Under Armour

Footwear and Apparel

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

US Equity Research Pallav Saini | Associate | Canaccord Genuity Inc. (US) | psaini@canaccordgenuity.com | 212.389.8054
27 April 2017

HOLD Raising Target Price

unchanged
PRICE TARGET US$21.00
from US$20.00
Price (27-Apr) US$21.67
Q1 beat is nice change of pace, but headwinds
Ticker UA-NYSE remain: raising PT $1 to $21, maintain HOLD
52-Week Range (US$): 18.40 - 47.38 Investment recommendation
Market Cap (US$M): 9,543 UAA reported better than expected Q1 results with EPS of -1c beating our -4c estimate
Shares Out. (M) : 439.4
and consensus of -3c. Relative to our model, the beat was balanced across the P&L as
FYE Dec 2016A 2017E 2018E higher revenue, less gross margin contraction, and less SG&A deleverage all contributed.
Sales (US$M) 4,828 5,400 6,204 Category trends, however, were mixed with apparel +7% beating our +2% estimate
Previous - 5,401 6,220 while footwear was worse at +2% vs. our +13% estimate. In aggregate, this was a "good
P/Sales (x) 2.0 1.8 1.5 enough" quarter that highlighted the initiatives UAA has in place to reignite accelerated
EPS (US$) 0.58 0.43 0.51 sales growth which are helping stabilize the business (e.g. category management,
Previous - 0.41 0.52 product innovation and lifestyle introductions, and operational efficiencies). To that
P/E (x) 37.4 50.9 42.9 point, there is more work to be done as the headwinds confronting UAA remain (e.g. over-
indexed to NA, under-indexed in lifestyle, challenges in sporting goods channel), and
Quarterly Sales Q1 Q2 Q3 Q4
much of the full year rests on a sharp sales ramp into 2H. Moreover, NKE has become
2016A 1,048 1,001 1,472 1,308
more aggressive with its pricing/promotional apparel strategy by removing its MAP policy,
2017E 1,117A 1,079 1,650 1,554
2018E 1,288 1,244 1,894 1,778
which may complicate UAA's recovery. That said, with (1) incremental distribution in
KSS, DSW, and Famous Footwear, (2) lifestyle category launches like the Unstoppable
Quarterly EPS Q1 Q2 Q3 Q4 collection, and (3) lapping of bankruptcies, guidance looks attainable. For us to become
2016A 0.04 0.01 0.29 0.23 constructive on the stock at current levels (50x P/E), we would need to see evidence of a
2017E (0.01)A (0.07) 0.27 0.23 sustained re-acceleration in sales. Until then, we maintain our HOLD.
2018E (0.01) (0.02) 0.30 0.24 2017 guidance maintained, with more onus on 2H: Full year revenue growth guidance
55 of +11%-12% and EBIT of $320M was unchanged, as we expected. In addition, the
50 company continues to expect gross margin to be down slightly as benefits from product
45
cost initiatives and channel mix (higher DTC) are likely to be offset by promotional
activity, higher air freight, FX, and higher mix of footwear and international. Q2 guidance
40
puts revenue growth at ~7.6% and EBIT loss of $22.5M-$27.5M.
35
Bullish points: (1) int'l growth of +52% is solid; (2) KSS launch exceeding expectations;
30
(3) less liquidation mix in Q1; (4) implementing SAP single view of the consumer by
25 combining POS, e-commerce, and transactions with Connected Fitness.
20 Bearish points: (1) significant footwear deceleration to 2% growth when footwear is
15 a key pillar to the long term growth thesis; (2) soft performance of Curry 3 led to an
inventory imbalance; (3) negative impact from bankruptcies to continue in Q2; (4)
May-16

