It started 18 years ago with one man hawking one shirt, a guy trying to persuade elite football players that it was simply better – that it would make them better.
Today, Under Armour (UA) is a $15.2 billion company run by that same guy, stalking the legacy giants of athletic gear, a made-in-America global brand that boasts one of the fastest growth records in consumer products and among the best stock performance in the market.
For these distinctions and how they were achieved -- and for the way the company has turned potential setbacks into wins in 2014 -- Under Armour is the Yahoo Finance Company of the Year.
The squishy retail sales trends of 2014 were a mere rumor for Under Armour, whose revenue and operating profit are on track to climb more than 30%, accelerating from their 2013 pace. Its share price has soared 62.5% this year. And Under Armour’s strong branding efforts, deeply rooted in its sports-performance heritage, earned it Marketer of the Year honors from Advertising Age magazine.
CEO Kevin Plank, that guy who came up with that shirt in 1996 that stayed dry under football pads, says, “These things don’t happen out of nowhere. There were a lot of years preparing for this.”
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Speaking in a model retail store on Under Armour’s six-building industrial-urban campus on the Baltimore waterfront, Plank recalls: “Sporting goods, which is where we entered, was this pie – and there was no room in the pie. So we decided, in order to break in, we would make our own pie.”
After finding takers for his pioneering moisture-wicking shirt among some college and pro football players, he expanded in a methodical but ambitious way into other performance garments – ones that kept an athlete warm, or cool, or feeling strong thanks to their compression fabric.
The company took two years to enter the shoe business, starting with football cleats and adding one sport category per year for five years. Its women’s line, once an afterthought, has expanded impressively from almost nothing in 2004 to more than $500 million this year. Total full-year company revenue will top $3 billion for the first time in 2014.
Over the past four-and-a-half years, Under Armour is one of only four companies in the Standard & Poor’s 500 to post at least 20% sales growth in each quarter. Since coming public in late 2005, revenue and earnings growth have averaged more than 30%, marking one of the elite growth stories of the past decade.
Since its IPO, Under Armour stock is up a phenomenal 1,022%, compared to the merely amazing 408% gain by Nike (NKE), the global blue chip in athletic goods -- which Plank repeatedly refers to only as “our largest competitor” in a way that conveys suppressed competitive passion toward the $83.6 billion market-cap incumbent.
While its consistent growth trajectory from startup to the near-ubiquity of its UA logo might make Under Armour’s path appear effortless, this year began with a global controversy that threatened to undermine the brand’s very essence as a performance booster.
At the Winter Olympic Games in Sochi, Russia, U.S. speed skaters’ poor performance was partly attributed to the highly touted aerodynamic uniforms designed by Under Armour. While the company defended the “speedsuits” design, the athletes switched to their old uniforms and a moment of triumphant arrival for the company was tainted.
Yet the fleeting controversy failed to compromise the brand broadly. The Notre Dame and Naval Academy football teams signed on to be outfitted by Under Armour, giving the company claim to both “God and country,” as Plank has put it.
The company also bid hard over the summer to sign NBA MVP Kevin Durant to an endorsement deal when his contract with Nike lapsed, offering a reported $250 million over 10 years. Nike ultimately re-signed Durant after agreeing to structure a contract that could reach $300 million. The duel was a telling statement that Under Armour has aggressive ambitions to target the top in every category it’s in, but also reinforced its status as the hungry up-and-comer.
Plank embraces this image, seeing it as the core of the Under Armour brand, which he says means, “underdog, go get it done, find a way” – sounding plenty like the intense locker-room motivator in the original Under Armour “Protect This House” ads.
Winning with women
The company’s boldest gambit of the year, though, might have been its attention-grabbing “I Will What I Want” marketing campaign focused on accomplished women overcoming doubters and challenges.
“We launched as this big, bad American football company,” Plank says, and as the key back-to-school season opened, “we tell the world that our brand was about a ballerina.”
