54,690 $ (145,258)
$ (205,840)
$ (292,411)
$ 297,124 $ 369,787 $ 369,616 $ 454,634 $ 410,062 $ 340,538 FCF
CV
$ 20,098,750
Cash Flow to Discount $ 54,690 $ (145,258) $ (205,840) $ (292,411) $ 297,124 $ 369,787 $ 369,616 $ 454,634 $ 410,062 $ 20,098,750
Periods to Discount
1
2
3
4
5
6
7
8
9
9
PV of Free Cash Flows $
48,586 $
(114,639) $
(144,318) $
(182,130) $
164,407 $
181,774 $
161,409 $
176,375 $
141,326 $
6,926,916
Enterprise Value $ 7,359,706
70,402
78,582
43,415
94,868
394,000
613,467
257,051
Equity Value 6,105,889
Shares Outstanding
183,390
Price (As of Dec. 31, 2015) $ 33.29
Price Today $ 37.10
+ Excess Cash
+Other Long Term Assets
‐Other Current Liablities
‐Other Liabilities
‐Net Debt
‐PV of Operating Leases
‐ESOP
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
$ 511,950
$ 2,246,364.05
22.790%
12.56%
EP $ 229,695
CV
$ 662,080
$ 2,703,623.66
24.489%
12.56%
$ 322,370
$ 855,631
$ 3,510,961.32
24.370%
12.56%
$ 414,480
$ 1,104,510
$ 4,572,432.08
24.156%
12.56%
$ 529,985
$ 1,281,512
$ 5,969,352.51
21.468%
12.56%
$ 531,465
$ 1,467,227
$ 6,953,740.18
21.100%
12.56%
$ 593,492
$ 1,685,599
$ 8,051,180.13
20.936%
12.56%
$ 673,971
$ 1,905,931
$ 9,367,162.96
20.347%
12.56%
$ 728,950
$ 2,170,005
$ 10,818,460.02
20.058%
12.56%
$ 810,670
$ 2,486,540
$ 12,578,403.26
19.768%
12.56%
$ 906,068
229695
322370
2
414480
3
529985
4
531465
5
593492
6
673971
7
728950
8
810670 $ 7,520,347
9
9
254,419 $
290,599 $
330,104 $
294,075 $
291,740 $
294,319 $
282,795 $
279,393 $
EP Model
NOPLAT
Beg IC
ROIC
WACC
CF to Discount
Periods to Discount
1
PV of Free Cash Flows $
204,056 $
$
EP Value $
Plus: Invested Capital
Enterprise Value
+ Excess Cash
+Other Long Term Assets
‐Other Current Liablities
‐Other Liabilities
‐Net Debt
‐PV of Operating Leases
‐ESOP
2,246,364
7,359,706
70,402
78,582
43,415
94,868
394,000
613,467
257,051
Equity Value
Shares Outstanding
Price (As of Dec. 31, 2015$
Price Today $
Today
Next FYE
Last FYE
Days in FY
Days to FYE
Elapsed Fraction
11/15/2016
12/31/2016
12/31/2015
366
320
0.874
5,113,342
6,105,889
183,390
33.29
37.10
7,520,347
2,591,843
Under Armour, Inc.
Dividend Discount Model (DDM) or Fundamental P/E Valuation Model
Fiscal Years Ending Dec. 31
EPS
Key Assumptions
CV growth
CV ROE
Cost of Equity
1
2016E
2
2017E
3
2018E
4
2019E
5
2020E
6
2021E
7
2022E
8
2023E
9
2024E
10
2025E
$ 1.69 $ 2.11 $ 2.62 $ 3.26 $ 3.77 $ 4.22 $ 4.71 $ 5.02 $ 5.36 $ 5.72
4.00%
11.71%
13.19%
Future Cash Flows
P/E Multiple (CV Year) 7.166474
EPS (CV Year) $ 5.95
Payout Ratio
Future Stock Price $ 42.63
Dividends Per Share
$ (4.53) $ (1.22) $ (1.35) $ (1.50) $ 0.03 $ 0.92 $ 0.84 $ 2.55 $ 2.49 $ 2.40
Discounted Cash Flows
$ (4.00) $ (0.95) $ (0.93) $ (0.91) $ 0.02 $ 0.44 $ 0.35 $ 0.95 $ 0.82 $ 0.70
Intrinsic Value
$ 13.98
Relative Valuation Models
Ticker
NKE
ADS
VFC
LULU
RL
Company
Nike, Inc.