Aug-16

Mar-17
Nov-16

Apr-17
Dec-16

Feb-17
Sep-16
Jun-16

Oct-16

Jan-17
Jul-16

promotional environment expected to persist; (5) implied DTC comps -2.7% by our math.
UA
S&P500(rebased) Broad based Q1 beat: Net revenue growth of 6.6% came in ahead of our +5.3%
Source:FactSet estimate with apparel (+7.3% vs. our +2% est.) and accessories (+11.8% vs. our +5%
Priced as of close of business 27 April 2017 est.) performing better than we expected while footwear (+2% vs. our +13% est.) fell
Under Armour is a leading manufacturer of athletic apparel,
short of our expectations. Gross margin contracted 64bps (vs. our 108bps contraction
footwear, and accessories, selling its products through est.) as benefits from channel and product mix were offset by inventory markdowns.
wholesalers, factory outlet stores, and online. SG&A delevered 201bps (vs. our 353bps deleverage est.) due to investments in DTC,
footwear, and int'l. Inventory (+8.1%) exceeded sales (+6.6) but looks in control.
Valuation
Our $21 target is based on a blend of 40x our 2018E EPS, 20x EV/EBITDA, and DCF.

Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX)
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 4 of this document.
 Under Armour
Raising Target Price

Category trends mixed: Apparel growth of +7.3% was driven by strength in training,
golf, and team sports. We believe the apparel business benefited from sell-in into
KSS as the overall category remains choppy due to sporting goods bankruptcies, not
enough fashion element to the apparel assortment, and heavy promotions across the
competitive set. We expect the choppy trends in NA apparel to continue in Q2 but the
outlook is likely to improve in 2H as UA laps the bankruptcies and introduces new
innovations in lifestyle (e.g. Unstoppable collection). Footwear (+2%) was in line with
managements expectation but significantly below our +13% estimate. Growth in
footwear was largely driven by golf, womens training, and running as basketball was
impacted by soft performance of Curry 3. Given the relatively soft consumer response
to Curry 3, the performance of Curry 4 will depend on the level of innovation it brings
to market. Accessories growth of 12% was driven by mens training, running, youth,
and global football.

Figure 1: UA Q1 variance chart

Estim ate Actual

Incom e Statem ent 1Q16A 1Q17E 1Q17 Delta
Revenue
Apparel 666.6 679.9 715.4 35.5
Footw ear 264.2 298.6 269.7 (28.9)
Accessories 79.7 83.7 89.1 5.4
Total Net Sales 1,010.5 1,062.2 1,074.2 12.0
Licensing revenues 19.4 20.4 24.2 3.8
Total Net Revenue $1,047.7 $1,102.9 $1,117.3 $14.4

COGS 567.1 608.8 611.9 3.1

Gross Profit 480.6 494.1 505.4 11.3
SG&A 445.8 508.2 497.9 (10.3)
Operating Incom e 34.9 (14.0) 7.5 21.6

Other Income, net 2.7 (1.0) 2.6 3.6

Pretax Income 33.1 (25.0) 2.3 27.3
Taxes 13.9 (7.0) 4.6 11.6
Net Income 19.2 (18.0) (2.3) 15.8
EPS, diluted $0.04 ($0.04) ($0.01) $0.04

Shares outstanding, diluted 443.3 447.6 439.4 (8.2)

Margin Analysis
Gross Margin Total 45.9% 44.8% 45.2% 0.43%
y/y change (bps) (1.04%) (1.08%) (0.64%)
SG&A 42.5% 46.1% 44.6% (1.51%)
leverage/(deleverage) 0.94% (3.53%) (2.01%)
EBIT Margin 3.33% (1.3%) 0.7% 1.95%
Taxes 41.97% 28.0% 199.4% 171.39%
Net Income 1.83% (1.6%) (0.2%) 1.43%

Source: Company reports, Canaccord Genuity research

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Figure 2: UA projected income statement