That would be Misty Copeland, of the American Ballet Theater, whose commercial focuses on her defying doubters who said she had “the wrong body for ballet.” Another viral ad followed, starring model Gisele Bundchen going through a grueling kickboxing workout.
The women’s business, led by workout clothes, has certainly benefited from the broader trend of gym wear serving as always-on attire, with yoga pants in some sense becoming the new jeans. Yet Under Armour has lately outperformed even Lululemon Athletica (LULU), the company most associated with that look.
Aside from the women’s business, which BB&T Capital Markets sees rising to more than 25% of revenue over four years, shoes and foreign markets are the key opportunities for the next phase of the company’s growth.
While growing nicely in Japan, Europe, China and South America, about 90% of Under Armour’s sales still come from the U.S. Never shy about setting lofty goals, Plank wants half of revenue to come from overseas one day.
A year ago, Under Armour bought MapMyFitness, a digital health-tracking app -- the company’s first-ever acquisition. The service, with some 30 million members, works across a variety of devices, and will serve as a way for Under Armour to explore “connected fitness” without betting on the cutthroat hardware business.
Under Armour pays no dividend, but it’s hard to object to this given its breakneck growth pace and the high returns it earns on investing in the business. The company has gone to significant lengths to assure its clothing suppliers adhere to fair labor standards. And its use of an old Procter & Gamble (PG) facility as its headquarters shows great commitment to downtown Baltimore, helping to revitalize an entire neighborhood.
The Company of the Year judging
The Company of the Year is selected by Yahoo Finance editors, using a mix of quantitative and qualitative factors to recognize a prominent American company that has excelled on behalf of investors, employees and customers.
This is the third year we have granted this honor. The 2013 winner was Walt Disney (DIS) and the 2012 winner was Gap (GPS). The evaluation process combines one-year and long-term financial results; stock-price performance; strategic vision and brand esteem; good corporate citizenship; and a demonstrated ability to overcome challenges.
This year, Under Armour was awarded the title over a handful of other high-achieving, well-managed U.S. companies, including Home Depot (HD), Marriott International (MAR), Southwest Airlines (LUV) and Starbucks (SBUX).
[Under Armour sponsors the Rivals Camp Series of Rivals.com, part of Yahoo Sports. The sponsorship connection had no bearing on our Company of the Year evaluation.]
Running room - but beware stumbles
As successful as the company has been, there are at least two stark challenges ahead of Plank in the coming years.
One is Wall Street’s towering expectation for the company’s continued growth. After the stock’s upward charge this year, it trades for more than 70-times 2014 earnings and over 50-times the 2015 forecast. Under Armour’s average price-to-earnings multiple since coming public is around 35; Nike, a far more mature and slower-growing company, trades at 25-times fiscal 2015 profits.
A harder-to-quantify risk is that Under Armour’s brand might grow so powerful and ubiquitous that it, in a sense, undermines the underdog image it was built on. Perhaps only Apple Inc. (AAPL) managed to go from aggressive, maverick underdog to world domination without shedding much of its “cool” factor.
Plank, who was named one of the Best CEOs of 2014 by Tuck professor Sydney Finkelstein, is undaunted by the high bar set by Wall Street, believing that with Under Armour sales still only one-tenth of Nike’s, “there is a lot of running room for us.” Quite true. But expensive stocks often make investors intolerant of little bumps along the way.
Plank also doesn’t feel the company is close to having to worry about compromising the brand’s underdog ethos. Under Armour’s mission statement says, “Make all athletes better,” Plank notes, which means remaining focused on performance and not simply settling for becoming a fashion or “basics” brand.
Plank points to UA’s entry into shoes with football cleats in 2006, followed over the next four years by baseball cleats, training, running and basketball shoes. The company went from nowhere to number one in American football cleats in eight years, with a 35% share.
Can Plank possibly believe his company can work its way to the top of each category it enters? Quoting the movie “Predator,” Plank says, “If it bleeds, we can kill it.”