Chapter 1
Nature of the Organization’s Business
Under Armour is a multinational sports clothing and accessory company headquartered in Baltimore, Maryland. The company suppliers casual apparel and sportswear, and in 2006, it started offering footwear. The company sells its products worldwide targeting athletes at all levels as well as consumers having active lifestyles. To date, the company has opened various stores as well as factory outlets in various states and nations including Canada and China.
Organization’s History
1996-1998: Early Milestones
1996: Founding of the Company
Kevin Plank founded the company in 1996 when he was 23 years old. He was the former special team captain of University of Maryland football team. As a fullback on the football team, he was not pleased with the idea of constantly changing out of T-shirts with lots of sweats that he wore under his jersey; however, his compression shorts did not become sweaty as the T-shirts. That was when the idea of making a synthetic fiber T-shirt came up. The new T-shirts had moisture-wicking performance fibers which assisted athletes to remain dry, cool, and light even in adverse weather conditions. At first, he worked from his grandmother’s basement traveling up and down selling his products out of his car’s trunk. By the end of the year, he had made a total sale of $17,000.
1997: Introduction of the ColdGear
The company introduced COLDGEAR, which came to be a famous product among athletes and meant for cold weather conditions. The gear keeps athletes warm and dry during cold weather. During the same year, there was the introduction of ALLSEASONGEAR meant to ensure comfortability in all seasons.
1998: Headquarters
At the end of 1998, the company moved its headquarters to a warehouse in Baltimore.
1999: Breakthrough
The company had its first breakthrough in 1999. In the year, Warner Bros contacted the company with regards to its two feature films, The Replacements and Oliver Stone’s Any Given Sunday. Part of the characters of the film had to wear an Under Armour product in certain scenes. After such a big breakthrough, Plank decided to purchase an ad in the popular ESPN Magazine which generated approximately $750,000 in sales.
2000: Contract as an Outfitter
The company got a contract to outfit the new XFL football league. When the league debuted on national television, more people became interested in the company.
2003: Launching the First Television Commercial
The motto of the company “Protect this house” took the center stage in the company’s first television commercial.
2007: Opening a Full-Line Retail Location
The year saw the company open its first full-price full-line retail location in Annapolis, Maryland.
Present day: Extending the Vision
The company has grown tremendously, opening up several factory outlets and stores in different states. Currently, the primary business of the company operates in four geographical segment, that is, North America, EMEA, Asia-Pacific and Latin America
Vision, Mission Statement, and Objectives:
Vision Statement:
Empower athletes everywhere.
Mission Statement:
Make all athletes better through passion, design, and the relentless pursuit of innovation.
Objectives:
Make great product
Tell a great story
Provide great service
Build a great team
Chapter II
Company’s Products and Markets
Major Products
Under Armour is a sports clothing and accessories company. The major products of the company are apparel, footwear, and accessories for all people. The apparels come in various styles and fits perfectly to ensure mobility and comfort in all weather conditions. Consumers can choose between HEATGEAR for hot seasons, COLDGEAR for cold seasons and ALLSEASONGEAR when the season is in between the two extremes. Footwear offerings of the company include baseball, basketball, football, lacrosse, outdoor, running, slides and performance training, and softball and soccer cleats footwear. The footwear provides directional cushioning, stabilization, and moisture management to maximize the comfort and control of the athlete. Accessories include bags, gloves, and headwear, and they provide the same performance level as the other products.
Major Markets and Market Share
The majority of the company’s sales are through wholesale channels. In countries where there are no direct sales or licenses, the company sells its products to independent distributors. Additionally, the company sells some of its products directly to consumers and through websites globally.
A recent survey in 2014 ranked Under Armour third among the top 50 sporting goods brands. The company was also among the top five in the industry after lagging behind Adidas, Nike, ESPN, and Sky Sports regarding product value. As of 2015, the company had below 5% market share but have a vast opportunity to increase market share globally.
Chapter III
Financial Analysis
Liquidity
The current ratio is unfavorable. It was 3.67 in 2014 and reduced to 3.13 in 2015. Such a reduction shows that the ability of the company to pay short-term liabilities has reduced. However, it is favorable when considering the industry benchmark which reduced from 3.73 to 2.80 during the same period.
