Davide Campari - Top Global Spirits Firm

Davide Campari – Milano S.p.A.
Introduction
Headquartered in Milan, Italy, Gruppo Campari (Campari) is the
sixth-largest beverage company in the world with operations in
more than 190 nations, including being the self-proclaimed
leader in Italy and Brazil and a top-tier presence in the USA,
Germany and Switzerland.
Davide Campari-Milano S.p.A. traces its beginnings to 1860,
when Italian drink master Gaspare Campari created the
eponymous bitter aperitif at his bar in Novara. He soon opened
the Café Campari in Milan’s central gallery, where the drink
gained widespread popularity and is credited with establishing
the Milanese social cocktail ritual. Son Davide Campari helped
focus the business on the most successful Campari aperitif and
the Cordial Campari spinoff, and he soon began to build
Campari into an internationally distributed liquor. The Campari
product line was extended in 1932 with the introduction of
Campari Soda, the world’s first pre-mixed, single serve bottle
marketed worldwide, which featured a distinctive bottle
designed by Fortunado Despero. Chemist Domenico Garavoglia
joined the Company in 1952 and would guard the secret
Campari recipe and eventually lead the Company until his death
in 1992. Under Garavoglia’s leadership, Campari would
continue to expand its reach, eventually reaching distribution in
over 190 countries. Garavoglia inherited control of the
Company after the last living Campari heir passed away in
1982.
As the spirits industry began a still-ongoing wave of
international consolidation in the 1990s, Campari decided to
join the fray in 1995 with the acquisition of Dutch company

BolsWessanen’s Italian soft drinks business. In exchange for a
35% stake in the Company, Campari acquired a portfolio
including the non-alcoholic aperitif Crodino, Lemonsoda, and
Cynar brands. Campari followed that up with the acquisition of
Cinzano sparkling wine and vermouth, plus Greek liquor
Ouzo12, from Diageo for €122.7 million in 1999. Campari also
acquired a portfolio of local Brazilian brands from Diageo for
$105 million in early 2001. To support additional growth and
provide an exit for minority shareholders, Campari completed
its initial public offering on July 6, 2001. Led by Deutsche
Bank and UBS and listed on the Italian Stock Exchange,
Campari sold 13.7 million existing shares at €31 per share
(€1.55 per share, split adjusted). The IPO allowed Wessanen to
exit its position in Campari, and the Company did not raise any
money through primary share issuance. Campari’s growth
accelerated following the IPO through global expansion of
acquired portfolios. Today Campari is a truly international
Company with a broad wine and spirits portfolio; Campari and
Campari Soda have declined from 43% of net sales in 2000 to
just 14% in 2013.
Vision / Mission Statement
The company doesn’t provide a written vision statement but it
has provided what the company aspire to be (mission) and
values that it lives through.
The company wants to be:
· Unique
· Fast growing & Profitable

· Fun
· Lifestyle brands
Davide Campari lives through values of:
· Integrity
· Passion
· Pragmatism
· Performance Orientation
The company aims to remain a highly profitable top player in
the global spirits industry by combining its passion for brand
building with entrepreneurial drive and functional excellence.
When reading the statement above, one can see that the
company has managed to be profitable and remained a top
player, currently sixth-largest beverage company in the world.
Objectives and Strategies
With the objective of increasing cash flow generationover time,
Gruppo Campari has constantly increased its turnover and
profits in the past years, which management believes is the
combined result of organic growth through marketing and brand
building, innovation and enhancement in route-to-market as
well as development and expansion of recently acquired brands,
with external growth through selective acquisitions, and a focus
on cost efficiencies.
Key objectives of Group organic growth strategy are to:
· Drive faster growth of Top 5 spirits Brands and incubate High
Potential Brands with best – in – class marketing, innovation
and brand building.
· Generate steady growth in key local brands through periodical
renewals.
· Leverage on rigorous cost discipline to reinvest savings into
strategic brand building
· Develop the Group’s presence in high potential markets.
Gruppo Campari strives to grow and maintain its market share
by positioning and promoting its brands clearly and consistently
across all their markets. Gruppo Campari invested 260.8 million

(Euro) in advertising and promotion in 2014.
Key objectives of Group external growth strategy are to:
· Seek acquisitions in markets where Gruppo Campari controls
its distribution.
· Acquire local brands with strong equity to build new
distribution platforms
· Identify Specialty Brand with strong equity and pricing power.
· Maintain financial discipline.
Spirits are the company’s core business and where it focuses its
acquisition efforts. The group’s strategic thinking is driven by
the desire to reach or enhance critical mass in key geographic
markets.
External Audit
Opportunities
1. Increase in the consumption of alcoholic drinks worldwide:
over the past several years, almost all the firms in the industry
have mostly done well. For example, in 2011, all European
alcoholic companies outperformed most broad-based indexes.
This result can be explained by a poor economy; food and
beverage stocks – including alcoholic stocks – were perceived
by investors as safer than broad-based investments.
2. Strategic acquisitions in this industry are one of the most
effective means to make a significant step forward in terms of
both size and regional diversification. Strategic acquisitions can
strengthen a company’s operations in its key spirits markets;
companies operating in the alcohol industry can leverage on
synergies to further improve their revenue growth as well as the
market share in important spirit markets.
3. Shift in consumer preferences: The alcohol beverage industry
is witnessing a shift in consumer preferences. A growing
number of consumers are shifting to spirits and wines,