December Fiscal
Incom e Statem ent 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17E 3Q17E 4Q17E 1Q18E 2Q18E 3Q18E 4Q18E 2012 2013 2014 2015 2016 2017E 2018E
Revenue
Apparel 666.6 612.8 1,021.2 928.5 715.4 661.9 1,082.5 1,058.5 787.0 728.1 1,190.7 1,164.4 1,385.4 1,762.2 2,291.5 2,801.1 3,229.1 3,518.3 3,870.1
Footw ear 264.2 242.7 278.9 227.7 269.7 254.8 362.6 307.4 350.6 331.3 471.3 399.6 239.0 298.8 431.0 677.7 1,013.5 1,194.5 1,552.8
Accessories 79.7 100.7 121.8 104.3 89.1 110.8 146.2 130.4 98.0 121.9 160.8 143.5 165.8 216.1 275.4 346.9 406.6 476.5 524.2
Total Net Sales 1,010.5 956.3 1,421.9 1,260.6 1,074.2 1,027.5 1,591.2 1,496.4 1,235.5 1,181.2 1,822.8 1,707.5 1,790.1 2,277.1 2,997.9 3,825.7 4,649.3 5,189.3 5,947.1
Licensing revenues 19.4 21.0 29.5 29.9 24.2 25.2 35.4 35.9 29.0 30.2 42.5 43.1 44.8 55.0 67.2 84.2 99.8 120.7 144.8
Connected Fitness 18.5 23.5 20.2 18.3 18.9 25.8 23.2 21.9 23.7 32.3 29.0 27.4 0.0 0.0 19.2 53.4 80.4 89.9 112.4
Intersegment eliminations (0.8) 0.0 (0.7) 0.0 0.0 0.0 0.0 0.0 (1.4) 0.0 0.0
Total Net Revenue 1,047.7 1,000.8 1,471.6 1,308.1 1,117.3 1,078.6 1,649.8 1,554.2 1,288.3 1,243.8 1,894.3 1,778.0 1,834.9 2,332.1 3,084.4 3,963.3 4,828.2 5,399.9 6,204.3

COGS 567.1 523.1 772.9 721.6 611.9 582.4 864.5 839.3 708.5 650.5 993.6 969.0 955.6 1,195.4 1,572.2 2,057.8 2,584.7 2,898.1 3,321.6
Gross Profit 480.6 477.6 698.6 586.6 505.4 496.1 785.3 714.9 579.7 593.3 900.7 809.0 879.3 1,136.7 1,512.2 1,905.5 2,243.5 2,501.8 2,882.7
SG&A 445.8 458.3 499.3 419.8 497.9 519.2 604.2 558.3 572.6 597.1 694.8 642.1 670.6 871.6 1,158.3 1,497.0 1,823.1 2,179.6 2,506.6
Operating Incom e 34.9 19.4 199.3 166.8 7.5 (23.1) 181.1 156.6 7.1 (3.8) 206.0 166.9 208.7 265.1 354.0 408.5 420.3 322.2 376.2

Interest expense, net (4.5) (5.8) (8.2) (8.0) (7.8) (11.0) (11.0) (11.0) (10.0) (10.0) (10.0) (10.0) (5.2) (2.4) (5.3) (14.6) (26.4) (40.8) (40.0)
Other Income, net 2.7 (3.0) (0.8) (1.7) 2.6 (1.0) (1.0) (1.0) (1.0) (1.0) (1.0) (1.0) (5.3) (4.1) (6.4) (7.2) (2.8) (0.4) (4.0)
Pretax Income 33.1 10.7 190.3 157.1 2.3 (35.1) 169.1 144.6 (3.9) (14.8) 195.0 155.9 198.3 258.6 342.2 386.7 391.1 280.9 332.2
Taxes 13.9 4.3 62.1 52.2 4.6 (5.3) 50.7 43.4 (1.3) (4.9) 64.3 51.4 74.7 98.7 134.2 154.1 132.5 93.4 109.6
Net Income $19.2 $6.3 $128.2 $104.9 ($2.3) ($29.8) $118.4 $101.2 ($2.6) ($9.9) $130.6 $104.4 $123.6 $159.9 $208.0 $232.6 $258.7 $187.5 $222.6
EPS, diluted $0.04 $0.01 $0.29 $0.23 ($0.01) ($0.07) $0.27 $0.23 ($0.01) ($0.02) $0.30 $0.24 $0.29 $0.37 $0.48 $0.53 $0.58 $0.43 $0.51
Factset Consensus $0.05 $0.01 $0.25 $0.25 ($0.03) ($0.03) $0.26 $0.22 ($0.02) ($0.01) $0.29 $0.25 $0.60 $0.72 $0.49 $0.54 $0.60 $0.42 $0.50

