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Under Armour Final Presentation

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DePaul University

This document analyzes Under Armour and provides a valuation. It summarizes Under Armour's history, financial performance, competitive landscape, and intrinsic valuation using DCF, P/E, and EV/EBITDA multiples. The analysis values Under Armour at $13 per share, believing the current $25 share price overvalues the company given slowing growth prospects and risks from cheaper competitors.

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Under Armour The Future of Performance Sportswear? An Evaluation FIN 553 June 4th 20091
INDUSTRY BACKDROP
IN THE BEGINNING 3
Under Armour Final Presentation
WEVE COME A LONG WAY, BABY
WEVE COME A LONG WAY.
MATERIALS
TECHNOLOGY
HIGH END
In the six-year period to 2012, just-style forecasts performance apparel will outperform all sportswear by a factor of two, raising the US$ money value of performance sportswear to US$7.20bn . (Source: Taking the lead in performance apparel: just-style.com, 21 September 2006 | INDUSTRY OVERVIEW 10
UA OVERVIEW
The core strength of our brand is its connection to athletes who understand the benefits of performance products. ( (Source: Letter to Shareholders, UA 2008 Annual Report )
COMPANY SCOREBOARD $205,181 $281,053 $430,689 $606,561 $725,244 2004 2005 2006 2007 2008 5 YEAR ANNUAL COMPOUND GROWTH RATE - 44.4% NET REVENUES IN THOUSANDS; YEAR 2004-2008 $25,153 $35,810 $56,918 $86,265 $76,295 2004 2005 2006 2007 2008 5 YEAR ANNUAL COMPOUND GROWTH RATE - 50.5% NET REVENUES IN THOUSANDS; YEAR 2004-2008 NET REVENUES IN THOUSANDS; YEAR 2004-2008 INCOME FROM OPERATIONS IN THOUSANDS; YEAR 2004-2008 NET REVENUES IN THOUSANDS; YEAR 2004-2008 INCOME FROM OPERATIONS IN THOUSANDS; YEAR 2004-2008 80% 12% 4% 4% NET REVENUES BY PRODUCT CATEGORY YEAR 2008 APPAREL FOOTWEAR ACESSORIES LICENSE REVENUES
COMPETITIVE LANDSCAPE 14
CORPORATE GOVERNANCE Name Title Age Total cash compensations Kevin A Plank CEO and Chairman of the Board 35 $528,656 USD Brad Dickerson CFO 43 Unavailable Wayne E. Marino Executive VP/COO 47 $308,369 USD Matthew C. Mirchin DVP 48 $394,935 USD James E. Calo Other Executive Officer 45 $789,026 USD Melissa A. Wallace VP, Divisional 49 $722,225 USD Name Title Age Affiliation Thomas J. Sippel Director 61 Partner of the law firm Gill, Sippel & Gallagher Harvey L. Sanders Director 58 Former Chairman of the Board of Directors of Nautica Enterprises, Inc William R. McDermott Director 47 Former CEO of SAP Global Field Operations Anthony W. Deering Director 63 Chairman of Exeter Capital, LLC A.B. Krongard Director 71 Executive Director of the Central Intelligence Agency Byron K. Adams, Jr. Director 54 Managing Director, Rosewood Capital, LLC 15
CURRENT CONSIDERATIONS Share performance vs. S&P 500 (source FT.com) Under Armour Inc. (UA) Key financials (Source: Yahoo Finance) Current Price $25.23 52-Week range $12-$44 Market Capital $1.25 billion P/E ratio 32.06 Recent returns (Source: Woolframalpha.com) Day 2.81% Month 5.13% YTD 5.83% Year -27.44% Annual Volatility (Source: Woolframalpha.com) UA 84.40% S&P 500 45.68% Bonds 5.71% T-Bills 0.00% 16
VALUATION
INTRINSIC VALUATION ASSUMPTIONS rf 3.65% rd 1.78% rm 3.90% 硫 1.15 g 3.00% D/V 0.03 E/V 0.97 CAPM 8.25% WACC 8.04% 18