especially the younger consumers, who are just forming their
drinking habits and brand loyalties. These consumers perceive
premium spirits as more sophisticated than traditional beers.
Furthermore, the penetration rate of 'at home' drinking has
increased in the recent past. Consumers have increasingly been
seeking the comforts of their homes as the 'homing' trend
becomes more important. The desire for everyday luxury also
underlines the trend for greater indulgence at home and together
these trends offer a number of opportunities to marketers.
Threats
1. Increasing health concerns as new data become available
regarding alcohol consumption and various health problems.
Other than contributing to traumatic death and injury (e.g. car
crashes), alcohol is associated with chronic liver disease,
cancers, cardiovascular disease, acute alcohol poisoning (i.e.,
alcohol toxicity), and fetal alcohol syndrome.
2. Smoking bans at restaurant around the world may reduce
revenues. Studies have found that people who smoke are much
more likely to drink, and people who drink are much more
likely to smoke. Dependence on alcohol and tobacco also is
correlated – people who are dependent on alcohol are three
times more likely than those in the general population to be
smokers, and people who are dependent on tobacco are four
times more likely than the general population to be dependent
on alcohol[footnoteRef:1]. [1: NIAAA (National Institute on
Alcohol Abuse and Alcoholism)]
3. Stringent advertising regulation: alcohol companies have
been criticized for irresponsible portrayal of alcoholic drinks in
advertisements. Especially in the European countries, regulatory
authorities have been coming down heavily on alcohol
advertising, claiming that such advertisements fuel binge

drinking. There are numerous restrictions, controls and statutory
regulations that govern the advertising strategies of beverage
companies. Most European countries have imposed legal bans
on advertising of spirits on television (TV) and radio; on
broadcast advertisements linking alcohol with children, driving,
sport or promoting alcohol abuse; and on sponsorship of TV and
radio programs by companies primarily concerned in alcohol
production. Such stringent advertisement regulations imposed
on manufacturers of alcoholic beverages could have a negative
impact on the brand image of the companies in this industry.
4. Potential introduction of additional excise taxes and import
duties: Europe, one of the largest geographical market for the
industry, faces a risk of potential federal excise tax increase on
spirits. In addition, many other states and jurisdictions are
considering possible excise tax increases. The Ministry of
Finance in Russia proposed a 10 percent increase in excise tax
applicable to high-alcohol-content beverages.
5. Small changes in weather patterns could drastically impact
wine prices: Though grapes are grown worldwide, premium
winegrape production occurs within very narrow climate ranges.
Any shift in climate and weather patterns may affect the wine
industry. In addition, changes in temperatures and humidity may
increase the presence of insects and bird-related diseases.
6. Growing trade of counterfeit alcohol: counterfeit alcohol
refers to the selling of cheap, fake alcohol under reputed brand
names. According to industry sources, more than 30% of the
alcohol consumed in the world is unregistered. Counterfeiting
of alcohol products is increasingly becoming prevalent in
China, one of the largest markets in the world. Industry sources
estimate that counterfeit alcohol leads to an estimated €900
million loss annually in the European Union.

Competitive Analysis: Porter’s Five-Forces Model
Rivalry Among Competing Firms:Moderate to High
Many of the bigger players in the industry are competing
fiercely with one another. Companies usually strive to gain or
limit or prohibit the distribution rights in select markets. Over
the last decade, the beverage industry experienced many
acquisitions as well as joint ventures for distribution rights in
select markets.
Potential Entry of New Competitors: Low
Barriers to entry are high in the beverage industry; to start a
winery of any size in the USA it is estimated requires a $1
million investment after accounting for the vineyard,
equipment, government regulation, a tremendous amount of
knowledge, and so on. Assuming a successful wine product, it
would still take more than three years to return a profit. In
addition, a strong distribution network is required to operate in
this industry. Last but not least, strong brand names are
important, because customers tend to be loyal to their favorite
brands.
Potential Development of Substitute products: Low to Moderate
New trends include consumers shifting towards healthy
lifestyles and substitute alcoholic products for more healthy
choices such as water. However, there is still a very significant
market for alcoholic beverages. On the opposite, there are no
real substitutes for alcohol-based beverages, even if some
people would say that drugs can be considered a substitute
good.
Bargaining Power of Suppliers: Low
Suppliers in this industry face high competition and rely on

high volumes. As a consequence, they have less bargaining
power, because a producer can threaten to cut volumes and hurt
the supplier’s profits. In the beverage industry, basic inputs are
farm outputs and they are not a big component of costs; in
addition, there are a large number of substitute inputs and
critical production inputs are similar.
Bargaining Power of Buyers: High
Campari and rivals are concerned about having their products
shut out of select market; for this reason, distributors often have
the upper hand and consequently sell their business for values
in excess of a fair price, thus inflating the purchasing firm’s
goodwill on the respective balance sheets.
External Factor Evaluation Matrix
External Factor Evaluation Matrix
Key External Factors
Weight
Rating
Weighted Score
Opportunities
1. Increase in the consumption of alcoholic drinks worldwide
0.12
2
0.24
2. Strategic Acquisitions
0.20
3
0.60
3. Shifts in consumer preferences
0.10
4

0.40
Threats
1. Increasing health concerns
0.06
1
0.06
2. Smoking bans at restaurants/bars around the world may
reduce revenues
0.03
1
0.03
3. Stringent advertising regulations
0.10
3
0.30
duties
0.20
2
0.40
wine prices
0.04
3
0.12
6. Growing trade of counterfeit alcohol
0.15
2
0.30

