1. Go on the Internet and do some research on Under Armour, Inc., and its industry. Use one or more popular websites like http://finance.yahoo.com or http://www.google.com/finance. Write a paragraph (about 100 words) that describes the industry, some current developments, and a projection for where the industry is headed.
Founded in 1996 by former University of Maryland football player Kevin Plank, Under Armour claims to be the originator of performance apparel. Under Armour differentiates their apparel by stating it keeps athletes cool, dry and light throughout the course of a game, practice or workout. Under Armour has experienced excellent market traction and has risen to be one of the top performance apparel providers in the word. Under Armour is the official footwear supplier of the NFL and MLB and partners with the NBA. Under Armour heavily relies on athlete endorsements from top performers in football, basketball, soccer, and baseball. Under Armour’s products are made from its moisture-wicking and heat-dispersing fabrics which keep athletes dry and relatively comfortable. Under Armour is entering the technology space and leveraging their foothold in the apparel market to enter the wearable market to allow customers track their fitness. Under Armour sells online, by catalog, through its own retail and outlet stores, and in more than 25,000 retail stores worldwide.
Under Armour is in the apparel manufacturing company that develops, manufactures, markets and sell its own products. Under Armour is an apparel maker and retailer and they are impacted by trends in both the apparel and retail sectors. As Under Armour enters the tech sector they will be impacted by technology adoption and obsolescence, this will be interesting to watch.
Under Armour is being impacted by a struggling retail sector. After years of steady, double-digit growth, the high-performance athletic apparel and footwear maker reported 7% growth on revenues of $1.1 billion with a net loss of $2 million in the first quarter 2017 and a $0.01 loss in diluted earnings per share. Stiff competition and lost U.S. retailers (e.g. – Sports Authority & Sports Chalet) are sighted as having a material impact on Under Armour’s results. Source: http://www.uabiz.com/results.cfm
While Under Armour had a difficult Q1 2017 their balance sheet remains healthy.
Competition includes the likes of Nike, Adidas, and Columbia Sportswear. Increased competition may have played a role in gross profits being down 70 basis points to 45.2 percent.
The apparel industry is highly competitive and this trend will continue. Under Armour needs to continue to innovate, they need to continue to expand both direct-to-consumer and international sales. Under Armour will also have to continue to pursue new retailers while maintaining margins.
2. Read Note 1—(Description of Business) of Under Armour, Inc.’s annual report. What do you learn here and why is it important?
The Description of Business in the 10-K filing is exactly that, a description of what the company does, any subsidiaries it might own, what markets it operates in. This section might also include significant recent events like competition, regulations, or labor issues, special operating costs, seasonality, etc… This is a summary of what the business is and how it operates.
Under Armour is in the apparel business.
Under Armour develops, markets and distributed branded apparel, footwear, and accessories.
Under Armour is focused on athletic apparel.
Under Armour conducts worldwide operations.
Under Armour is an active lifestyle brand.
3. Name two of Under Armour, Inc.’s competitors. Why is this information important in evaluating Under Armour, Inc.’s financial performance?
Nike and Adidas are the two competitors pointed out in Under Armout, Inc.’s 2014 10-K filing. (Harrison, Horngren & Thomas, 2017, p. 855)
Understanding the market segment, the trend within that segment and the total market opportunity is critical to understanding is how Under Armour is performing.
Competition provides both market opportunity, the ability to share shift an already defined market with a proven need but it also creates margin pressure. This greater the supply, the greater the competition the more advantageous it is for the consumer. Margin erosion is likely with increased competition. Under Armour, like it’s competition Nike and Adidas attempt to offset what could be called commodity apparel by creating “lifestyle” brands and creating “brand loyalty”
4. Write Under Armour, Inc.’s accounting equation at December 31, 2014 (express all items in millions and round to the nearest $1 million). Does Under Armour, Inc.’s financial condition look strong or weak? How can you tell?
Assets = Liabilities + Owners’ Equity (Harrison, Horngren & Thomas, 2017, p. 12)
$2,095,083 = 744,883 + $1,350,300
Owner’s (stockholder’s) equity has show y/y growth indicating that Asset growth is outpacing liability growth, indicating a strong financial position and a healthy trajectory.
Owner’s Equity = Assets – Liabilities
5. What was the result of Under Armour, Inc.’s operations during 2014? Identify both the name and the dollar amount of the result of operations for 2014. Does an increase (or decrease) signal good news or bad news for the company and its stockholders?
2014 Net Income (in thousands) = $208,042
Net Income (in thousands) increased from 162,330 in 2013 to $208,042.
6. Examine retained earnings in the Consolidated Statements of Shareholders’ Equity. What caused retained earnings to increase during 2014?
2014 Retained earnings (in thousands) = 856,867
2013 Retained earnings (in thousands) = 653,842
When revenues exceed expenses the result will be a positive balance in retained earnings. (Harrison, Horngren & Thomas, 2017, p. 18)
7. Which statement reports cash and cash equivalents as part of Under Armour, Inc.’s financial position? Which statement tells why cash and cash equivalents increased (or decreased) during the year? Which activities caused Under Armour, Inc.’s cash and cash equivalents to change during 2014, and how much did each activity provide or use?
Which statement reports cash and cash equivalents as part of Under Armour, Inc.’s financial position? Consolidated Balance Sheet
Which statement tells why cash and cash equivalents increased (or decreased) during the year? Consolidated Statement of Cash Flows
Which activities caused Under Armour, Inc.’s cash and cash equivalents to change during 2014, and how much did each activity provide or use?
Cash and cash equivilents – Beginning of period (in thousands) = 347,489
+ 2014 Cash flows from operating activities (in thousands) = 219,033
+ 2014 Cash flows from investing activities (in thousands) = (153,312)
+ 2014 Cash flows from financing activities (in thousands) = 245,686
+ 2014 Effect of exchange rate changes on cash and cash equivilents = (3,341)
= Cash and cash equivilents – Beginning of period (in thousands) = 347,489
347,489 + 219,033 + (153,312) + 245,686 + (3,341) = 593,175
Hall, J. (1970, January 01). Under Armour Inc Is Feeling the Impact of a Changing Retail Landscape. Retrieved May 04, 2017, from https://www.fool.com/investing/2017/04/28/under-armour-inc-is-feeling-the-impact-of-a-changi.aspx
Harrison, W. T., Horngren, C. T., & Thomas, C. W. (2017). Financial accounting. Boston: Pearson.