Adidas AG
V.F. Corporation
Lululemon
Ralph Lauren Corp
Price
$50.49
$81.78
$54.16
$57.75
$98.42
EPS
2016E
$2.22 $1.82 $2.52 $2.01 $3.62 EPS
2017E
$2.37 $5.39 $3.13 $2.15 $5.43 Average
UA
Under Armour, Inc.
Implied Value:
Relative P/E (EPS16)
Relative P/E (EPS17)
PEG Ratio (EPS16)
PEG Ratio (EPS17)
$31.17
$1.69 $ 48.94 $ 41.60
$ 109.83
$ 90.16
P/E 16
22.7
44.9
21.5
28.7
27.2
P/E 17
21.3
15.2
17.3
26.9
18.1
29.0 19.8
Est. 5yr
EPS gr.
12.6
10.5
9.2
16.1
7.9
PEG 16
1.80
4.30
2.34
1.78
3.45
PEG 17
1.69
1.45
1.89
1.67
2.30
2.7 1.8
$2.11 43.0 14.8 23.8 1.8
0.6
Present Value of Operating Lease Obligations (2015)
Present Value of Operating Lease Obligations (2014)
Operating
Leases
$ 84,620
$ 84,566
$ 81,912
$ 77,332
$ 73,808
$ 314,836
$ 717,074
$ 103,607
$ 613,467
Fiscal Years Ending Dec. 31
2016
2017
2018
2019
2020
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
Pre‐Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
$ 84,620
$ 84,566
$ 81,912
$ 77,332
$ 73,808
$ 73,808
Present Value of Operating Lease Obligations (2013)
Operating
Leases
$ 56,452
$ 57,079
$ 52,172
$ 48,345
$ 44,313
$ 214,214
$ 472,575
$ 70,202
$ 402,373
$ 15,359
Fiscal Years Ending Dec. 31
2015
2016
2017
2018
2019
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
3.25%
4.3
PV Lease
Payment
$ 81,956
$ 79,326
$ 74,418
$ 68,045
$ 62,900
$ 246,821
$ 613,467
Pre‐Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
$ 56,452
$ 57,079
$ 52,172
$ 48,345
$ 44,313
$ 44,313
Present Value of Operating Lease Obligations (2012)
Operating
Leases
$ 44,292
$ 44,116
$ 37,308
$ 32,532
$ 29,347
$ 136,329
$ 323,924
$ 45,868
$ 278,056
Fiscal Years Ending 2014
2015
2016
2017
2018
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
3.25%
4.8
PV Lease
Payment
$ 54,675
$ 53,542
$ 47,399
$ 42,539
$ 37,764
$ 166,454
$ 402,373
Pre‐Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
$ 44,292
$ 44,116
$ 37,308
$ 32,532
$ 29,347
$ 29,347
Fiscal Years Ending 65.8564719654477
2013
2014
2015
2016
2017
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Present Value of Operating Lease Obligations (2011)
Operating
Leases
$ 30,610
$ 33,558
$ 31,848
$ 24,980
$ 20,181
$ 61,718
$ 202,895
$ 24,347
$ 178,548
Capitalization of Operating Leases
3.25%
4.6
PV Lease
Payment
$ 42,898
$ 41,382
$ 33,895
$ 28,625
$ 25,010
$ 106,246
$ 278,056
Pre‐Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
$ 30,610
$ 33,558
$ 31,848
$ 24,980
$ 20,181
$ 20,181
Operating
Fiscal Years Ending 27.488957970927
Leases
2012
$ 22,926
2013
$ 23,470
2014
$ 26,041
2015
