Under Armour Lacks an Edge, but the Sportswear Market Is Attractive and Offers Growth Opportunities

We view Under Armour UA as lacking a moat, given its failure to build a competitive advantage over other athletic apparel firms. Between 2008 and 2016, the firm’s North American sales increased to $4 billion from $700 million and it passed narrow-moat Adidas as the region’s second-largest athletic apparel brand (after wide-moat Nike). However, Under Armour’s North America sales are little changed over the past seven years as it has been challenged by major competitors like wide-moat Nike and new entrants alike. While Under Armour’s new Protect This House 3 plan is designed to make the brand more competitive in the U.S. through its merchandising, e-commerce, and supply chain efforts, we think it has fallen behind on innovation, sponsorships, and style.

Under Armour has recently had problems in both its direct-to-consumer and wholesale businesses. Although annual sales through its direct-to-consumer channels increased to about $2.3 billion in fiscal 2023 from $1.5 billion in 2016, Nike and others have experienced much greater direct-to-consumer growth in this period. Under Armour has opened its own stores as wholesale distribution has slowed, but 90% of them in North America are off-price. Still, we forecast its direct-to-consumer revenue will rise to 49% of total revenue in fiscal 2033 from 38% in its last fiscal year. This should allow Under Armour to have better control over its brand, but we do not see evidence that it allows for premium pricing and see it as a defensive move.

We think Under Armour’s international segment will produce growth over the long term, but the firm faces significant competition from global and native operators with established brands and distribution networks. According to Euromonitor, the combined sportswear markets in Asia-Pacific and Western Europe were about $159 billion in 2022, greater than North America’s $153 billion (at retail). As Under Armour generated only about 31% of its revenue in Europe, the Middle East, and Africa and Asia-Pacific in fiscal 2023, we think it has room for growth, but it lacks strong retail partnerships and brand recognition.