Total
1.00
2.45
Davide Campari - Milano EFE score is 2.21. To understand this
outcome we should consider that the firm is responding
relatively well to existing opportunities. However, the size and
market share of the company is too small compared with its
competitors; such limitations do not allow the company to
effectively face the global competition.
Competitive Profile Matrix
Davide Campari scored 2.8 and ranked number four, situation
we consider realistic due to the current size and market share of
the firm's top competitors. The company is doing well overall,
however, there surely is room for improvements.
Internal Audit
Strengths
1. Major players in the global branded beverage industry. The
group ranked 6Th in the global beverage industry with a
portfolio of over 50 brands marketed and distributed in over 190
countries worldwide. The company has self-proclaimed as
leader in Italy and Brazil and top-tier presence in the USA,
Germany, and Switzerland. Internationally-renowned brands
include Aperol, Appleton Estate, Campari, Cinzano, SKYY

Vodka and Wild Turkey among others. Also, Campari was
ranked among the top 50 spirits by an industry source in 2013.
It was also ranked among world’s most powerful spirits and
wine brands in 2013 by an industry source specialized in brand
valuation and strategy.
2. Solid expanding international footprint. The company has an
extensive presence worldwide and distributed in over 190
countries. Campari has excellent coverage in the Americas and
Europe region.
3. Strong and diverse portfolio of brands. Campari has a strong
portfolio of over 50 premium, super premium and ultra-premium
brands in the spirits, wines and soft drinks segments.
The Aperol, Wild Turkey, and SKYY brands were also ranked
among world's most powerful spirits and wine brands in
2013.The group's wine portfolio consists of brands such as
Cinzano sparkling wines, Cinzano vermouth, Riccadonna,
Mondoro, Odessa and Sella&Mosca. Cinzano Vermouth brand
was also ranked among the most powerful spirits and wine
brands in 2013.The group's soft drink brand portfolio includes
Crodino, single-serve non-alcoholic aperitif; and Lemon soda,
the soda range. Both these brand share market leaders in Italy.
Strong brand portfolio in diverse product categories allows the
group to supply to different customer groups. Campari has
leveraged its brand strength to expand its market potential,
thereby becoming a strong player in the beverage segment.
4.Powerful distribution network. The group operates through a
strong distribution network. Depending on the size and
economies of scale, distribution is supported by internal
network, external network or through joint-ventures. Campari
owns 16 plants and 3 wineries worldwide and has its own
distribution network in 19 countries such as Italy, Austria,
Belgium, Germany, Spain, Switzerland, the UK, Ukraine,
Jamaica, Mexico, the US, Argentina, Brazil, and China. These

facilities manage the group's own brands and distribute a
number of other leading brands under license. The flexible
distribution approach facilitates the group to reach an extensive
market and satisfy consumer needs and the demands of the
individual countries, increasing probabilities of additional
growth.
Weaknesses
1. History of acquiring too much goodwill with acquisitions.
Campari’s balance sheet from 2012 reveals that about 50
percent of the company’s assets are good will, which is not a
good thing. Campari has a history of acquiring too much good
will with acquisition; but these acquisitions are vital to
obtaining distributions rights. It is generally good to see a
company increasing its assets regularly; however, if these
increases are coming from intangible assets, such as goodwill,
the increases may not be as good. It can mean that the company
is recording a proportionately higher amount of goodwill,
assuming total assets are remaining constant, and this has not
effect on cash flow.
2. Trading conditions in Italy affects negativity the overall
Campari’s performance. Tradeoff conditions in Italy remain
volatile and adversely impacted by high unemployment, higher
taxation and legislation. Recent policies introduces restrictions
affecting some of their commercial relationships and trade
destocking
3. Less exposure to emerging markets limits future growth
opportunities. Although Campari is the world's sixth largest
beverage company, it does not have significant presence in
some of the emerging and profitable markets like India and
China. Strong competitors like Pernod Ricard and Diageo have
strong presence in these markets. The outlook for the spirits
market in Asia Pacific is excellent because by 2017, this market

is expected to reach a value of $130.3 billion, an increase of
25.5% since 2012. Therefore, Campari's fragile presence in such
emerging markets places it in a disadvantageous situation
against its competitors with significant presence. Moreover, it
limits the group's future growth prospects.
4. Lack of scale compare to competitors. Campari lacks
favorable scale of operations in comparison to its competitors.
Many of its competitors, such as Diageo, Pernod Ricard and
Brown-Forman are much larger in size in terms of revenues.
The follow table shows this difference in terms of profit margin
and sales 2013 period:
Source: seekingalpha.com/article/1738592-5
The group's small scale of operations may turn out to be a
disadvantage in the aggressively competitive market. It may
also decrease the bargaining power of Campari.
Internal Factor Evaluation Matrix
Internal Factor Evaluation Matrix
Key Internal Factors
Weight
Rating
Weighted Score
Strengths
1. Major player in the global branded beverage industry.
0.15

3
0.45
2. Solid expanding international footprint
0.13
3
0.39
3. Strong and diverse portfolio of brands
0.15
4
0.60
4. Powerful distribution network
0.15
4
0.60
Weaknesses
1. History of acquiring too much goodwill with acquisitions
0.08
1
0.08
Campari’s performance
0.07
2
0.14
opportunities
0.13
2
0.26
4. Lack of scale compare to competitors
0.14
1
0.14

