In a meeting with investors, Under Armour outlined a new strategic development plan that calls for higher growth rates than previously projected, following its recent successes in footwear and in international markets. The company is now budgeting average compound annual growth (CAGR) of 25 percent through 2018, up from its previous CAGR target of 20 percent. A strong deployment of the American brand overseas will be one of the growth engines.
Total annual revenues are expected to rise from $3.1 billion last year to $7.5 billion in three years' time, $1.5 billion more than originally planned and $700 million more than the target that UA had updated earlier this year. Of those, around $6 billion would come from North America and - with CAGR of 50 percent - $1.5 billion from the rest of the world by 2018, up from $270 million in 2014.
The management indicated that high investments in marketing, connected fitness and the development of direct-to-consumer (DTC) business will be used to support UA's international expansion, as it sees a marked acceleration in sales once brand awareness reaches a 30 percent threshold in any particular market.
UA wants DTC to grow at a CAGR of 12 percent in the U.S. and 75 percent internationally. The number of company-owned and partner stores is set to increase from 226 at the end of 2014 to 1,000 by the end of 2018. Their retail space would go up from 1.1 million to 3 million square feet, with about 80 percent of that located outside the U.S. at the end of the new strategic plan. In the longer term, company officials see a potential for between 1,000 and 1,500 single-brand stores in China alone, supplementing an expanded e-commerce business. The company plans to have 30 e-commerce platforms by 2018 that would cover 80 percent of the world's population.
In Europe, where UA is already positioned at the top of the market, the brand intends to develop key relationships with premium retailers who will focus on premium products at the outset. Nevertheless, contracts with foreign distributors in certain markets and the planned investments in new stores and in other areas are expected to depress operating margins slightly over the next few years. With the marketing spend remaining at around 11 percent of sales globally, the company's operating profit is likely to rise at a slower pace than the turnover, but would still double to $800 million from $408 million in 2014. The gross margin should remain more or less stable at around 49 percent of sales.
Looking at the various product categories, the company's apparel business is expected to double to around $4.9 billion by 2018, but it would drop to 65 percent of the total turnover from the present ratio of 74 percent. With a CAGR of 40 percent, footwear revenues would increase from $430 million to $1.7 billion. The target for connected fitness is $200 million.
Many new products are in the pipeline, including a shoe with a knitted upper like Nike's Flynit and Adidas' Primeknit. UA will also introduce a new micro-thread yarn in apparel to improve stretchability and reduce breakability. Accelerated growth is planned in new categories for the brand such as basketball, golf, running and global football.
