Under Armour
The Future of Performance Sportswear?
An Evaluation
FIN 553
June 4th 20091
INDUSTRY BACKDROP
IN
THE
BEGINNING…
3
WE’VE COME A LONG WAY,
BABY
WE’VE
COME A
LONG
WAY.
MATERIALS
TECHNOLOGY
HIGH END
• “In the six-year period to 2012,
just-style forecasts performance
apparel will outperform all
sportswear by a factor of ...
UA OVERVIEW
“The core strength of our brand
is its connection to athletes who
understand the benefits of
performance products.”
( (Sou...
COMPANY SCOREBOARD
$205,181
$281,053
$430,689
$606,561
$725,244
2004 2005 2006 2007 2008
5 YEAR ANNUAL COMPOUND GROWTH RAT...
COMPETITIVE LANDSCAPE
14
CORPORATE GOVERNANCE
Name Title Age Total cash compensations
Kevin A Plank CEO and Chairman of the Board 35 $528,656 USD
B...
CURRENT CONSIDERATIONS
Share performance vs. S&P 500
(source FT.com)
Under Armour Inc. (UA) Key financials
(Source: Yahoo ...
VALUATION
INTRINSIC VALUATION ASSUMPTIONS
rf 3.65%
rd 1.78%
rm 3.90%
β 1.15
g 3.00%
D/V 0.03
E/V 0.97
CAPM 8.25%
WACC 8.04%
18
NIKE INTERNATIONAL GROWTH COMPARISON
Nike ($ in millions) UA
Year 1981 1982 1983 1984 1985 2008 2015E
Actual sales
Domesti...
NET INCOME CALCULATIONS
($ in millions) Historical Projected
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015
Domestic Sa...
DCF CALCULATIONS
($ in millions) Historical Projected
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 TV
EBIT 89 70 72 7...
PEER ANALYSIS
Name Country P/E
Ratio
EV/EBITDA
Under Armour 12.15
Perry Ellis International Inc 9.7 7.37
Oxford Industries...
INTRINSIC VALUE
DCF Calculation
DCF $131m
Continuing Value $567m
Total Value $697m
Shares O/S 50.4m
Target share
price
$13...
RISKS TO VALUATION
WHAT-IF? SCENARIO (INT GROWTH AT 15%)
DCF Calculation
DCF $115m
Continuing Value $455m
Total Value $570m
Shares O/S 50.4m
...
REAL OPTIONS
OPTION 1:CHINA
OPTION 2: DIRECT TO CUSTOMER
CONCLUSION
CONCLUSION
At $25 Under Armour is overpriced.
We recommend
a target price of $13 a share
Reasons
• Investors regard Under ...
31
CRAIG JOHNSTON
KEVAN O’CONNOR
KEVIN LEWIS
DAVID CLARK
VISUAL PRESENTATION
BY
DISCLAIMER: THE VIEWS CONTAINED IN THIS DOCUM...
Under Armour Final Presentation
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Under Armour Final Presentation

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Under Armour Final Presentation

  1. 1. Under Armour The Future of Performance Sportswear? An Evaluation FIN 553 June 4th 20091
  2. 2. INDUSTRY BACKDROP
  3. 3. IN THE BEGINNING… 3
  4. 4. WE’VE COME A LONG WAY, BABY
  5. 5. WE’VE COME A LONG WAY.