NIKE INTERNATIONAL GROWTH COMPARISON Nike ($ in millions) UA Year 1981 1982 1983 1984 1985 2008 2015E Actual sales Domestic 432 651 774 761 730 692 2159 International 26 43 93 158 216 33 540 Total 458 694 867 920 946 725 2699 % Splits Domestic 94.32% 93.80% 89.27% 82.72% 77.17% 95.45% 79.99% International 5.68% 6.20% 10.73% 17.28% 22.83% 4.55% 20.01% Total 100% 100% 100% 100% 100% 100% 100% Average Nike International Growth 1982-1991 32% 19
NET INCOME CALCULATIONS ($ in millions) Historical Projected Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 Domestic Sales 562 661 720 785 903 1038 1194 1373 1579 International Sales 44 65 77 92 121 160 211 278 367 Total Net Revenues 607 725 797 877 1024 1198 1405 1651 1946 Gross Profit 305 355 383 421 491 575 674 793 934 Total Operating Expense 219 278 327 360 420 491 576 677 798 Operating Income 86 77 56 61 72 84 98 116 136 Depreciation 15 21 21 21 21 21 21 21 21 EBITDA 101 98 77 83 93 105 120 137 158 Total Other Income/(Expense) 3 (7) 16 18 20 24 28 33 39 EBIT 89 69 72 79 92 108 126 149 175 Provision for Income Taxes 36 32 26 28 33 39 46 54 63 Net Income 53 38 46 50 59 69 81 95 112 20
DCF CALCULATIONS ($ in millions) Historical Projected Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 TV EBIT 89 70 72 79 92 109 126 148 175 Taxes 36 32 26 28 33 39 46 54 63 Net Income 53 38 46 51 59 69 81 95 112 Depreciation 15 21 22 23 23 24 25 25 26 CapEx (22) (21 (16) (18) (20) (24) (28) (33) (39) NWC (53) (37) (39) (41) (43) (45) (46) (49) (52) FCF (8) 2 13 15 19 24 30 38 48 974 Discounted FCF and TV 12 13 15 18 21 24 28 567 21
PEER ANALYSIS Name Country P/E Ratio EV/EBITDA Under Armour 12.15 Perry Ellis International Inc 9.7 7.37 Oxford Industries Inc 12.9 9.88 Columbia Sportswear Co. 13.27 8.04 Hanesbrands Inc 22.23 8.34 Mean N/A 14.53 8.41 Median N/A 13.09 8.19 Stock performance (Source: Yahoo.com/Ifinancilas.com) 22
INTRINSIC VALUE DCF Calculation DCF $131m Continuing Value $567m Total Value $697m Shares O/S 50.4m Target share price $13.85 P/E Valuation Calculation Net Income (2009) $45,915,181 No of shares 50,400,400 EPS $0.91 Multiple (Comparables) 14.53 Equity Value $666,918,005 Target Price per share $13.23 EV/EBITDA Valuation Calculation EBITDA (2009) $77,146,699 No of shares 50,400,400 Multiple 8.41 Enterprise Value $648,610,874 Net Debt $13,158,000 Equity Value $635,452,874 Target price per share $12.61 23
RISKS TO VALUATION
WHAT-IF? SCENARIO (INT GROWTH AT 15%) DCF Calculation DCF $115m Continuing Value $455m Total Value $570m Shares O/S 50.4m Target share price $11.32 P/E Valuation Calculation Net Income (2009) $45,915,181 No of shares 50,400,400 EPS $0.91 Multiple (Comparables) 14.53 Equity Value $666,918,005 Target Price per share $13.23 EV/EBITDA Valuation Calculation EBITDA (2009) $77,146,699 No of shares 50,400,400 Multiple 8.41 Enterprise Value $648,610,874 Net Debt $13,158,000 Equity Value $635,452,874 Target price per share $12.61 25
REAL OPTIONS
OPTION 1:CHINA
OPTION 2: DIRECT TO CUSTOMER
CONCLUSION
CONCLUSION At $25 Under Armour is overpriced. We recommend a target price of $13 a share Reasons Investors regard Under Armour as the next Nike, hence the 25x P/E multiple. However the days of double digit growth are over Could be undercut by cheaper, private label merchandise 30
