Under Armour :Yahoo Finance 2014 Company of the Year

It started 18 years ago with one man hawking one shirt, a guy trying to persuade elite football players that it was simply better – that it would make them better.

Today, Under Armour (UA) is a $15.2 billion company run by that same guy, stalking the legacy giants of athletic gear, a made-in-America global brand that boasts one of the fastest growth records in consumer products and among the best stock performance in the market.

For these distinctions and how they were achieved — and for the way the company has turned potential setbacks into wins in 2014 — Under Armour is the Yahoo Finance Company of the Year.

The squishy retail sales trends of 2014 were a mere rumor for Under Armour, whose revenue and operating profit are on track to climb more than 30%, accelerating from their 2013 pace. Its share price has soared 62.5% this year. And Under Armour’s strong branding efforts, deeply rooted in its sports-performance heritage, earned it Marketer of the Year honors from Advertising Age magazine.

CEO Kevin Plank, that guy who came up with that shirt in 1996 that stayed dry under football pads, says, “These things don’t happen out of nowhere. There were a lot of years preparing for this.”

Speaking in a model retail store on Under Armour’s six-building industrial-urban campus on the Baltimore waterfront, Plank recalls: “Sporting goods, which is where we entered, was this pie – and there was no room in the pie. So we decided, in order to break in, we would make our own pie.”

After finding takers for his pioneering moisture-wicking shirt among some college and pro football players, he expanded in a methodical but ambitious way into other performance garments – ones that kept an athlete warm, or cool, or feeling strong thanks to their compression fabric.

The company took two years to enter the shoe business, starting with football cleats and adding one sport category per year for five years. Its women’s line, once an afterthought, has expanded impressively from almost nothing in 2004 to more than $500 million this year. Total full-year company revenue will top $3 billion for the first time in 2014.

Over the past four-and-a-half years, Under Armour is one of only four companies in the Standard & Poor’s 500 to post at least 20% sales growth in each quarter. Since coming public in late 2005, revenue and earnings growth have averaged more than 30%, marking one of the elite growth stories of the past decade.

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Historical Stock Prices for Under Armour, Inc. (Weekly adjusted closing price from 1/5/10 - 12/15/14)

Historical Stock Prices for Under Armour, Inc. (Weekly adjusted closing price from 1/5/10 – 12/15/14)

Since its IPO, Under Armour stock is up a phenomenal 1,022%, compared to the merely amazing 408% gain by Nike (NKE), the global blue chip in athletic goods — which Plank repeatedly refers toonly as “our largest competitor” in a way that conveys suppressed competitive passion toward the $83.6 billion market-cap incumbent.

While its consistent growth trajectory from startup to the near-ubiquity of its UA logo might make Under Armour’s path appear effortless, this year began with a global controversy that threatened to undermine the brand’s very essence as a performance booster.

At the Winter Olympic Games in Sochi, Russia, U.S. speed skaters’ poor performance was partly attributed to the highly touted aerodynamic uniforms designed by Under Armour. While the company defended the “speedsuits” design, the athletes switched to their old uniforms and a moment of triumphant arrival for the company was tainted.

Yet the fleeting controversy failed to compromise the brand broadly. The Notre Dame and Naval Academy football teams signed on to be outfitted by Under Armour, giving the company claim to both “God and country,” as Plank has put it.

The company also bid hard over the summer to sign NBA MVP Kevin Durant to an endorsement deal when his contract with Nike lapsed, offering a reported $250 million over 10 years. Nike ultimately re-signed Durant after agreeing to structure a contract that could reach $300 million. The duel was a telling statement that Under Armour has aggressive ambitions to target the top in every category it’s in, but also reinforced its status as the hungry up-and-comer.

Plank embraces this image, seeing it as the core of the Under Armour brand, which he says means, “underdog, go get it done, find a way” – sounding plenty like the intense locker-room motivator in the original Under Armour “Protect This House” ads.

Winning with women

The company’s boldest gambit of the year, though, might have been its attention-grabbing “I Will What I Want” marketing campaign focused on accomplished women overcoming doubters and challenges.

“We launched as this big, bad American football company,” Plank says, and as the key back-to-school season opened, “we tell the world that our brand was about a ballerina.”

That would be Misty Copeland, of the American Ballet Theater, whose commercial focuses on her defying doubters who said she had “the wrong body for ballet.” Another viral ad followed, starring model Gisele Bundchen going through a grueling kickboxing workout.

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“I Will What I want” marketing campaign on display at Under Armour’s NYC retail store. (Photo: Siemond Chan)

The women’s business, led by workout clothes, has certainly benefited from the broader trend of gym wear serving as always-on attire, with yoga pants in some sense becoming the new jeans. Yet Under Armour has lately outperformed even Lululemon Athletica (LULU), the company most associated with that look.