  6. 6. MATERIALS
  7. 7. TECHNOLOGY
  8. 8. HIGH END
  9. 9. • “In the six-year period to 2012, just-style forecasts performance apparel will outperform all sportswear by a factor of two, raising the US$ money value of performance sportswear to US$7.20bn .” • (Source: Taking the lead in performance apparel: just-style.com, 21 September 2006 | INDUSTRY OVERVIEW 10
  10. 10. UA OVERVIEW
  11. 11. “The core strength of our brand is its connection to athletes who understand the benefits of performance products.” ( (Source: Letter to Shareholders, UA 2008 Annual Report )
  12. 12. COMPANY SCOREBOARD $205,181 $281,053 $430,689 $606,561 $725,244 2004 2005 2006 2007 2008 5 YEAR ANNUAL COMPOUND GROWTH RATE - 44.4% NET REVENUES IN THOUSANDS; YEAR 2004-2008 $25,153 $35,810 $56,918 $86,265 $76,295 2004 2005 2006 2007 2008 5 YEAR ANNUAL COMPOUND GROWTH RATE - 50.5% NET REVENUES IN THOUSANDS; YEAR 2004-2008 NET REVENUES IN THOUSANDS; YEAR 2004-2008 INCOME FROM OPERATIONS IN THOUSANDS; YEAR 2004-2008 NET REVENUES IN THOUSANDS; YEAR 2004-2008 INCOME FROM OPERATIONS IN THOUSANDS; YEAR 2004-2008 80% 12% 4% 4% NET REVENUES BY PRODUCT CATEGORY YEAR 2008 APPAREL FOOTWEAR ACESSORIES LICENSE REVENUES
  13. 13. COMPETITIVE LANDSCAPE 14
  14. 14. CORPORATE GOVERNANCE Name Title Age Total cash compensations Kevin A Plank CEO and Chairman of the Board 35 $528,656 USD Brad Dickerson CFO 43 Unavailable Wayne E. Marino Executive VP/COO 47 $308,369 USD Matthew C. Mirchin DVP 48 $394,935 USD James E. Calo Other Executive Officer 45 $789,026 USD Melissa A. Wallace VP, Divisional 49 $722,225 USD Name Title Age Affiliation Thomas J. Sippel Director 61 Partner of the law firm Gill, Sippel & Gallagher Harvey L. Sanders Director 58 Former Chairman of the Board of Directors of Nautica Enterprises, Inc William R. McDermott Director 47 Former CEO of SAP Global Field Operations Anthony W. Deering Director 63 Chairman of Exeter Capital, LLC A.B. Krongard Director 71 Executive Director of the Central Intelligence Agency Byron K. Adams, Jr. Director 54 Managing Director, Rosewood Capital, LLC 15
  15. 15. CURRENT CONSIDERATIONS Share performance vs. S&P 500 (source FT.com) Under Armour Inc. (UA) Key financials (Source: Yahoo Finance) Current Price $25.23 52-Week range $12-$44 Market Capital $1.25 billion P/E ratio 32.06 Recent returns (Source: Woolframalpha.com) Day 2.81% Month 5.13% YTD 5.83% Year -27.44% Annual Volatility (Source: Woolframalpha.com) UA 84.40% S&P 500 45.68% Bonds 5.71% T-Bills 0.00% 16
  16. 16. VALUATION
  17. 17. INTRINSIC VALUATION ASSUMPTIONS rf 3.65% rd 1.78% rm 3.90% β 1.15 g 3.00% D/V 0.03 E/V 0.97 CAPM 8.25% WACC 8.04% 18
  18. 18. NIKE INTERNATIONAL GROWTH COMPARISON Nike ($ in millions) UA Year 1981 1982 1983 1984 1985 2008 2015E Actual sales Domestic 432 651 774 761 730 692 2159 International 26 43 93 158 216 33 540 Total 458 694 867 920 946 725 2699 % Splits Domestic 94.32% 93.80% 89.27% 82.72% 77.17% 95.45% 79.99% International 5.68% 6.20% 10.73% 17.28% 22.83% 4.55% 20.01% Total 100% 100% 100% 100% 100% 100% 100% Average Nike International Growth 1982-1991 32% 19