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CRAIG JOHNSTON KEVAN OCONNOR KEVIN LEWIS DAVID CLARK VISUAL PRESENTATION BY DISCLAIMER: THE VIEWS CONTAINED IN THIS DOCUMENT ARE FOR INTERNAL PURPOSES ONLY AND DO NOT REFLECT THE VIEWS OF DEPAUL UNIVERSITY OR ITS EMPLOYEES CREDITS

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Under Armour Final Presentation

  • 1. Under Armour The Future of Performance Sportswear? An Evaluation FIN 553 June 4th 20091
  • 5. WEVE COME A LONG WAY, BABY
  • 10. In the six-year period to 2012, just-style forecasts performance apparel will outperform all sportswear by a factor of two, raising the US$ money value of performance sportswear to US$7.20bn . (Source: Taking the lead in performance apparel: just-style.com, 21 September 2006 | INDUSTRY OVERVIEW 10
  • 12. The core strength of our brand is its connection to athletes who understand the benefits of performance products. ( (Source: Letter to Shareholders, UA 2008 Annual Report )
  • 13. COMPANY SCOREBOARD $205,181 $281,053 $430,689 $606,561 $725,244 2004 2005 2006 2007 2008 5 YEAR ANNUAL COMPOUND GROWTH RATE - 44.4% NET REVENUES IN THOUSANDS; YEAR 2004-2008 $25,153 $35,810 $56,918 $86,265 $76,295 2004 2005 2006 2007 2008 5 YEAR ANNUAL COMPOUND GROWTH RATE - 50.5% NET REVENUES IN THOUSANDS; YEAR 2004-2008 NET REVENUES IN THOUSANDS; YEAR 2004-2008 INCOME FROM OPERATIONS IN THOUSANDS; YEAR 2004-2008 NET REVENUES IN THOUSANDS; YEAR 2004-2008 INCOME FROM OPERATIONS IN THOUSANDS; YEAR 2004-2008 80% 12% 4% 4% NET REVENUES BY PRODUCT CATEGORY YEAR 2008 APPAREL FOOTWEAR ACESSORIES LICENSE REVENUES
  • 15. CORPORATE GOVERNANCE Name Title Age Total cash compensations Kevin A Plank CEO and Chairman of the Board 35 $528,656 USD Brad Dickerson CFO 43 Unavailable Wayne E. Marino Executive VP/COO 47 $308,369 USD Matthew C. Mirchin DVP 48 $394,935 USD James E. Calo Other Executive Officer 45 $789,026 USD Melissa A. Wallace VP, Divisional 49 $722,225 USD Name Title Age Affiliation Thomas J. Sippel Director 61 Partner of the law firm Gill, Sippel & Gallagher Harvey L. Sanders Director 58 Former Chairman of the Board of Directors of Nautica Enterprises, Inc William R. McDermott Director 47 Former CEO of SAP Global Field Operations Anthony W. Deering Director 63 Chairman of Exeter Capital, LLC A.B. Krongard Director 71 Executive Director of the Central Intelligence Agency Byron K. Adams, Jr. Director 54 Managing Director, Rosewood Capital, LLC 15
  • 16. CURRENT CONSIDERATIONS Share performance vs. S&P 500 (source FT.com) Under Armour Inc. (UA) Key financials (Source: Yahoo Finance) Current Price $25.23 52-Week range $12-$44 Market Capital $1.25 billion P/E ratio 32.06 Recent returns (Source: Woolframalpha.com) Day 2.81% Month 5.13% YTD 5.83% Year -27.44% Annual Volatility (Source: Woolframalpha.com) UA 84.40% S&P 500 45.68% Bonds 5.71% T-Bills 0.00% 16
  • 18. INTRINSIC VALUATION ASSUMPTIONS rf 3.65% rd 1.78% rm 3.90% 硫 1.15 g 3.00% D/V 0.03 E/V 0.97 CAPM 8.25% WACC 8.04% 18
  • 19. NIKE INTERNATIONAL GROWTH COMPARISON Nike ($ in millions) UA Year 1981 1982 1983 1984 1985 2008 2015E Actual sales Domestic 432 651 774 761 730 692 2159 International 26 43 93 158 216 33 540 Total 458 694 867 920 946 725 2699 % Splits Domestic 94.32% 93.80% 89.27% 82.72% 77.17% 95.45% 79.99% International 5.68% 6.20% 10.73% 17.28% 22.83% 4.55% 20.01% Total 100% 100% 100% 100% 100% 100% 100% Average Nike International Growth 1982-1991 32% 19