Aside from the women’s business, which BB&T Capital Markets sees rising to more than 25% of revenue over four years, shoes and foreign markets are the key opportunities for the next phase of the company’s growth.

While growing nicely in Japan, Europe, China and South America, about 90% of Under Armour’s sales still come from the U.S. Never shy about setting lofty goals, Plank wants half of revenue to come from overseas one day.

A year ago, Under Armour bought MapMyFitness, a digital health-tracking app — the company’s first-ever acquisition. The service, with some 30 million members, works across a variety of devices, and will serve as a way for Under Armour to explore “connected fitness” without betting on the cutthroat hardware business.

Under Armour pays no dividend, but it’s hard to object to this given its breakneck growth pace and the high returns it earns on investing in the business. The company has gone to significant lengths to assure its clothing suppliers adhere to fair labor standards. And its use of an old Procter & Gamble (PG) facility as its headquarters shows great commitment to downtown Baltimore, helping to revitalize an entire neighborhood.

The Company of the Year judging

The Company of the Year is selected by Yahoo Finance editors, using a mix of quantitative and qualitative factors to recognize a prominent American company that has excelled on behalf of investors, employees and customers.

This is the third year we have granted this honor. The 2013 winner was Walt Disney (DIS) and the 2012 winner was Gap (GPS). The evaluation process combines one-year and long-term financial results; stock-price performance; strategic vision and brand esteem; good corporate citizenship; and a demonstrated ability to overcome challenges.

This year, Under Armour was awarded the title over a handful of other high-achieving, well-managed U.S. companies, including Home Depot (HD), Marriott International (MAR), Southwest Airlines (LUV) and Starbucks (SBUX).

[Under Armour sponsors the Rivals Camp Series of Rivals.com, part of Yahoo Sports. The sponsorship connection had no bearing on our Company of the Year evaluation.]

Running room – but beware stumbles

As successful as the company has been, there are at least two stark challenges ahead of Plank in the coming years.

One is Wall Street’s towering expectation for the company’s continued growth. After the stock’s upward charge this year, it trades for more than 70-times 2014 earnings and over 50-times the 2015 forecast. Under Armour’s average price-to-earnings multiple since coming public is around 35; Nike, a far more mature and slower-growing company, trades at 25-times fiscal 2015 profits.

A harder-to-quantify risk is that Under Armour’s brand might grow so powerful and ubiquitous that it, in a sense, undermines the underdog image it was built on. Perhaps only Apple Inc. (AAPL) managed to go from aggressive, maverick underdog to world domination without shedding much of its “cool” factor.

Plank is undaunted by the high bar set by Wall Street, believing that with Under Armour sales still only one-tenth of Nike’s, “there is a lot of running room for us.” Quite true. But expensive stocks often make investors intolerant of little bumps along the way.

Plank also doesn’t feel the company is close to having to worry about compromising the brand’s underdog ethos. Under Armour’s mission statement says, “Make all athletes better,” Plank notes, which means remaining focused on performance and not simply settling for becoming a fashion or “basics” brand.

Plank points to UA’s entry into shoes with football cleats in 2006, followed over the next four years by baseball cleats, training, running and basketball shoes. The company went from nowhere to number one in American football cleats in eight years, with a 35% share.

Can Plank possibly believe his company can work its way to the top of each category it enters? Quoting the movie “Predator,” Plank says, “If it bleeds, we can kill it.”


Nike (NKE) shares got the boot from investors this morning ( Friday, Dec.19). The athletic shoe and clothing company said orders for December through April are less than analysts’ had anticipated, especially in emerging markets. On the flip side, Nike is reported second quarter earnings and revenue that topped Wall Street forecasts.

Tax site  http://www.youroffshoremoney.com


GAP – don’t drop your pants BUY

GPS : NYSE : US$40.14

Target: US$47.00

Consumer & Retail — Specialty Retail



Investment recommendation
We are lowering our Q4 EPS estimate for GPS by $0.09 to $0.68,
below prior consensus of $0.77. There is more work to do in the
Gap brand (38% of TTM sales) than we had previously
anticipated, particularly in the women’s business. As a result, we
are lowering our consolidated SSS estimate from flat to a decline
of 2.4% on top of +1%. Our gross margin forecast moves 50bps
lower, and we now expect 59bps of expense deleverage on the
lower sales. Our BUY rating remains intact despite the near-term
headwinds. We continue to expect supply-chain initiatives will
drive gross margin expansion over the long term. This does not
appear priced in with shares trading at 13x our C2015 EPS
estimate and 7x C2015E EV/EBITDA.
Investment highlights
 Art Peck will begin his CEO stint with two new brand
presidents. Jeff Kirwan (10 years with GPS, recently as
president of Gap China) will take the reins from Stephen
Sunnucks at the Gap brand in December, and Andi Owen (19
years at GPS, recently leading the Gap outlet business) will
head up Banana Republic beginning in January, replacing
Jack Calhoun.
 Our price target moves from $51 to $47 as we incorporate
our updated estimates into our DCF model.