Total
1.00
2.66
Davide Campari scored 2.66. The company is doing well
internally. However, they need to develop different and better
strategies to meet the gaps to improve weakness.
Financial Ratios
Davide Campari-Milano
Constellation Brands
Diageo PLC
Beam, Inc.
Key Financial Ratios
2012
2011
2012
2012
2012
1. Current Ratio
2.51
1.95
1.7
1.52
1.09
2. Quick Ratio

1.53
1.31
0.44
0.64
0.64
3. Debt-to-Equity Ratio
0.82
0.58
0.9
1.32
0.64
4. Inventory turnover Ratio
1.47
1.72
1.16
1.15
1.47
5. Gross Profit Margin
57.4
57.7
35.7
60.4
39.3
6. Net Profit Margin
11.69
12.49
14.94
18.05
-2.62
7. ROA
4.97

5.73
6.23
9.22
-1.31
8. ROE
11.22
12.18
17.02
35.85
-9.26
Current Valuation Ratios
April 24, 2015
EPS
(EUR) 0.24
P/E Ratio
30.38
Share Price
(EUR) 7.28
1. Current Ratio: with a current ratio of 2.51, the company is
capable to pay its obligations by using its assets. The company
current ratio is very high compare to its direct competition.
2. Quick Ratio: a quick ratio of 1.53 simply means that the
company would be able to meet its obligation using liquid
assets. This ratio is higher than the company’s competition.
3. Debt-to-Equity Ratio: the low debt to equity ratio of 0.82
simply indicates lower risk, because debt holders have fewer
claims on the company’s assets. Davide Campari’s debt to
equity ratio is almost average when compare to its competitors.
But we can also note that this ration has increased from 0.58 in

2011 to 0.82 in 2012.
4. Inventory Turnover Ratio: This ratio gives us an idea of how
well the company manages its resources. The company low ratio
of 1.47 means, Campari has much more inventory than it really
needs at any one time. When compare to its competitors, one
can see that the company ratio is pretty consistent with its
competitors.
5. Gross Profit Margin: the amount of each dollar of sales that
the company keeps in the form of gross profit has pretty much
stayed constant from 2011.
6. Net Profit Margin: David Campari’s Net Profit Margin
decrease from 12.49 in 2011 to 11.69 in 2012. This ratio is very
different from competitor to competitor.
7. Return on Assets: ROA gives an idea as to how efficient
management is at using its assets to generate earnings.
8. Return on Equity: ROE measures a corporation’s profitability
by revealing how much profit a company generates with the
money shareholders have invested.
SWOT Analysis
External/Internal
Strengths (S)
1.Major player in the global branded beverage industry
2. Solid expanding international footprint.
3. Strong and diverse portfolio of brands
4.Powerful distribution network
Weaknesses (W)
1. History of acquiring too much goodwill with acquisitions.
Campari’s performance.

opportunities
4. Lack of scale compare to competitors
Opportunities (O)
1. Increase in the consumption of alcoholic drinks worldwide.
2. Strategic acquisitions.
3. Shift in consumer preferences.
SO Strategies
1. Acquisition of local businesses in growing markets (S2, O2)
2. Consolidate brand images in mature markets (S3, O3)
WO Strategies
1. Review distribution agreements (W3, O1)
Threats (T)
1. Increasing health concerns.
2. Smoking bans at restaurants/bars around the world may
reduce revenue.
3. Stringent advertising regulations.
duties.
wine prices.
6. Growing trade of counterfeit alcohol.
ST Strategies
1. Invest in an international advertising campaign to
communicate brand values and history. (S2, T6)
WT Strategies
1. Make substantial investment to expand its presence in China
to meet the gap between weak current presence and the high
counterfeiting of alcohol this country has. (W3, T6)

Strategy #1 – Invest in an international advertising campaign to
communicate brand values and history to attract more customer
and diversify the business worldwide
In Italy, Campari has a strong history and brand image. The
company should bring its advertising strategy to an
international level, in order to make its brand internationally
recognized. Campari is not only associated with style, but also
with aperitif and nightlife. Its history of successful advertising
Carosello-style could surely be successful if expanded to
different countries.
The new advertising campaign should be structured as a story,
where spots change and evolve periodically. Customers may
feel involved in the story and remember the brand when they
have to choose what to drink. The famous Crodino advertising
campaign, which during the Nineties and 2000s became very
popular in Italy and Europe, is an example of such advertising
strategy; the talking Gorilla, represented in a bar during many,
different episodes was very successful and created several
catchphrases, widely known among Italian and European
customers.
In addition, Campari could sponsor several style-related events,
making the customer associate the company’s brand with
fashion and luxury. For example, the Heineken Jammin’
Festival is a very famous music event thanks to which
customers started to associate the beer’s brand to music and
parties.
Strategy #2 – Investment in branding and marketing to expand

presence in China / India
Campari's weak presence in emerging markets places it in a
disadvantageous position against its competitors with
significant presence. Besides, it limits the group's future growth
opportunities. The group would have to make substantial
investment in branding and marketing to expand its presence for
example in China. This specific strategy might help to reduce
the gap between the Campari’s weak brand presences versus the
market share of the strong beverage companies in that region;
also to mitigate the counterfeiting of alcohol products that is
increasingly becoming prevalent in this country, one of the
largest markets in the world.
This expansion campaign should be focused on increasing brand
recognition but also educate consumers on how to recognize
original drinks and the associated risk of consuming counterfeit
products.
Expand operations in emerging areas such the Asia Pacific
region represents a tremendous opportunity to impact on its
profitability because the future outlook for those countries is
excellent. According to some analysis, the spirits market in Asia
Pacific grew by 4.8% in 2012 to reach a value of $103.9 billion.
By 2017, this market is expected to reach a value of $130.3
billion, an increase of 25.5% since 2012. China and India
account for 45.3% and 20.8%, respectively, of the Asia Pacific
spirits market value.
Campari currently presence in Asia Pacific:
Source: http://www.camparigroup.com/en/our-group/our-
group/key-facts-and-figures