The quick ratio is unfavorable. The ratio reduced from 2.49 in 2014 to 1.49 in 2015. The reduction shows that the company had a reduction of its short-term financial security. Though there is a reduction in the average industry benchmark quick ratio from 2.57 to 1.84 during the same period, Under Armour’s quick ratio is low making it unfavorable as per industry values.
The cash ratio is unfavorable. A higher current ratio means that the company can pay off its current liabilities using only cash or its equivalents. The current ratio decreased from 1.41 in 2014 to 0.27 in 2015.
Activity
The account receivable turnover is unfavorable as it reduced slightly from 2.33 in 2014 to 2.32 in 2015. On the other hand, the industry average ratios were much higher increasing from 37.91 to 41.38 during the same period. The decrease in the current ratio for the company shows that it has had a reduced efficiency in collecting its receivables.
The average collection period is stable as it only slightly increased from 156.7 days in 2014 to 157 days in 2015. The industry benchmarks were 75.37 and 71.78 days in 2014 and 2015 respectively.
The inventory turnover is unfavorable as it reduced from 3.13 in 2014 to 3.12 in 2015. The industry benchmarks were much higher but reduced from 6.91 to 5.87 during the same period. The reduction shows that the company has reduced its efficiency in selling the inventory it buys.
The sales to working capital are favorable. Desirable ratios are the ones which are higher than the industry benchmark. It is clear that the ratio of the company is more than the industry average as it increased from 3.37 in 2014 to 3.69 in 2015. On the other hand, the industry benchmark increased from 2.27 to 2.58 during the same period.
Capital Structure
The debt ratio is unfavorable as it increased from 36% in 2014 to 42% in 2015 showing that the company relied more on debts for its growth in 2015.
The debt/equity ratio is unfavorable as it rose from 55% in 2014 to 72% in 2015. The increase in the ratio implies that the financial stability of the company reduced as creditors have not the operations of the company much as investors in 2015.
The time interest is unfavorable as it reduced from 40 in 2014 to 16.9 in 2015. The time interest is a measure of the company’s creditworthiness and the higher the value, the better the creditworthiness.
The debt service coverage is unfavorable as it decreased from 12.64 in 2014 to 7.08 in 2015. The higher the value, the better the ability of the company to maintain its current debt levels.
Profitability
The total margin is unfavorable as it reduced from 49.00% in 2014 to 48.10 % in 2015. What this means is that the company had a profit margin of 0.49 cents for every dollar in 2014 as compared to 0.48 cents per dollar in 2015.
The return on assets is unfavorable as it decreased from 11.33% in 2014 to 9.37 in 2015. The decrease shows that the company has reduced its effectiveness in managing its assets to produce net income.
The return on equity is unfavorable as it decreased from 15.41% in 2014 to 13.94% in 2015. What this implies is that the company did not use funds from investors effectively in 2015.
The total assets turnover is unfavorable as it reduced from 1.47 in 2014 to 1.38 in 2015 implying that the company did not use its assets in generating sales in 2015 as compared to 2014.
The sales to fixed asset ratio is unfavorable because it decreased from 10.10 in 2014 to 7.36 in 2015 indicating that in the latter year, the company utilized assets less efficiently and generated a small amount of sales from more assets as compared to 2014.
Investment Statistics
The basic earnings per share is favorable as it increased from $0.976 to $1.079 meaning the company had more profits to distribute to shareholders in 2015 than in 2014.
The price-earnings ratio is favorable as it increased from 71.47 in 2014 to 76.77 in 2015 which implied that the expectations are that the company has a better future performance.
The book value per share is favorable as it increased from $6.33 to $7.74 in 2015 implying that there is an increase in the level of safety of shareholders are.
Chapter IV
Organization’s Management
Organizational Structure
CFO
Brief Description of Management
Kevin Plank – Chief Executive Officer.
