Are Under Armour’s Impressive Earnings Causing Nike to Sweat?
Under Armour (NYSE:UA) released its fourth-quarter earnings on Thursday morning, reporting that its profit rose 28 percent to $64.2 million, or 59 cents per share, up from $50.1 million, or 47 cents per share, from a year earlier. Revenue also surged 35 percent to $682.76 million. The athletic company’s full-year results were similarly strong. Net revenue gained 27 percent to $2.33 billion, net income was up 26 percent to $162.3 million, and earnings per share came in at $1.50, again beating analyst expectations.
Following the report, Under Armour shares rose about 9 percent in premarket trading, as the athletic-goods maker’s figures easily surpassed analyst expectations, and investors recognized Under Armour’s potential for the future. For 2014, Under Armour projected revenue between $2.84 billion and $2.87 billion compared with the $2.77 billion recently forecast by analysts.
Under Armour’s impressive success has continued to delight investors who knew the company back when it was a $110,000 firm in 1997. Under Armour’s CEO, Kevin Plank, has shown prowess in distinguishing the company and taking risks that have proven to pay off in the end. Though Under Armour’s predicted revenue for fiscal year 2013 ($2.2 billion) is still significantly less than rival Nike’s (NYSE:NKE) ($25.3 billion), it is clear that the Baltimore, Maryland-based company is on the rise, and more than a couple competitors are taking notice.
One of Under Armour’s risky strategies that will soon come to fruition is a 10-year deal it recently secured with Notre Dame. According to The Motley Fool, Adidas has had a partnership with the Fighting Irish since the late 1990s, but the contract is due to expire at the end of June. That’s when Under Armour will take Adidas’s place, cashing in on a deal that is expected to be around $90 million.
That number is significant for Under Armour, as its balance sheet shows approximately $186.4 million in cash and short-term equivalents versus about $54.2 million in long-term debt. However, Under Armour expects its investment to pay off the long run thanks to the publicity from Notre Dame’s college teams.
Under Armour’s willingness to take big risks illustrates its determination to slowly but surely catch up to one of its biggest rivals in Nike. Targeting Nike is certainly difficult, considering the company is now one of the most recognizable brands in the world. However, Under Armour’s growth rate is much steeper than Nike’s, and its 13th college partnership is only expected to help its hype and brand exposure.
An Under Armour-Nike takeover isn’t expected to occur anytime soon, especially since Under Armour must now concentrate on paying off its steep investment with Notre Dame, but analysts are still open to the idea that down the road, Under Armour could easily close the gap between itself and Nike. Thanks to Under Armour’s impressive growth rate and determined leadership, investors are now taking notice of this quickly expanding company, and Nike may be too.