Although the group has presence in this region, the percentage
derived for its sales is minimum (10.3 which also include duty
free) comparing with others regions and strong competitors as
the next breakdown shows:
Source: http://www.camparigroup.com/en/our-group/our-
group/key-facts-and-figures
In comparison with its stronger competitors:
Pernod Ricard: derived nearly 40% of its sales from the
emerging markets in Asia/rest of world in the financial year
ended June 2013.
Source: http://pernod-ricard.com/2013-14annualreport/#key-
figures
Diageo: derived approximately 15% of its revenues from Asia
Pacific region in the financial year ended June 2013.
Source: http://www.diageo.com/en-us/Pages/default.aspx

3
Under Armour, Inc., 2013
www.ua.com, UA
Headquartered in Baltimore, Maryland, Under Armour (UA) was
founded in 1996 by a former
University of Maryland football player who desired a t-shirt that
would whisk away perspiration
rather than get soggy wet. The company has grown to be one of
the most sought after brands
among athletes around the world, being worn by some of the
largest U.S. college football and
European soccer teams. Colleges such as the Maryland
Terrapins, Auburn Tigers, South
Carolina Gamecocks, and many more have contracts with UA to
outfit their teams. English
soccer team Tottenham Hotspur, Greek team Aris F.C., and
Mexican club Deportivo Toluca
F.C. all are outfitted by UA. Mega stars such as Tom Brady,
Cam Newton, Bryce Harper,
Michael Phelps, and many more, all sponsor and market UA
products.
UA designs, develops, markets, and distributes apparel,
footwear, and accessories for men,
women, and children worldwide. The company offers apparel in
three styles: compression,
fitted, and loose and designed to be worn in hot, cold, or normal
weather. Footwear products

include cleats for most all sports, running and basketball shoes,
and even hunting boots.
Accessories include gloves for football, baseball, golf, socks,
and team uniforms. UA’s
moisture-wicking fabrications are engineered in many different
designs and styles for wear in
nearly every climate to provide a performance alternative to
traditional products. Its products
are sold worldwide and worn by athletes at all levels, from
youth to professional, on playing
fields around the globe. UA’s European headquarters are in
Amsterdam’s Olympic Stadium,
with additional offices in Denver, Hong Kong, Toronto, and
Guangzhou, China. With about
1,800 employees, UA distributes its products through specialty
retailers, department stores,
outlet stores, and institutional athletic departments.
For the second quarter of 2013 that ended June 30, 2013, UA
reported that revenues
increased 23 percent to $455 million while the company’s net
income increased 163 percent to
$18 million compared to the prior year’s period. The company’s
apparel revenues increased
23 percent to $310 million, primarily driven by a new baselayer
product and the expansion of
the Storm and Charged Cotton products. The company’s second
quarter footwear revenues
increased 21 percent to $82 million, spurred by the Highlight
football cleat and the UA Spine
platform. UA’s Q2 2013 accessories revenues increased 30
percent to $51 million, primarily
driven by headwear. For the quarter, UA’s Direct-to-Consumer
revenues represented 30
percent of total net revenues and grew 29 percent year-over-
year. The company’s Women’s

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category is doing well with its new Studio and ArmourBra
products, and the Spine running
footwear is doing well.
Copyright by Fred David Books LLC. (Written by Forest R.
David)
History
At age 23, Kevin Plank developed a new t-shirt in his
grandmother’s basement in Washington
D.C. after noticing that his compression shorts always stayed
dry, but t-shirts had to be
changed frequently because they became sweat soaked. This
observation led Plank to create
a new compression t-shirt that whisked away sweat. After
graduating, Plank provided this t-
shirt to his former teammates who were playing in the National
Football League (NFL). After
positive reviews, UA had t-shirt orders totaling $100,000 in
1997. UA’s first big break came
when USA Today pictured Oakland Raiders quarterback Jeff
George wearing UA apparel. In
late 1997, Georgia Tech asked for 10 shirts, ultimately leading
to deals with Georgia Tech,
Arizona State, and North Carolina State universities.

