Under Armour

Footwear and Apparel

Camilo Lyon | Canaccord Genuity Inc. (US) | CLyon@canaccordgenuity.com | 212.849.3978

Pallav Saini | Canaccord Genuity Inc. (US) | psaini@canaccordgenuity.com | 212.389.8054

US Equity Research
17 September 2015

Company Update

BUY
unchanged
US$105.00

PRICE TARGET
unchanged
Price (16-Sep)
Ticker
52-Week Range (US$):
Market Cap (US$M):
Shares Out. (M) :
FYE Dec
Sales (US$M)
P/Sales (x)
EPS (US$)
P/E (x)

60.00 - 103.56
22,731
219.9
2014A
3,084
7.4
0.95
108.3

Quarterly Sales
2014A
2015E
2016E
Quarterly EPS
2014A
2015E
2016E

The hardest stock to buy, but simply must; reiterate

top growth pick, BUY, $105 PT

US$103.36
UA-NYSE

2015E
3,868
5.9
1.06
97.5

Q1
Q2
641.6 609.7
804.9A 783.6A
1,002 960.0
Q1
0.06
0.05A
0.11

Q2
0.08
0.07A
0.12

2016E
4,757
4.8
1.42
72.7

Q3
937.9
1,165
1,436

Q4
895.2
1,114
1,359

Q3
0.41
0.42
0.57

Q4
0.40
0.52
0.63

110
100
90
80
70
60

Sep-15

Jul-15

Aug-15

Jun-15

Apr-15

May-15

Mar-15

Jan-15

Feb-15

Dec-14

Oct-14

Nov-14

50

UA
S&P500(rebased)
Source:FactSet

Under Armour is a leading manufacturer of athletic apparel,

footwear, and accessories, selling its products through
wholesalers, factory outlet stores, and online.

Investment recommendation
It is well understood that UA's multiple is difficult for most to look past; however as
we have stated often, when presented with the vast growth opportunities across
geographies, categories, channels, and now industries (e.g. technology and healthcare)
as we were at yesterday's Investor Day, it is clear that UA has a long runway of elevated
and outsized growth to justify the multiple. This was underscored by UA's 2018 targets
that call for $7.5B in revenue (implying a 25% CAGR) and $800M in EBIT (23% CAGR).
It also puts UA within striking distance of $10B in 2019, a milestone we have been
speaking to and one we believe it is well positioned to reach. In looking across the retail
universe, we see no other company with the strength of brand and underlying growth
opportunities that UA has and therefore, we are not daunted by the seemingly expensive
multiple. We reiterate our BUY rating.
Investment highlights
Growth avenues abound: Of the many exciting growth drivers UA detailed in its
presentation, we are most intrigued/impressed by 1) its entry into sportswear
where Nike/Adidas enjoy combined 25% share or $12B+ in sales, 2) its plans to
grow international by 50% annually through 2018, quintupling the business to
$1.35B, 3) 30% DTC CAGR resulting in a tripling of global doors to over 1,000 stores
worldwide combined with 5x growth of its e-commerce platform, 4) the evolution and
monetization of UA Record/Connected Fitness to $200M, and 5) the acceleration
in footwear that is expected to drive 40% CAGR reaching $1.7B in revenue. This
is not to say that the planned doubling of apparel, global wholesale, and NA is not
equally impressive. All of these growth initiatives are supported by the success of its
athletes that provide a platform to drive incremental brand awareness and consumer
connections.
Stable gross margin outlook: Despite a long-term target of 50%, UA is projecting 2018
gross margin of 49% (flat with 2015). The positive contributors (Connected Fitness,
higher DTC mix, and product margin improvement/supply chain) are expected to be
offset by faster growth of lower-margin businesses (footwear and international) and FX.
Investments are necessary (and welcomed) to expand the runway of growth: Too
many times have we seen hyper-growth companies under-invest in the business,
ultimately to the detriment of the brand. We therefore are pleased to see UA planning
for its long-term future by making the appropriate investments today in categories
(footwear, int'l, basketball, golf, women's), marketing assets (current and future),
systems (new SAP platform), technology (Connected Fitness), and infrastructure (new
HQ, more DC's) all of which should help propel the growth algorithm. That said, this
will lead to modest SG&A deleverage through 2018, a trade-off for revenue growth we
are happy to make. Similarly, capex will be elevated at 8-10% of sales through 2018.
Valuation
Our $105 target is based on a blend of 60x our 2016E EPS, 30x EV/EBITDA, and DCF.

Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX | CF. : LSE)
The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and all
the companies and securities that are the subject of this report discussed herein.