  19. 19. NET INCOME CALCULATIONS ($ in millions) Historical Projected Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 Domestic Sales 562 661 720 785 903 1038 1194 1373 1579 International Sales 44 65 77 92 121 160 211 278 367 Total Net Revenues 607 725 797 877 1024 1198 1405 1651 1946 Gross Profit 305 355 383 421 491 575 674 793 934 Total Operating Expense 219 278 327 360 420 491 576 677 798 Operating Income 86 77 56 61 72 84 98 116 136 Depreciation 15 21 21 21 21 21 21 21 21 EBITDA 101 98 77 83 93 105 120 137 158 Total Other Income/(Expense) 3 (7) 16 18 20 24 28 33 39 EBIT 89 69 72 79 92 108 126 149 175 Provision for Income Taxes 36 32 26 28 33 39 46 54 63 Net Income 53 38 46 50 59 69 81 95 112 20
  20. 20. DCF CALCULATIONS ($ in millions) Historical Projected Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 TV EBIT 89 70 72 79 92 109 126 148 175 Taxes 36 32 26 28 33 39 46 54 63 Net Income 53 38 46 51 59 69 81 95 112 Depreciation 15 21 22 23 23 24 25 25 26 CapEx (22) (21 (16) (18) (20) (24) (28) (33) (39) ΔNWC (53) (37) (39) (41) (43) (45) (46) (49) (52) FCF (8) 2 13 15 19 24 30 38 48 974 Discounted FCF and TV 12 13 15 18 21 24 28 567 21
  21. 21. PEER ANALYSIS Name Country P/E Ratio EV/EBITDA Under Armour 12.15 Perry Ellis International Inc 9.7 7.37 Oxford Industries Inc 12.9 9.88 Columbia Sportswear Co. 13.27 8.04 Hanesbrands Inc 22.23 8.34 Mean N/A 14.53 8.41 Median N/A 13.09 8.19 Stock performance (Source: Yahoo.com/Ifinancilas.com) 22
  22. 22. INTRINSIC VALUE DCF Calculation DCF $131m Continuing Value $567m Total Value $697m Shares O/S 50.4m Target share price $13.85 P/E Valuation Calculation Net Income (2009) $45,915,181 No of shares 50,400,400 EPS $0.91 Multiple (Comparables) 14.53 Equity Value $666,918,005 Target Price per share $13.23 EV/EBITDA Valuation Calculation EBITDA (2009) $77,146,699 No of shares 50,400,400 Multiple 8.41 Enterprise Value $648,610,874 Net Debt $13,158,000 Equity Value $635,452,874 Target price per share $12.61 23
  23. 23. RISKS TO VALUATION
  24. 24. WHAT-IF? SCENARIO (INT GROWTH AT 15%) DCF Calculation DCF $115m Continuing Value $455m Total Value $570m Shares O/S 50.4m Target share price $11.32 P/E Valuation Calculation Net Income (2009) $45,915,181 No of shares 50,400,400 EPS $0.91 Multiple (Comparables) 14.53 Equity Value $666,918,005 Target Price per share $13.23 EV/EBITDA Valuation Calculation EBITDA (2009) $77,146,699 No of shares 50,400,400 Multiple 8.41 Enterprise Value $648,610,874 Net Debt $13,158,000 Equity Value $635,452,874 Target price per share $12.61 25
  25. 25. REAL OPTIONS
  26. 26. OPTION 1:CHINA
  27. 27. OPTION 2: DIRECT TO CUSTOMER
  28. 28. CONCLUSION
  29. 29. CONCLUSION At $25 Under Armour is overpriced. We recommend a target price of $13 a share Reasons • Investors regard Under Armour as the next Nike, hence the 25x P/E multiple. •However the days of double digit growth are over •Could be undercut by cheaper, private label merchandise 30
  30. 30. 31
  31. 31. CRAIG JOHNSTON KEVAN O’CONNOR KEVIN LEWIS DAVID CLARK VISUAL PRESENTATION BY DISCLAIMER: THE VIEWS CONTAINED IN THIS DOCUMENT ARE FOR INTERNAL PURPOSES ONLY AND DO NOT REFLECT THE VIEWS OF DEPAUL UNIVERSITY OR ITS EMPLOYEES CREDITS

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