In the 2000s, UA expanded rapidly after outfitting Warner
Brothers with apparel for two films,
and an advertisement placed in ESPN Magazine generated
$750,000 in sales. In 2003, UA
became the outfitter of the now defunct XFL football league and
launched its first TV
advertisement with the motto “Protect this House.”
UA recently opened specialty stores, including a 6,000-square
foot store in Illinois and has
opened factory outlet stores in 34 states. In 2011, the company
purchased 400,000 square
feet of office space for $60.5 million. UA has new contracts
with the NFL, National Basketball
Association (NBA), and Major League Baseball (MLB) to
produce footwear, apparel, and
accessories. Many European football teams such as Trottenham
Hotspur and other rugby
teams are outfitted with UA products. None of UA’s 5,900
employees are members of a union,
and 1,900 are full-time.
Internal Issues
UA owns no fabric or process patents. Thus, UA competitors
can manufacture and sell
products very similar to UA products. UA’s success thus hinges

a lot on their brand image,
trademarks, and copyrights.
Vision and Mission
Regarding UA’s vision, CEO Plank recently said:
Our investments illustrate our commitment to realizing our
long-term vision of one day having our
Women’s business larger than Men’s, Footwear larger than
Apparel, and our International business larger
than our U.S. business.
Organizational Structure
UA reportedly operates under four geographic segments: (1)
North America, (2) Europe, the
Middle East, and Africa (EMEA), (3) Asia, and (4) Latin
America. However, from its organization
structure revealed in Exhibit 1 , it appears the company is
structured divisionally by
product.
Exhibit 1 Under Armour’s Organizational Structure
Source: Based on company documents.
Marketing
UA’s marketing expenses were $205.4 million in 2012, up from

$167.9 million the prior year.
But these marketing expenses were 11.2 percent of revenues,
down from 11.4 percent the
prior year. UA’s advertising expenditures in 2012 and 2011
were $205.4 million and $167.9
million respectively. UA develops and markets products
primarily for use in athletics, fitness,
and any outdoor activities. UA attempts to drive demand
through brand equity and increasing
consumer awareness of its superior product. UA’s growth is
largely dependent on sales from
Dick’s Sporting Goods, The Sports Authority, and Foot Locker,
which have store-within-a-store
sales
channels. However, UA has been making great strides selling its
products directly to
consumers, with 29 percent of revenue in 2012 coming from
direct sales. UA has the brand
strength to attract many consumers to more profitable channels.
However, 69 percent of 2012

revenue was from wholesale, and 2 percent from licenses.
A key strategy for UA is securing endorsement of its products
from high-performing athletes
who have significant influence in the NFL, NBA, MLB, and
even high school teams. Many
sports stars such as Cam Newton and Tom Brady endorse and
wear UA products. It is UA’s
belief that this strategy is the best possible way to advertise its
products because many fans
become familiar with UA products seeing them worn by high-
performing athletes on a year
round basis. In addition to focusing on the large-market leagues,
UA also focuses on brand
authenticity from a more grassroots level. By hosting camps,
clinics, and other activities for
young athletes, it is able to gain a firsthand appreciation for
UA’s product quality and brand
equity.
UA uses broadcast, print, and social media outlets to promote
the firm’s product. UA also
engages in acquiring prime real estate in the 25,000 major retail
stores worldwide in which
their products are sold, as well as operating outlet stores in 34
different states. UA products
are sold throughout the world. New UA products in 2012
included UA Studio line, the Armour
Bra, coldback technology, UA Spine footwear, and UA scent
control technology.
“The biggest, baddest brand on the planet, bar none.” That’s
how founder and CEO Plank
likes to describe his vision for what UA can ultimately become.
Plank and his team are
excellent marketers; the company’s blood-pumping ads resonate
with athletes and those who

aspire to become athletes. UA’s bold logo and brash and edgy
marketing campaigns inspire
movement and physical fitness, positioning the company well
within the healthier lifestyle
megatrend. Plank and his team relish their underdog image
versus big rival firms; they love to
operate within and promote an “us-versus-them” philosophy.
This competitive fire has served
UA well and has encapsulated many athletes and fans.
UA has 102 factory house stores in North America, mostly
located in the eastern USA.
UA opened its first factory house store in Canada in 2012.
Finance
In late 2012, UA has an impressive annual growth rate of 34
percent since 2005, has a market
cap of $4.32 billion, and a price-to-earnings (P/E) ratio of 49.4,
above the S&P 500 P/E ratio of
17.7. UA shares were up 44.6 percent year-to-date as of
December 20, 2012. Strong
financially, UA has used zero of its $300 million revolving
credit facility at the end of
September 2012. UA’s debt-to-equity ratio is low at 0.10. UA
has a quick ratio of 1.84 and has
improved its earnings per share by 22.7 percent in the most
recent quarter compared to the
same quarter a year ago. UA does not pay dividends, preferring

to reinvest all earnings back
into the firm.
UA expects 2012 net revenues of approximately $1.82 billion,
representing growth of
24 percent over 2011, and 2012 operating income of
approximately $207 million, representing
growth of 27 percent over 2011. Plank says: “I am proud of
what our team has accomplished
so far this year and we are well positioned for growth in 2013
and beyond. I emphasize ‘team’,
as we continue to make great strides with the additions of
seasoned leadership in Supply
Chain, Women’s, and International.”
UA revenues increased 24 percent in the third quarter of 2012 to
$575 million compared with
net revenues of $466 million in the previous year’s period. Net
income increased 25 percent.
UA’s recent income statements and balance sheets are provided
in Exhibits 2 and 3 ,
respectively. Note that the company pays no dividends and is
performing in an excellent
manner.
Segment Data By-Product
Exhibit 4 provides a breakdown of UA’s revenues by product.
Note that apparel continues
to be the strongest product offered based on net revenues, but
footwear and accessories
such as bags, hats, and gloves experienced higher percent
increases over the most recent
fiscal year. License revenues decreased as a result partly of less
orders of hats and bags.