GAP Target Price $ 51


NYSE : US$37.90 BUY 
Target: US$51.00

Gap is a global specialty retailer of clothing and
accessories for women, men, and children. GPS brands
consist of Gap, Old Navy, Banana Republic, Athleta, and
Piperlime. The company operates 3,200 stores
worldwide, and GPS products are sold through nearly 400
franchise locations.
All amounts in US$ unless otherwise noted.

Consumer & Retail — Specialty Retail
Investment recommendation
We are raising our Q3 EPS estimate by $0.08 to $0.73 driven by
better margins than we had expected. GPS guided for Q3
adjusted EPS of $0.72-$0.73, excluding a $0.06 benefit resulting
from the recognition of certain foreign tax credits. Prior
consensus was $0.71. We are raising our Q3 gross margin
estimate by 50bps and reducing our operating expense rate by
90bps. We expect gross margin expansion to return in Q4 and
continue into FY15 and beyond as GPS starts to reap the rewards
from its supply-chain initiatives, at first through fabric
platforming and later from vendor managed inventory and rapid
response inventory management. We continue to believe the
long-term margin expansion opportunity is underappreciated
and not reflected at the stock’s current valuation of 12x our
C2015 EPS estimate and 6x C2015E EV/EBITDA.
Investment highlights
 October SSS split the difference between our estimate and
consensus. GPS’s consolidated October SSS declined 3% on
top of +4%, versus our -4% forecast and consensus of -2%.
October is largely a clearance month, and we are leaving our
top-line outlook unchanged for the remainder of FY14.

 We are raising our price target by $2 to $51 based on our
discounted NOPAT model.

The Finish Line

FINL : NASDAQ : US$27.05
Target: US$32.00

The Finish Line, Inc. offers performance and athletic
casual footwear, apparel and accessories for men,
through its United States specialty retail stores. In
addition to their retail locations, The Finish Line sells
merchandise through its website, finishline.com. The
company was founded in 1976 and is headquartered in
Indianapolis, Indiana.

All amounts in US$ unless otherwise noted.

Consumer & Retail — Footwear and Apparel
Investment recommendation
FINL posted a strong and clean Q4 beat of 87c vs. our 85c estimate.
Solid comps of 6.3% topped the consensus estimate of 5% despite
coming in shy of our 8% estimate, while impressive gross margin
expansion of 80bps (vs. our -60bps) drove a majority of the beat. As
expected, basketball (+mid-teens) was the key driver, while running
(+LSD) lagged due to the unfavorable weather resulting in footwear
comps +8.5%. Softlines comps were -6.7% as licensed NCAA apparel
was below plan, only partially offset by accessories and UA/North Face
apparel. Given well known challenges across retail, FINL managed its
business quite well, and we believe running is poised to re-accelerate
over the next few quarters. Looking to 2014, we continue to see multiple
top-line and margin drivers that include: improving running product
pipeline with multiple brands contributing (e.g., UA Speedform, NKE
Flyknit Free/Max, Adidas Springblade), continued basketball momentum
(Jordan and NKE), improving productivity out of M doors, and softening
occupancy expense. With these tailwinds, we view the company’s MSD
comp/HSD-LDD EPS growth guidance as conservative; reiterate BUY.
Investment highlights
 Current QTD comp trends are +LSD; however, it is important to note
that the Easter comparison is negatively impacting that number.
After this weekend, we would expect comps to rebound back to
+MSD. We expect the March/April combined comp to be +MSD.
Our $32 target is a blend of 15x 2014E EPS/7x EBITDA/DCF

Urban Outfitters


NASDAQ : US$37.51 
BUY  Target: US$49.00


Urban Outfitters is a specialty retail offering fashion apparel, accessories, and home goods through around 500 stores, online, and catalogs. The company operates under the Urban Outfitters, Anthropologie, Free People (which includes a wholesale segment), Terrain, and BHLDN brands. A