Shares outstanding, diluted 443.3 442.9 445.9 447.6 439.4 439.4 439.4 439.4 439.4 439.4 439.4 439.4 425.2 428.6 436.0 440.9 444.9 439.4 439.4

Margin Analysis
Gross Margin Total 45.9% 47.7% 47.5% 44.8% 45.2% 46.0% 47.6% 46.0% 45.0% 47.7% 47.6% 45.5% 47.9% 48.7% 49.0% 48.1% 46.5% 46.3% 46.5%
y/y change (bps) (1.04%) (0.65%) (1.29%) (3.14%) (0.64%) (1.73%) 0.13% 1.16% (0.23%) 1.70% (0.05%) (0.50%) (0.48%) 0.82% 0.29% (0.95%) (1.61%) (0.14%) 0.13%
SG&A 42.5% 45.8% 33.9% 32.1% 44.6% 48.1% 36.6% 35.9% 44.4% 48.0% 36.7% 36.1% 36.5% 37.4% 37.6% 37.8% 37.8% 40.4% 40.4%
leverage/(deleverage) 0.94% (1.49%) 0.60% 0.72% (2.01%) (2.35%) (2.69%) (3.83%) 0.12% 0.13% (0.06%) (0.19%) 0.80% (0.83%) (0.18%) (0.22%) 0.01% (2.60%) (0.04%)
EBIT Margin 3.3% 1.9% 13.5% 12.7% 0.7% (2.1%) 11.0% 10.1% 0.6% (0.3%) 10.9% 9.4% 11.4% 11.4% 11.5% 10.3% 8.7% 6.0% 6.1%
Other income 0.3% (0.3%) (0.1%) (0.1%) 0.2% (0.1%) (0.1%) (0.1%) (0.1%) (0.1%) (0.1%) (0.1%) (0.3%) (0.2%) (0.2%) (0.2%) (0.1%) (0.0%) (0.1%)
Taxes 42.0% 40.5% 32.6% 33.2% 199.4% 15.0% 30.0% 30.0% 33.0% 33.0% 33.0% 33.0% 37.7% 38.2% 39.2% 39.9% 33.9% 33.3% 33.0%
Net Income 1.8% 0.6% 8.7% 8.0% (0.2%) (2.8%) 7.2% 6.5% (0.2%) (0.8%) 6.9% 5.9% 6.7% 6.9% 6.7% 5.9% 5.4% 3.5% 3.6%
Grow th Analysis
Revenue
Apparel 20.0% 18.9% 18.0% 7.4% 7.3% 8.0% 6.0% 14.0% 10.0% 10.0% 10.0% 10.0% 23.5% 27.2% 30.0% 22.2% 15.3% 9.0% 10.0%
Footw ear 64.2% 58.0% 42.1% 36.4% 2.0% 5.0% 30.0% 35.0% 30.0% 30.0% 30.0% 30.0% 31.5% 25.1% 44.2% 57.3% 49.5% 17.8% 30.0%
Accessories 26.2% 21.3% 17.6% 7.4% 11.8% 10.0% 20.0% 25.0% 10.0% 10.0% 10.0% 10.0% 25.3% 30.3% 27.4% 26.0% 17.2% 17.2% 10.0%
Total Net Sales 29.6% 27.2% 22.0% 11.7% 6.3% 7.4% 11.9% 18.7% 15.0% 15.0% 14.6% 14.1% 24.7% 27.2% 31.7% 27.6% 21.5% 11.6% 14.6%
Licensing revenues 14.7% 16.0% 21.3% 20.4% 24.6% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 22.5% 22.8% 22.3% 25.3% 18.6% 20.9% 20.0%
Connected Fitness 119.4% 73.3% 39.8% 7.6% 2.3% 10.0% 15.0% 20.0% 25.0% 25.0% 25.0% 25.0% - - - 177.8% 50.6% 11.8% 25.0%
Total Net Revenue 30.2% 27.7% 22.2% 11.7% 6.6% 7.8% 12.1% 18.8% 15.3% 15.3% 14.8% 14.4% 24.6% 27.1% 32.3% 28.5% 21.8% 11.8% 14.9%
Gross Profit Dollars 27.3% 26.0% 19.0% 4.4% 5.2% 3.9% 12.4% 21.9% 14.7% 19.6% 14.7% 13.2% 23.4% 29.3% 33.0% 26.0% 17.7% 11.5% 15.2%
Gross Profit Dollars ex-licensing revs 27.9% 26.5% 18.9% 3.7% 4.3% 3.1% 12.1% 22.0% 14.4% 19.6% 14.4% 12.8% 23.4% 29.6% 33.6% 26.0% 17.7% 11.1% 15.0%
SG&A 27.4% 32.0% 20.1% 9.3% 11.7% 13.3% 21.0% 33.0% 15.0% 15.0% 15.0% 15.0% 21.9% 30.0% 32.9% 29.2% 21.8% 19.6% 15.0%
EBIT 26.1% (39.3%) 16.3% (6.1%) (78.4%) (219.1%) (9.1%) (6.1%) (5.2%) (83.5%) 13.7% 6.6% 28.2% 27.0% 33.5% 15.4% 2.9% (23.3%) 16.8%
Net Income 63.5% (57.0%) 27.6% (0.7%) (111.8%) (570.0%) (7.7%) (3.5%) 13.7% (66.7%) 10.3% 3.2% 32.8% 29.4% 30.1% 11.8% 11.2% (27.5%) 18.7%
EPS 62.1% (57.3%) 26.5% (1.8%) (112.0%) (573.7%) (6.3%) (1.7%) 13.7% (66.7%) 10.3% 3.2% 31.2% 28.3% 27.9% 10.5% 10.2% (26.6%) 18.7%
Source: Company reports, Canaccord Genuity research. A more detailed financial model, including balance sheet, income statement, and cash flow projections, if available, may be obtained by contacting your Canaccord Genuity Sales Person or the Authoring Analyst, whose contact
information appears on the front page of this report.