Seventy-six percent of company revenues are derived from
apparel in 2012. Followed by
footwear at 13 percent and accessories at 9 percent.
Exhibit 2
Source: 2012 Form 10K, p. 48.
Exhibit 3 Under Armour Balance Sheets
Exhibit 3 Under Armour Balance Sheets

Apparel is offered in many styles and fits to cover most any
environment condition. Apparel is
specifically engineered to replace traditional nonperformance
fabrics and replace them with
the most cutting edge products available. UA currently has three
gear lines that achieve the
designed purpose of having a sophisticated apparel option for
all weather conditions. The
three products are marketed under HEATGEAR, designed for
hot weather, COLDGEAR,
designed for cold temperatures, and ALLSEASONGEAR,
designed for between the extremes.
In addition to the three temperature ratings, all products also
come in three fit types:
compression (tight fit), fitted (athletic fit), and loose (relaxed).
All UA appeal products are
designed to whisk water away from the wearer to keep them as
dry and comfortable as
possible in any temperature or type of activity.
Exhibit 4 UA Segment Data by Product
UA expanded into offering footwear in 2006 and today makes
footwear for virtually all sports
including running and even hunting boots. Like the traditional
shirts, footwear offerings are

designed to cushion and manage moisture. In 2011, UA began to
sell hats and bags in house;
these products were previously provided by a licensee. Other
accessories developed and now
marketed by UA include gloves for football, baseball, golf, and
running as well as mouth
guards, socks, and eye wear.
Segment Data By Region
Exhibit 5 reveals UA’s recent revenues and operating profits
for the North American and
international markets. UA reports revenues in four distinct
geographic regions: (1) North
America, (2) EMEA, (3) Asia, and (4) Latin America. Each
geographic segment operates in the
same
manner, to design, develop, market, and distribute UA products.
Note that only 6 percent of
UA revenues were derived from international markets so the
company combines all these
countries into one segment for reporting reasons. UA
acknowledges that the trend in
performance products is becoming increasingly global with a
bright future, but 6 percent so far
leaves tremendous upside for the company.
Exhibit 5 UA Segment Data by Geographic Region
UA’s North American segment includes about 18,000 retail
stores; UA also owns 80 outlet
stores located in 34 different states. The company’s two largest

customers are Dick’s Sporting
Goods and The Sports Authority. In addition to selling to the
public, UA earns income from the
sale of uniforms and practice gear to high school, college, and
professional teams.
In EMEA, UA products are sold in approximately 4,000 retail
outlet stores. European football
teams that wear UA gear reside in many European nations
including the United Kingdom,
France, Germany, Greece, Italy, and Spain among others. First
division rugby clubs in France,
Ireland Italy, and the United Kingdom also wear UA products.
Products in Europe are currently
distributed out of The Netherlands.
Since 2002, UA has enjoyed a licensing agreement with Dome
Corp., which produces and
sells UA products in Japan, which are all tailored for Japanese
consumers’ specific taste.
Products are sold in more than 2,500 specialty stores in Japan,
as well as to several
professional soccer and baseball games in Japan. Also in Asia,
products are sold in both
Australia and New Zealand, and in 2011, UA’s first specialty
store opened in Shanghai, China.
Latin American customers are provided UA products through
independent distributors but

more commonly are served through distribution facilities in the
USA. Only 6 percent of UA’s
2012 revenues were generated from outside North America. The
company does have two
specialty stores in Shanghai, China. About 55 percent of the
fabric used in UA products
comes from suppliers in China, Malaysia, Mexico, Taiwan, and
Vietnam. UA has 27
manufacturers in 14 countries.
Competition
UA has unique branding of a fabric to whisk away water from
the body, but competitors such
as Nike and Adidas have copied UA’s designs and technology.
The fabrics UA uses are not
unique to them, and it does not control any patents on fabrics or
processes. It is all about
branding for UA. Because firms such as Nike and Adidas have
much larger resources to draw
on, competing long term may be difficult for UA, but so far the
firm is doing well. In addition,
competing for floor space at large retailers is difficult because
many stores have their own
store brands, in addition to private label brands, all competing
for floor space.
Exhibit 6 provides some comparative information for UA and
rival firms. Note that in terms
of revenue UA is about the size of Columbia Sportswear, but
Nike and Adidas are both more

than 10 times the size of UA. Note also that UA is exceptionally
efficient as indicated by its
high revenue per employee ratio.
Exhibit 6 Comparative Information for Sports Apparel Firms
EPS, earnings per share.
Source: Based on company documents.
Nike
Headquartered in Beaverton, Oregon, Nike is the largest apparel
and footwear provider for
men, women, and children worldwide. Nike outfits athletes
globally in virtually every sport,
including running, basketball, football, soccer, golf, and many
more. In addition to apparel and
footwear, Nike also produces golf clubs, athletic bags, gloves,
footballs, bats, and much more.
Nike owns brands such as Converse, Chuck Taylor, and All Star
to name a few.
Nike reported in 2011 that 42 percent of revenues derived from
U.S. operations, where the
company sells its products in a wide range of mediums from
retail stores, its Internet site, 156