$ 24,963
2016
$ 18,734
Thereafter
$ 69,044
Total Minimum Payments
$ 185,178
Less: Interest
$ 24,747
PV of Minimum Payments
$ 160,431
Capitalization of Operating Leases
3.25%
3.1
PV Lease
Payment
$ 29,646
$ 31,479
$ 28,934
$ 21,980
$ 17,199
$ 49,310
$ 178,548
Pre‐Tax Cost of Debt
Number Years Implied by Year 6 Paym
Lease
Year
Commitment
1
$ 22,926
2
$ 23,470
3
$ 26,041
4
$ 24,963
5
$ 18,734
6 & beyond
$ 18,734
PV of Minimum Payments
3.25%
3.7
PV Lease
Payment
$ 22,204
$ 22,016
$ 23,659
$ 21,965
$ 15,965
$ 54,622
$ 160,431
VALUATION OF OPTIONS GRANTED IN ESOP
Ticker Symbol
Current Stock Price
Risk Free Rate
Current Dividend Yield
Annualized St. Dev. of Stock Returns
Range of
Outstanding Options
2015
2014
2013
2012
2011
Total
Average
Number
Exercise
of Shares
Price
3,004
14.52
2,811
8.28
2,136
16.22
3,149
15.31
2,404
27.99
13,504 $ 16.07
UA
$31.17
2.62%
0.00%
30.69%
Average
Remaining
Life (yrs)
4.91
5.01
5.90
6.80
7.60
6.01
B‐S
Option
Price
$ 18.98
$ 23.97
$ 18.32
$ 19.38
$ 13.52
$ 18.48
Value
of Options
Granted
$ 57,017
$ 67,376
$ 39,139
$ 61,018
$ 32,501
$ 257,051
Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding
Number of Options Outstanding (shares): Average Time to Maturity (years):
Expected Annual Number of Options Exercised:
Current Average Strike Price:
Cost of Equity:
Current Stock Price:
13,504
6.01
2,248
$ 16.07
13.19%
$31.17
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
Increase in Shares Outstanding:
Average Strike Price:
Increase in Common Stock Account:
2,248
2,248
2,248
2,248
2,248
2,248
0
0
0
0
$ 16.07 $ 16.07 $ 16.07 $ 16.07 $ 16.07 $ 16.07 $ 16.07 $ 16.07 $ 16.07 $ 16.07
36,131 36,131 36,131 36,131 36,131 36,131 ‐
‐
‐
‐
Change in Treasury Stock
Expected Price of Repurchased Shares:
Number of Shares Repurchased:
0
0
0
0
0
0
0
0
0
0
$ 31.17 $ 35.28 $ 39.93 $ 45.20 $ 51.16 $ 57.91 $ 65.54 $ 74.18 $ 83.97 $ 95.04
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
Shares Outstanding (beginning of the year)
Plus: Shares Issued Through ESOP
Less: Shares Repurchased in Treasury
Shares Outstanding (end of the year)
181,646,468 181,648,716 181,650,964 181,653,212 181,655,460 181,657,708 181,659,956 181,659,956 181,659,956 181,659,956
2,248
2,248
2,248
2,248
2,248
2,248
0
0
0
0
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
181,648,716 181,650,964 181,653,212 181,655,460 181,657,708 181,659,956 181,659,956 181,659,956 181,659,956 181,659,956
Sensitivity Analysis Beta
1.2915
$ 45.58
$ 42.52
$ 39.70
$ 37.10
$ 34.70
$ 32.46
$ 30.39
$ 37.10
2.11%
2.41%