  • 20. NET INCOME CALCULATIONS ($ in millions) Historical Projected Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 Domestic Sales 562 661 720 785 903 1038 1194 1373 1579 International Sales 44 65 77 92 121 160 211 278 367 Total Net Revenues 607 725 797 877 1024 1198 1405 1651 1946 Gross Profit 305 355 383 421 491 575 674 793 934 Total Operating Expense 219 278 327 360 420 491 576 677 798 Operating Income 86 77 56 61 72 84 98 116 136 Depreciation 15 21 21 21 21 21 21 21 21 EBITDA 101 98 77 83 93 105 120 137 158 Total Other Income/(Expense) 3 (7) 16 18 20 24 28 33 39 EBIT 89 69 72 79 92 108 126 149 175 Provision for Income Taxes 36 32 26 28 33 39 46 54 63 Net Income 53 38 46 50 59 69 81 95 112 20
  • 21. DCF CALCULATIONS ($ in millions) Historical Projected Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 TV EBIT 89 70 72 79 92 109 126 148 175 Taxes 36 32 26 28 33 39 46 54 63 Net Income 53 38 46 51 59 69 81 95 112 Depreciation 15 21 22 23 23 24 25 25 26 CapEx (22) (21 (16) (18) (20) (24) (28) (33) (39) NWC (53) (37) (39) (41) (43) (45) (46) (49) (52) FCF (8) 2 13 15 19 24 30 38 48 974 Discounted FCF and TV 12 13 15 18 21 24 28 567 21
  • 22. PEER ANALYSIS Name Country P/E Ratio EV/EBITDA Under Armour 12.15 Perry Ellis International Inc 9.7 7.37 Oxford Industries Inc 12.9 9.88 Columbia Sportswear Co. 13.27 8.04 Hanesbrands Inc 22.23 8.34 Mean N/A 14.53 8.41 Median N/A 13.09 8.19 Stock performance (Source: Yahoo.com/Ifinancilas.com) 22
  • 23. INTRINSIC VALUE DCF Calculation DCF $131m Continuing Value $567m Total Value $697m Shares O/S 50.4m Target share price $13.85 P/E Valuation Calculation Net Income (2009) $45,915,181 No of shares 50,400,400 EPS $0.91 Multiple (Comparables) 14.53 Equity Value $666,918,005 Target Price per share $13.23 EV/EBITDA Valuation Calculation EBITDA (2009) $77,146,699 No of shares 50,400,400 Multiple 8.41 Enterprise Value $648,610,874 Net Debt $13,158,000 Equity Value $635,452,874 Target price per share $12.61 23
  • 25. WHAT-IF? SCENARIO (INT GROWTH AT 15%) DCF Calculation DCF $115m Continuing Value $455m Total Value $570m Shares O/S 50.4m Target share price $11.32 P/E Valuation Calculation Net Income (2009) $45,915,181 No of shares 50,400,400 EPS $0.91 Multiple (Comparables) 14.53 Equity Value $666,918,005 Target Price per share $13.23 EV/EBITDA Valuation Calculation EBITDA (2009) $77,146,699 No of shares 50,400,400 Multiple 8.41 Enterprise Value $648,610,874 Net Debt $13,158,000 Equity Value $635,452,874 Target price per share $12.61 25
  • 28. OPTION 2: DIRECT TO CUSTOMER
  • 30. CONCLUSION At $25 Under Armour is overpriced. We recommend a target price of $13 a share Reasons Investors regard Under Armour as the next Nike, hence the 25x P/E multiple. However the days of double digit growth are over Could be undercut by cheaper, private label merchandise 30
  • 31. 31
  • 32. CRAIG JOHNSTON KEVAN OCONNOR KEVIN LEWIS DAVID CLARK VISUAL PRESENTATION BY DISCLAIMER: THE VIEWS CONTAINED IN THIS DOCUMENT ARE FOR INTERNAL PURPOSES ONLY AND DO NOT REFLECT THE VIEWS OF DEPAUL UNIVERSITY OR ITS EMPLOYEES CREDITS