2
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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 FINRA Rule 2241 and NYSE Rule 472 restrictions on communications
with a subject company, public appearances and trading securities held by a research analyst account.
Sector Coverage
Individuals identified as Sector Coverage cover a subject companys industry in the identified jurisdiction, but are not authoring
analysts of the report.

Investment Recommendation
Date and time of first dissemination: April 27, 2017, 16:26 ET
Date and time of production: April 27, 2017, 16:26 ET
Target Price / Valuation Methodology:
Under Armour - UA
Our $21 target is based on a blend of 40x our 2018E EPS, 20x 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 unforeseen supply chain issues that could lead to gross margin contraction and/or order cancellations. Should demand for its
product continue to outstrip supply, margins could suffer as the company is forced to compensate its customers for late deliveries.

Distribution of Ratings:
Global Stock Ratings (as of 04/27/17)
Rating Coverage Universe IB Clients
# % %
Buy 575 60.85% 39.48%
Hold 275 29.10% 18.18%
Sell 27 2.86% 11.11%
Speculative Buy 68 7.20% 69.12%
945* 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.
12-Month Recommendation History (as of date same as the Global Stock Ratings table)

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 Under Armour
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A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month period
may be obtained at the following website (provided as a hyperlink if this report is being read electronically) http://disclosures-
mar.canaccordgenuity.com/EN/Pages/default.aspx

Required 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 Investment Banking
services from Under Armour in the next three months.
An analyst has visited the material operations of Under Armour. No payment was received for the related travel costs.
Under Armour Rating History as of 04/26/2017
B:$80.00 B:$93.00 B:$97.00 B:$105.00 B:$130.00 B:$65.00 B:$44.00 H:$20.00
07/24/14 12/03/14 02/05/15 07/23/15 10/14/15 04/18/16 10/25/16 01/31/17
$140
$120
$100
$80
$60
$40
$20
$0
Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17

Closing Price 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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Hold unchanged Target Price US$21.00 from US$20.00 | 27 April 2017 Footwear and Apparel 5
 Under Armour
Raising Target Price

its affiliated companies or any other person as to its fairness, accuracy, completeness or correctness. Canaccord Genuity has not
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 Under Armour
Raising Target Price

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