For important information, please see the Important Disclosures beginning on page 3 of this document.

Under Armour
Company Update

Figure 1: UA projected income statement

December Fiscal
Incom e Statem ent
Revenue
Apparel
Footw ear
Accessories
Total Net Sales
Licensing revenues
Connected Fitness
Total Net Revenue

1Q14

2Q14

3Q14

4Q14

459.2
114.0
51.5
624.8
12.8
4.0
641.6

420.0
109.5
59.9
589.5
14.7
5.5
609.7

704.6
121.6
84.9
911.1
26.8

707.7
85.8
79.0
872.5
22.7

937.9

COGS
Gross Profit
SG&A
Operating Incom e

340.9
300.7
273.8
26.9

309.7
300.0
265.3
34.7

Interest expense, net

Other Income, net
Pretax Income
Taxes
Net Income
EPS, diluted
Factsetl Consensus

(0.8)
(0.9)
25.1
11.6
$13.5
$0.06
$0.04

Shares outstanding, diluted

Margin Analysis
Gross Margin Total
y/y change (bps)
SG&A
leverage/(deleverage)
EBIT Margin
Other income
Taxes
Net Income
Grow th Analysis
Revenue
Apparel
Footw ear
Accessories
Total Net Sales
Licensing revenues
Connected Fitness
Total Net Revenue
Gross Profit Dollars
Gross Profit Dollars ex-licensing revs
SG&A
EBIT
Net Income
EPS

1Q15

2Q15

3Q15E

4Q15E

1Q16E

2Q16E

3Q16E

4Q16E

515.3
153.6
83.0
751.9
18.1
13.6
783.6

859.6
170.2
97.7
1,127.5
37.5

870.5
120.1
90.8
1,081.4
32.9

688.8
217.3
75.8
981.8
20.3

638.9
199.7
99.6
938.3
21.7

1,048.7
229.8
112.3
1,390.8
45.0

1,053.2
162.2
104.5
1,319.9
39.5

895.2

555.5
161.0
63.2
779.6
16.9
8.4
804.9

1,165.0

1,114.4

1,002.2

960.0

1,435.9

472.6
465.3
319.2
146.1

448.9
446.3
300.0
146.3

427.3
377.7
350.0
27.7

404.5
379.1
347.2
31.9

593.0
572.0
411.8
160.3

549.4
565.0
372.0
193.0

524.1
478.0
437.5
40.5

485.8
474.2
430.5
43.8

(1.2)
0.2
33.7
16.0
$17.7
$0.08
$0.07

(1.5)
(3.4)
141.2
52.1
$89.1
$0.41
$0.40

(1.7)
(2.4)
142.1
54.4
$87.7
$0.40
$0.39

(2.2)
(1.8)
23.6
11.9
$11.7
$0.05
$0.05

(4.3)
0.0
27.7
12.9
$14.8
$0.07
$0.05

(4.0)
(1.0)
155.3
62.1
$93.2
$0.42
$0.44

(4.0)
(1.0)
188.0
74.3
$113.8
$0.52
$0.52

(3.0)
(1.5)
39.0
15.6
$23.4
$0.11
$0.10

216.9

217.3

218.0

219.7

219.6

219.9

220.2

220.5

46.9%
0.95%
42.7%
0.38%
4.2%
(0.1%)
46.1%
2.1%

49.2%
0.88%
43.5%
(2.30%)
5.7%
0.0%
47.5%
2.9%

49.6%
1.19%
34.0%
(2.32%)
15.6%
(0.4%)
36.9%
9.5%

49.9%
(1.46%)
33.5%
3.38%
16.3%
(0.3%)
38.3%
9.8%

46.9%
0.05%
43.5%
(0.80%)
3.4%
(0.2%)
50.3%
1.5%

48.4%
(0.83%)
44.3%
(0.79%)
4.1%
0.0%
46.7%
1.9%

49.1%
(0.51%)
35.3%
(1.31%)
13.8%
(0.1%)
40.0%
8.0%

32.9%
41.2%
42.8%
35.1%
39.0%

35.4%
34.2%
17.5%
33.1%
26.1%

25.6%
50.1%
32.0%
29.0%
59.1%

29.7%
55.0%
22.2%
31.1%
31.6%

36.0%
38.9%
38.8%
34.9%
99.1%
73.3%
70.9%

34.1%
36.6%
37.2%
41.6%
7.4%
0.7%
(0.7%)