Nike factory stores, and tens of thousands of other stores, such
as Foot Locker. Nike’s
international sales accounted for 58 percent of revenues in 2011
and products are sold in
similar ways as in the USA. Nike currently operates 308 factory
stores outside the USA.
Approximately 67 percent of all Nike North American revenues
are derived from footwear, 28
percent from appeal, and only 5 percent from equipment. Nike’s
operations in international
markets have a similar revenue breakdown by product, making
Nike’s primary revenue
generator footwear, as opposed to UA being primarily an
apparel producer.
Like UA, Nike outfits many professional and major U.S. college
teams with their gear. Notable
teams wearing Nike gear include the University of Oregon, Penn
State University, and The
University of Alabama. Nike has stars such as Michael Jordan,
LeBron James, and Tiger
Woods serving as spokespersons to help in promoting the brand.
Late in 2012, Nike sold its
Cole Haan handbag and shoe brand to private equity firm Apax
Partners for $570 million and
also sold its Umbro football brand to Iconix Brand Group for
$225 million.
Adidas AG
Headquartered in Herzogenaurach, Germany, Adidas AG
develops and produces a wide range
of athletic appear, footwear, and accessories and operates in six
business segments:
wholesale, retail, TaylorMade-Adidas Golf, Rockport, Reebok-

CCM Hockey, as well as other
brands. Adidas sells its products through retail stores, the
Internet, and through 2,401
company-owned stores worldwide. The company most closely
competes with UA with its
sport performance line of apparel that is modeled after UA
fabrics to help keep athletes dry
and comfortable for the duration of their activity.
Adidas currently has a contract with the NBA to outfit all teams
with apparel, and in addition,
Adidas outfits some or the largest European football clubs with
apparel. Adidas employs many
of soccer’s biggest starts to market their products, such as
Frank Lampard, Steven Gerrard,
and Micheal Ballack. Tennis stars endorsing Adidas include
Andy Murray, Justine Henin,
Marcos Baghdatis, and many more. Andy Murray is Adidas’s
highest paid spokesman with a
five-year contract worth $24.5 million.
Adidas had sales of more than 13 billion euros in 2011, an 11-
percent increase from the
previous year, with every reporting segment enjoying larger
revenues than the previous fiscal
year.
The retail and TaylorMade-Adidas Golf segments enjoyed the
largest percent increases at 20
and 16 percent, respectively.
Columbia Sportswear Company
Headquartered in Portland, Oregon, Columbia’s trademark
Bugaboo parka with weatherproof
shell competes with some UA products, as does Columbia’s
performance apparel for a variety

of activities and Columbia’s sportswear accessories, boots, and
rugged footwear, sold under
brands Columbia, Mountain Hardwear, Sorel, and Montrail.
Columbia brands are used globally
during outdoor activities, such as skiing, snowboarding, hiking,
climbing, camping, hunting,
fishing, running, and the like. Columbia operates about 50
outlet retail stores and 10 branded
retail stores in the USA, as well as 10 in Europe, 2 outlet stores
in Canada, and about 300
stores in Japan and Korea. Thousands of other stores sell
Columbia products globally,
including even Dick’s Sporting Goods and The Sports Authority
that UA counts on most.
External Issues
Economic Factors
The apparel industry has a mediocre outlook given weak
economies in which consumers are
faced with less discretionary income. Items expected to
maintain strong sales are those that
are well differentiated from competing products, where
consumers value the extra features
and are less price sensitive to products they deem necessary.
More luxury items in both
sporting activities are expected to have modest growth. In 2011,
the apparel industry reported

sales up 5.9 percent over 2010, however much of this gain was
the result of inflation and the
rising prices of commodities such as cotton, increased labor
wages overseas, and increased
freight fees. Nevertheless, the S&P Apparel Retail Index rose
22 percent versus a 12-percent
increase for the S&P 1500 Index from March 2011 to March
2012. The S&P Footwear Index
rose only 11.5 percent during this same time frame.
Apparel sales totaling $77.7 billion was imported into the USA
in 2011, up nearly 9 percent
from 2010. Approximately 38 percent of all apparel imported
came from China. The apparel
industry is extremely fragmented with many firms competing
for the same customers. For
example, the top 10 national brands only account for 16 percent
of wholesale apparel sales in
the USA with 84 percent of apparel distributed coming from
smaller brands and store brand
goods. Women’s segment has traditionally accounted for
significantly more sales at 55
percent. Men only accounted for 28 percent and children 17
percent of apparel sales in 2011.
The footwear industry grew at a slower rate than apparel in
2011. Fashion footwear accounted
for 48 percent of total footwear sales, with performance
footwear accounting for 27 percent,
sports footwear 13 percent, outdoor footwear 8 percent, and
work and safety footwear 4
percent. Fashion and sports footwear are expected to be the
most significant areas of growth
moving forward as people look to improve their fashion looks
and the growing health-minded
concerns of the public.

Technological Changes
Nike was one of the first companies to understand the
importance of producing better
sporting apparel and footwear for athletes, when Phillip Knight
and his track coach Bill
Bowerman developed a better shoe for members of the
University of Oregon track team.
Since the 1960s, there have been many developments and
improvements in shoe and apparel
design away from the traditional cotton sweat suit and basic
tennis shoe. Today, apparel hugs
the body and insulates the wearer from cold and keeps them
cool from hot. Shoes can be
synced to computers to determine performance and impact
points for the runner and t-shirt
fabrics can even help manage odors. These types of
technological offerings keep customers
purchasing new items and can create intense competition and
brand loyalty.
Where to Produce
China has historically been the low-cost alternative for apparel
firms when selection a nation
for the production of their products. In 2011 alone, 38 percent
of all apparel imports and 74
percent of all footwear imports into the USA came from China.
However, with rising production
costs,

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