He was born on August 13, 1972, and founded Under Armour in 1996. He was 23 years old at the time and initially began his business in the basement of his grandmother’s house before moving to Baltimore, Maryland, which became the headquarters of the company. Before starting Under Armour, he had launched various businesses including Cupid’s Valentines which sold roses during Valentine season. From the business, he was able to save $17,000 which he later used to start Under Armour. The idea of forming the company came as a result of Plank wanting something that would keep him dry and comfortable while playing. He graduated from Maryland with a bachelor’s degree in business administration in 1996 which enabled him to search for the appropriate material for his soon to be company.
Chip Molloy – Chief Financial Officer
He replaced Brad Dickerson as the new chief financial officer early this year. Before joining the company, he worked at PetSmart Inc. at the same position. Molloy was the CFO at PetSmart from 2007-2013. He holds a master’s in business administration from the University of Virginia.
Kip Fulks – Chief Marketing Officer.
He has occupied the position of chief marketing officer since November 2015. Before occupying this position, he served as president of footwear and innovation and footwear from March to October 2016 and COO from September 2011 to February 2015. He also held other positions since 1997 as he was the co-founder of the company.
Chapter V
Industry and Competitive Analysis
Major Competition
Nike
Nike is the largest among the three and has undoubtedly the most brand recognition. The company has its headquarters in Beaverton, Oregon and having a market capitalization of around $102 billion. The company ended 2015 with a share price of about $62 per share and yielding a dividend of about 1%. Nike has the largest market share in the North America athletic apparel industry and has maintained its dominance across the globe. The company uses the Nike name to market most of its products, but it also has smaller niche brands like Converse and Jordan.
Adidas
Adidas has its headquarters in Herzogenaurach, Germany and has a market capitalization of approximately $19 billion. The company ended 2015 with a share price of about $48 per share and yielding a dividend of about 1.8%. The company enjoys a more established market in Europe and owns two widely recognized brands: Reebok and TaylorMade.
Industry Analysis
The global sports and fitness clothing industry consists of sports apparel and fitness clothing with each of the segments having a different target audience. The product market of the industry is growing rapidly due to the increase in the number of people participating in sports activities. The industry has also seen new market trends as more consumers adopt healthy lifestyles, an increase in sports participation, and the emergence of new sports. All of the above factors have resulted in a demand increase of sports and fitness products. Apart from the increased growth and demand in the industry, there are also some challenges that the companies face. Some of these factors include labor shortages, increased raw material prices, and unprecedented e-commerce development. Despite the challenges, the industry remains solid overall as there is constant business improvement, even for the small players such as Finish Line and Lululemon.
SWOT Analysis
Chapter VI
Summary
Overall Assessment of the Organization
Under Armour has experienced rapid growth over the past few years but in spite of the developments, the company still has various challenges that need critical management for continued market growth. There is stiff competition in the industry from companies such as Nike and Adidas, which have massive resources at their disposal. The threats and bargaining power of customers is medium when considering the capabilities and resources of the existing companies. Nevertheless, the risk of similar products as well as the bargaining power of suppliers is low therefore increasing the competitiveness of the industry. The company’s competence is in terms of innovation and improvement of product performance using technology. The company has an upper hand when it comes to product innovation due to its use of advanced moisture-wicking fabric.
The net income of the company has been increasing over the years making the company have a promising sustenance of its finances. The company has been able to grow its sales and net income significantly with the growth rates outpacing the rates of competitors within the industry. Currently, the quick ratio of the company is 1.19 showing that the company can cover short-term cash requirements with ease. Also, the net worth of the company has increased by 25.76% showing that the chances of the company facing financial difficulties are minimal.
Under Armour can generate core competitiveness in the industry through product innovation. The company focuses on integrating creativity and innovativeness to design quality and differentiated products while reducing operation costs. As a result, the company improves its loyalty among customers and thus achieves competitive advantage in the industry. Under Armour has a potential to increase its market share in the industry but to do this, it should not narrow its products to athletes but also sell casual wears.
Works Cited
"Under Armour, Inc. - Executive Officers". Uabiz.com, 2016. Online. Internet. 24 May 2016. Available: http://www.uabiz.com/management.cfm.
White, Gerald I., Ashwinpaul C. Sondhi, and Dov Fried. The analysis and use of financial statements. Vol. 1. John Wiley & Sons, 2003.