29.7%
32.9%
31.6%
39.2%
20.9%
22.4%
20.4%

31.1%
27.4%
27.2%
19.1%
48.6%
36.7%
33.5%

20.9%
41.1%
22.5%
24.8%
32.2%
112.5%
25.5%
25.6%
25.3%
27.8%
3.0%
(13.4%)
(14.4%)

22.7%
40.2%
38.6%
27.6%
23.3%
147.8%
28.5%
26.4%
26.5%
30.9%
(8.1%)
(16.5%)
(17.5%)

2010

2011

2012

2013

2014

2015E

2016E

1,359.4

853.5
127.2
43.9
1,024.6
39.4
0.0
1,063.9

1,122.0
181.7
132.4
1,436.1
36.6
0.0
1,472.7

1,385.4
239.0
165.8
1,790.1
44.8
0.0
1,834.9

1,762.2
298.8
216.1
2,277.1
55.0
0.0
2,332.1

2,291.5
431.0
275.4
2,997.9
77.0
9.4
3,084.4

2,800.7
605.0
334.7
3,740.4
105.5
22.0
3,867.9

3,429.6
809.0
392.2
4,630.8
126.6
0.0
4,757.4

717.9
717.9
506.5
211.5

672.9
686.5
453.8
232.7

533.4
530.5
418.2
112.4

759.8
712.8
550.1
162.8

955.6
879.3
670.6
208.7

1,195.4
1,136.7
871.6
265.1

1,572.2
1,512.2
1,158.3
354.0

1,974.2
1,893.7
1,480.9
412.9

2,400.7
2,356.7
1,828.2
528.5

(3.0)
(1.5)
42.3
16.9
$25.4
$0.12
$0.11

(3.0)
(1.5)
210.0
84.0
$126.0
$0.57
$0.59

(3.0)
(1.5)
231.2
92.5
$138.7
$0.63
$0.65

(2.3)
(2.9)
107.2
40.4
$66.8
$0.33
$0.31

(3.8)
(5.9)
153.0
59.9
$93.1
$0.44
$0.46

(5.2)
(5.3)
198.3
74.7
$123.6
$0.58
$0.60

(2.4)
(4.1)
258.6
98.7
$159.9
$0.75
$0.72

(5.3)
(6.4)
342.2
134.2
208.0
$0.95
$0.95

(14.5)
(3.8)
394.6
161.2
233.4
$1.06
$1.08

(12.0)
(6.0)
510.5
209.0
313.5
$1.42
$1.43

220.5

220.5

220.5

220.5

205.1

210.1

212.6

214.3

218.0

220.1

220.5

50.7%
0.85%
33.4%
0.13%
17.3%
(0.1%)
39.5%
10.2%

47.7%
0.78%
43.7%
(0.17%)
4.0%
(0.1%)
40.0%
2.3%

49.4%
1.03%
44.8%
(0.54%)
4.6%
(0.2%)
40.0%
2.6%

50.0%
0.90%
35.3%
0.07%
14.7%
(0.1%)
40.0%
8.8%

50.5%
(0.20%)
33.4%
(0.00%)
17.1%
(0.1%)
40.0%
10.2%

49.9%
1.97%
39.3%
(1.37%)
10.6%
(0.3%)
37.7%
6.3%

48.4%
(1.46%)
37.4%
1.95%
11.1%
(0.4%)
39.2%
6.3%

47.9%
(0.48%)
36.5%
0.80%
11.4%
(0.3%)
37.7%
6.7%

48.7%
0.82%
37.4%
(0.83%)
11.4%
(0.2%)
38.2%
6.9%

49.0%
0.29%
37.6%
(0.18%)
11.5%
(0.2%)
39.2%
6.7%

49.0%
(0.07%)
38.3%
(0.73%)
10.7%
(0.1%)
40.8%
6.0%

49.5%
0.58%
38.4%
(0.14%)
11.1%
(0.1%)
40.9%
6.6%

22.0%
40.0%
15.0%
23.7%
40.0%

23.0%
40.0%
15.0%
23.9%
45.0%

24.0%
35.0%
20.0%
25.9%
20.0%

24.0%
30.0%
20.0%
24.8%
20.0%

22.0%
35.0%
15.0%
23.4%
20.0%

21.0%
35.0%
15.0%
22.1%
20.0%

30.9%
(6.6%)
25.1%
24.5%
18.1%

31.5%
42.9%
201.7%
40.2%
(7.1%)