Investment recommendation

URBN reported Q4 EPS of $0.59, $0.04 above our estimate and ahead of consensus of $0.54. The company generated 4bps of yr./yr. gross margin expansion, versus our forecast of a 31bps decline, which was largely offset by an SG&A expense rate that was 40bps higher than we had anticipated. A lower tax rate drove the bulk of the upside over our projection. We are maintaining our bullish stance driven by sustained fashion improvements and performance at the Anthropologie brand (41% of total C2013 sales). Q4 SSS increased 10% on top of +7%, and the brand’s level of markdowns was 20% lower yr./yr. despite the highly promotional environment that persisted in the quarter.
Investment highlights

We expect a slow recovery at the namesake brand. We are modeling for Urban Outfitters’ (44% of total sales) SSS to decline 8% in Q1 on top of +6% as difficult weather and fashion misses continue to plague the brand.
 Weaker UO sales push our Q1 EPS estimate $0.08 lower to $0.28. Prior consensus is $0.33. We are reducing our consolidated SSS forecast by 190bps to -0.8% on top of +9%. We now expect 141bps of SG&A expense deleverage versus our prior estimate of a 33bps improvement.
 Our price target moves from $48 to $49 as rolling forward our DCF model one year offsets our reduced outlook

Gildan Activewear Update

GIL : NYSE : US$52.51
Target: US$60.00

Consumer & Retail — Consumer  Products
Investment recommendation
We are reiterating our BUY rating and increasing our target price to
US$60.00 (from US$57.00) following better than expected Q1/F14
earnings results and reiteration of the company’s medium-term growth
Investment highlights
 Gildan reported Q1/F14 earnings results on Wednesday after the
market close. Sales increased 7% YoY to $451 million. EPS of $0.35,
after adjusting for one-time restructuring and acquisition-related
costs, was slightly above consensus of $0.34, and within Gildan’s
prior guidance range of $0.33-0.35. Gildan reconfirmed its F2014
guidance for sales of $2.35 billion, with $1.5 billion from the
company’s Printwear division and $825 million from the Branded
division, along with its EPS guidance range of $3.00-3.10.
 In November, Gildan announced intentions to begin construction on
a new manufacturing facility by Q3/F14, to support growth at its
Branded products division. The company stated it expects to have
selected a site and completed all related land purchases by the end
of Q2/F14. We look forward to the release of additional details and
believe that the facility’s capacity will be 20-30 million dozens,
which we estimate would add roughly $0.60-0.90 to EPS.
Our US$60.00 target price represents 19.2x our F2014E EPS estimate of
$3.13, or 17.5x our F2015 EPS estimate of $3.42. We believe Gildan’s
balance sheet positions the company to capitalize on accretive
acquisition opportunities, while capacity additions, healthy product
demand and cost cutting initiatives support healthy organic growth.


Hudson’s Bay Company

HBC : TSX : C$16.89
Target: C$22.50

The Hudson’s Bay Company is a leading North American department store retailer, operating stores under the Hudson’s Bay and Home Outfitters banners in Canada, and under Lord & Taylor in the United States.
All amounts in C$ unless otherwise noted.

Consumer & Retail — Merchandising
Investment recommendation
Hudson’s Bay announced the sale of its downtown Toronto location, along with its ownership of the ~400,000 square foot Simpson’s Tower to Cadillac Fairview for $650 million. Hudson’s Bay will lease the location back for a base term of 25 years, with renewal options for just under 50 years. After incorporating the transaction into our valuation, we are maintaining our BUY rating and increasing our target price to C$22.50 from C$21.00.
Investment highlights
 Utilizing an average $25 rent per square foot implies a 4.75% cap rate for the transaction. Incorporating the $650 million sale price, as well as the aforementioned increase in rent against our annual EBITDA estimates, our sum-of-the-parts valuation increases from C$20.33 to C$22.79.
 Assuming all proceeds are initially directed toward debt repayment, our fiscal 2014 year-end net debt/ebitda estimate falls from 3.9x to 3.2x, leaving Hudson’s Bay much more latitude to pursue Saks-related expansion plans and pursue additional growth opportunities.
 Concurrently, the company announced the locations of the first two Saks stores in Toronto. A full-line, multi-level Saks will be co-located with the current Hudson’s Bay location at Queen/Yonge and is planned to open in the fall of 2015. Also, the company plans to open a location at Sherway Gardens.
Our target price reflects our updated sum-of-the-parts valuation and represents 8.5x our F2014 EBITDA estimate of $$643 million. Although Q4/F13 appears challenging given both a heavily promotional environment and very unfavorable weather, HBC remains committed to reducing excess SG&A costs and leveraging the recent acquisition of Saks. Meanwhile, we believe investors will be rewarded through further monetization of HBC’s significant real estate assets during F2014