2.71%
3.01%
3.31%
3.61%
3.91%
0.9915
$ 80.50
$ 74.18
$ 68.52
$ 63.42
$ 58.81
$ 54.62
$ 50.81
1.0915
$ 65.86
$ 61.01
$ 56.63
$ 52.63
$ 48.99
$ 45.65
$ 42.58
1.1915
$ 54.54
$ 50.73
$ 47.25
$ 44.05
$ 41.11
$ 38.40
$ 35.90
1.3915
$ 38.35
$ 35.85
$ 33.54
$ 31.39
$ 29.39
$ 27.53
$ 25.79
1.4915
$ 32.42
$ 30.35
$ 28.42
$ 26.62
$ 24.95
$ 23.38
$ 21.90
1.5915
$ 27.49
$ 25.75
$ 24.13
$ 22.61
$ 21.19
$ 19.85
$ 18.60
$ 37.10
2.50%
3.00%
CV Growth of NOPLAT
3.50%
4.00%
4.50%
5.00%
5.50%
11.50%
$ 35.50
$ 35.25
$ 34.97
$ 34.66
$ 34.31
$ 33.92
$ 33.47
12.00%
$ 35.97
$ 35.84
$ 35.70
$ 35.54
$ 35.37
$ 35.17
$ 34.94
CV Growth of ROIC
12.50%
13.00% 13.50%
$ 36.40 $ 36.80 $ 37.17
$ 36.39 $ 36.89 $ 37.36
$ 36.37 $ 36.99 $ 37.56
$ 36.35 $ 37.10 $ 37.80
$ 36.34 $ 37.23 $ 38.06
$ 36.31 $ 37.37 $ 38.35
$ 36.29 $ 37.53 $ 38.69
14.00%
$ 37.51
$ 37.79
$ 38.10
$ 38.44
$ 38.83
$ 39.26
$ 39.76
14.50%
$ 37.83
$ 38.19
$ 38.59
$ 39.04
$ 39.54
$ 40.11
$ 40.76
$ 37.10
11.06%
11.56%
12.06%
12.56%
13.06%
13.56%
14.06%
3.25%
$ 51.78
$ 46.16
$ 41.25
$ 36.94
$ 33.13
$ 29.75
$ 26.73
3.50%
$ 52.15
$ 46.39
$ 41.38
$ 36.99
$ 33.12
$ 29.70
$ 26.65
CV Growth of NOPLAT
3.75%
4.00%
4.25%
$ 52.54 $ 52.97 $ 53.42
$ 46.64 $ 46.90 $ 47.18
$ 41.52 $ 41.66 $ 41.82
$ 37.05 $ 37.10 $ 37.16
$ 33.12 $ 33.11 $ 33.10
$ 29.65 $ 29.59 $ 29.53
$ 26.56 $ 26.47 $ 26.38
4.50%
$ 53.91
$ 47.48
$ 41.98
$ 37.23
$ 33.09
$ 29.47
$ 26.28
4.75%
$ 54.44
$ 47.81
$ 42.16
$ 37.30
$ 33.09
$ 29.41
$ 26.17
$ 37.10
35.82%
36.32%
36.82%
37.32%
37.82%
38.32%
38.82%
47.141%
$ 48.92
$ 47.36
$ 45.79
$ 44.23
$ 42.67
$ 41.10
$ 39.54
47.901%
$ 46.54
$ 44.98
$ 43.42
$ 41.85
$ 40.29
$ 38.73
$ 37.17
COGS as % of Sales
48.661% 49.421% 50.18%
$ 44.17 $ 41.79 $ 39.42
$ 42.60 $ 40.23 $ 37.85
$ 41.04 $ 38.67 $ 36.29
$ 39.48 $ 37.10 $ 34.73
$ 37.92 $ 35.54 $ 33.16
$ 36.35 $ 33.98 $ 31.60
$ 34.79 $ 32.41 $ 30.04
50.94%
$ 37.04
$ 35.48
$ 33.91
$ 32.35
$ 30.79
$ 29.23
$ 27.66
51.70%
$ 34.66
$ 33.10
$ 31.54
$ 29.98
$ 28.41
$ 26.85
$ 25.29
$ 37.10
7.58%
7.68%
7.78%
7.88%
7.98%
8.08%
8.18%
0.9915
$ 68.24
$ 66.58
$ 64.98
$ 63.42
$ 61.92
$ 60.46
$ 59.04
1.0915
$ 56.81
$ 55.37
$ 53.98
$ 52.63
$ 51.33
$ 50.06
$ 48.84
1.1915
$ 47.71
$ 46.45
$ 45.23
$ 44.05
$ 42.91
$ 41.80
$ 40.73
Beta
1.2915
$ 40.34
$ 39.23
$ 38.15
$ 37.10
$ 36.09
$ 35.11
$ 34.16
1.4915
$ 29.22
$ 28.33
$ 27.46
$ 26.62
$ 25.81
$ 25.03
$ 24.26
1.5915
$ 24.96
$ 24.15
$ 23.37
$ 22.61
$ 21.88
$ 21.17
$ 20.48
Risk‐Free Rate
WACC
SG+A as % of Sales
Equity Risk Premium
1.3915
$ 34.28
$ 33.28
$ 32.32
$ 31.39
$ 30.48
$ 29.61
$ 28.76