Under Armour Finds Feminine Side to Go Beyond $2 Billion

Under Armour Inc., founded by a football jock, has long lured hardcore athletes, mostly men.

What was once a selling point has become a hurdle. To maintain the rapid growth that’s seen it double sales every three years since going public in 2005, the company is pushing into fashion and softening the brand to win over more women.

Tomorrow, Under Armour is opening a test store in hometown Baltimore that has ditched the company’s prevailing locker-room vibe for natural light, cheery colors and 10 times as many mannequins. Call it a pitch to the Lululemon crowd. The outreach to women is part of efforts to broaden out beyond performance apparel and become the next Nike Inc. or Adidas AG.

“It was a pretty masculine store, pretty dark, pretty heavy,” said Henry Stafford, a senior vice president who is overseeing the new concept. This store will be “a lot more balanced in terms of being exciting for our male consumers as well as our female consumers.”

Like other brands, Under Armour may be taking some of its cues from Lululemon Athletica Inc. The Vancouver-based maker of pricey workout-wear has been doubling sales every two years with stores featuring yoga studios staffed mostly by women. Gap Inc. has rolled out a chain of stores dubbed Athleta with their own yoga classes and feminine vibe. Foot Locker Inc., too, has been toying with how to remake its women’s chain, Lady Foot Locker, more in the Lulu mold.

High Valuation

While Under Armour’s earnings valuation is about twice that of Nike and Adidas, its focus is too narrow to become a global brand. Under Armour will need to keep up its sales growth rate, which reached 25 percent last year, to maintain that premium. The shares trade at 2.8 times sales. That’s more than double the multiple for the Standard & Poor’s 500 Consumer Discretionary Index.

Under Armour shares rose 1.3 percent to $49.55 at the close in New York. The stock has gained 18 percent in the 12 months, compared with a 13 percent gain for the Standard & Poor’s 500 Index.

At a press event this week announcing a new ad campaign and a performance-tracking device, Under Armour Chief Executive Officer and founder Kevin Plank poked fun at the brand’s manly past by playing “Protect This House,” a commercial featuring muscle-bound men chanting in a weight room, that put the brand on the map a decade ago.

In an interview, he said: “I can’t lie. That was us.”

$2 Billion

Under Armour is headed toward more than $2 billion in sales this year, doubling revenue from 2010. Yet its $400 million women’s business last year generated less than half the sales of men’s, though the women’s athletic apparel category is about 10 percent larger in the U.S., according to NPD Group.

“The general view is Under Armour stinks at women’s,” said Nathan Brown, an assistant portfolio manager at Overland Park, Kansas-based Waddell & Reed Financial Inc., Under Armour’s third-largest holder with 6.7 million shares.

“What is interesting is every single year women’s continues to grow as a percentage of the company,” he said. “If the product is so terrible and they are growing faster than the base business, just think if they actually get the product right?”

Under Armour’s female apparel has actually improved its fit and look, Brown said. Now it’s a matter of getting the brand in front of more women. That’s where the new store, and a second location later this year, may help. The overwhelming majority of Under Armour’s products are sold at such big boxes as Dick’s Sporting Goods Inc. and Sports Authority Inc. Those aren’t common destinations for women and neither are Under Armour’s 100 outlet locations and five full-price stores.

“The problem with the women’s business isn’t the product,” said Michael Baron, a vice president with New York-based Baron Capital Inc., the fifth-largest Under Armour holder with 3.8 million shares. “The problem is distribution.”

Fashion Brand

While Under Armour has placed some of its women’s line in department stores such as Macy’s Inc. and Nordstrom Inc., the re-designed store will have as much women’s gear as men’s and may serve as way for potential retail partners and consumers to see Under Armour showcased as a head-to-toe fashion brand that’s more than mock turtlenecks.

“What Gap did for going to school, or going out on a Friday night, is the same thing we should do for sending people to the gym,” Plank says. “Most people look awful going to the gym.”

Leading the evolution of the women’s business is Leanne Fremar, who joined the company in November after a decade as creative director at luxury women’s apparel brand Theory and stints at Gucci and Ralph Lauren Corp. She is working on opening Under Armour’s first New York office, where she’ll tap design talent. She also inherits a unit that has been growing 30 percent a year and added the Studio, a yoga-inspired line, and Armour Bra brands last year.

Urban Markets

“She will bring that L.A.-New York component,” said Plank. “Women’s should be larger than men’s.”

Besides appealing to women, the new store design may help Under Armour find its way in two other markets it’s trying to crack: cities and footwear. Selling most of your products at suburban sporting goods stores means being underrepresented in urban markets like New York. And aside from becoming a market leader in a niche category like football cleats, it hasn’t made much headway in athletic shoes. The new store will put the shoes center stage.

Plank, a former college football player, started Under Armour in 1996 with a synthetic shirt pitched as better than cotton for soaking up sweat during workouts. The gear sold so well that Under Armour became a generic term, like Kleenex or Rollerblades, for tight-fitting workout apparel.

Nike Misses

Nike initially missed the shift, giving Under Armour time to grow. Under Armour has since taken its initial idea for a so-called compression shirt and translated it to shorts, pants, gloves and so on. While that got the company to $1 billion in sales, Plank has preached diversification as a way to keep the growth going. That’s translated into the company expanding to sunglasses, backpacks and even boots.

As a result, Under Armour relies less on compression gear, which makes up 14 percent of apparel revenue, compared with 64 percent when it went public. And it now has a $240 million footwear unit. Still, apparel is its biggest business. And to truly become the next Nike, which has more than 20 times the revenue, it needs to make it in shoes.

Shoes, International

“Eventually the baton will have to be handed over to footwear and international,” Brown said. Under Armour generates 94 percent of its revenue from North America, compared with 37 percent for Nike, the world’s largest athletic brand.

To become a major footwear company, cultivating a presence in America’s urban culture that Nike and Adidas dominate will be important. Especially if it wants to ever achieve its goal of becoming a significant basketball shoe brand.

“There’s a void in certain cities and regionally,” said Stafford, who led merchandising for teen chain American Eagle Outfitters Inc. before joining Under Armour in 2010. “We have opportunities out west, New York. We could go on and on.”

For now, Under Armour will unveil this one store, learn and tweak, before possibly expanding.

“We aren’t going to move too too quickly, but at the same time our track record with this brand is that when something works, and we’re able to build on that formula, the groundswell moves pretty quickly,” Stafford said. “That’s what we’re getting prepared for.”

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