23.5%
31.5%
25.3%
24.7%
22.5%

27.2%
25.1%
30.3%
27.2%
22.8%

30.0%
44.2%
27.4%
31.7%
40.1%

22.2%
40.4%
21.5%
24.8%
37.0%

22.5%
33.7%
17.2%
23.8%
20.0%

24.2%
22.9%
21.9%
29.0%
9.7%
4.5%
3.5%

24.5%
26.6%
25.6%
24.0%
31.9%
29.7%
29.2%

24.5%
26.6%
26.9%
25.0%
46.5%
99.7%
98.9%

22.5%
25.1%
25.4%
24.0%
37.2%
71.7%
71.3%

23.2%
25.5%
25.9%
23.0%
31.9%
35.2%
35.0%

22.0%
21.5%
21.6%
22.0%
20.6%
22.0%
22.0%

24.2%
29.4%
30.3%
28.7%
31.8%
42.6%
40.9%

38.4%
34.4%
37.7%
31.5%
44.9%
39.4%
36.1%

24.6%
23.4%
23.4%
21.9%
28.2%
32.8%
31.2%

27.1%
29.3%
29.6%
30.0%
27.0%
29.4%
28.3%

32.3%
33.0%
32.7%
32.9%
33.5%
30.1%
27.9%

25.4%
25.2%
24.6%
27.9%
16.6%
12.2%
11.1%

23.0%
24.4%
24.7%
23.5%
28.0%
34.3%
34.0%

Source: Company reports, Canaccord Genuity Research

Buy unchanged Target Price US$105.00 unchanged | 17 September 2015

Footwear and Apparel 2

Under Armour
Company Update

Appendix: Important Disclosures

Analyst Certification
Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the
recommendations and opinions expressed in this research accurately reflect the authoring analysts personal, independent and
objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring
analysts coverage universe and (ii) no part of the authoring analysts compensation was, is, or will be, directly or indirectly, related to the
specific recommendations or views expressed by the authoring analyst in the research.
Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons of
Canaccord Genuity Inc. and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications
with a subject company, public appearances and trading securities held by a research analyst account.
Target Price / Valuation Methodology:
Under Armour - UA
Our $105 target is based on a blend of 60x our 2016E EPS, 30x EV/EBITDA, and DCF.
Risks to achieving Target Price / Valuation:
Under Armour - UA
1.) We believe the primary risk to our thesis is a deceleration in sales. UA's premium multiple is predicated on the continuation of robust
sales growth and thus any perceived or actual slowdown in top-line trends would likely result in multiple compression. 2.) Another risk
includes continued supply chain issues that lead to gross margin contraction and/or order cancellations. While UA is acting to improve
its order fill rate with its customers, we do not expect a meaningful change to its supply constraints until H2/12. Should demand for its
product continue to outstrip supply, margins could suffer as the company is forced to compensate its customers for late deliveries. 3.)
Lastly, we consider footwear to be a risk as questions regarding UA's ability to succeed in this category remain unanswered. A lack of
improvement in future footwear launches, particularly running, could result in brand deterioration and stall growth in the category.
Distribution of Ratings:
Global Stock Ratings (as of 09/17/15)
Rating

Coverage Universe
IB Clients
#
%
%
Buy
626
62.60%
31.79%
Hold
287
28.70%
12.89%
Sell
30
3.00%
3.33%
Speculative Buy
57
5.70%
57.89%
1000*
100.0%
*Total includes stocks that are Under Review
Canaccord Genuity Ratings System
BUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.
HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.
SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months.
NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer.
Risk-adjusted return refers to the expected return in relation to the amount of risk associated with the designated investment or the
relevant issuer.
Risk Qualier
SPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in the
stock may result in material loss.
Canaccord Genuity Company-Specific Disclosures (as of date of this publication)
Canaccord Genuity or one or more of its affiliated companies is a market maker or liquidity provider in the securities of Under Armour or
in any related derivatives.
Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Corporate Finance/
Investment Banking services from Under Armour in the next six months.
An analyst has visited the material operations of Under Armour. No payment was received for the related travel costs.
Buy unchanged Target Price US$105.00 unchanged | 17 September 2015

Footwear and Apparel 3

Under Armour
Company Update

Under Armour Rating History as of 09/16/2015

B:$35.00
10/25/12

B:$34.00
01/31/13

B:$35.00
07/15/13

B:$38.00
07/25/13

B:$46.00
10/18/13

B:$60.00
01/31/14

B:$80.00
07/24/14

B:$93.00
12/03/14

B:$97.00
02/05/15

B:$105.00
07/23/15

120
100
80
60
40
20
Oct 2012

Jan 2013

Apr 2013

Jul 2013

Oct 2013

Jan 2014

Closing Price

Apr 2014

Jul 2014

Oct 2014

Jan 2015

Apr 2015

Jul 2015

Target Price

Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)

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