What Does Footwear Mean To Under Armour?

By Markets Fool.com

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Under Armour(NYSE: UA) has done something few would have thought was possible when Founder Kevin Plank was selling compression shirts out of the trunk of his car 20 years ago -- become a legitimate player in the athletic apparel industry, threatening to upend established giants likeNike(NYSE: NKE) andAdidas.

Under Armour has done so by innovating in wearable technology and signing superstars like Steph Curry, Cam Newton, Bryce Harper, and Jordan Spieth. Footwear has become a key driver of the company's strong growth as Curry, in particular, has given Under Armour a foothold in the valuable basketball market dominated by Nike.

In 2015, footwear made up 18% of Under Armour's revenue, or $677.7 million, but sneaker sales jumped 57% boosted by running, basketball, and international expansion. By comparison, sales in apparel, which makes up more than two-thirds of its revenue, was up 22%.

Footwear has become the company's most important growth category, and a look at its rivals explains why.

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Under Armour, which broke through with the moisture-wicking compression t-shirt has always been better known for apparel, but footwear is the much bigger piece of the pie in the greater industry. In Nike's most recent fiscal year, footwear made up more than 61% of sales, or nearly $20 billion, more than double the contribution from apparel.

At Adidas, the discrepancy is smaller, but footwear still generates more revenue than apparel, contributing 49% vs. 41% for apparel. Last year, footwear sales were more than $9 billion.

That means Under Armour, compared to its two largest rivals, has a market share of less than 3% in footwear, highlighting a huge opportunity in that category. By comparison, its market share in apparel is about 15%.

Under Armour's strong growth continued with footwear sales up 61% through the first six months of the year,driven by the Curry signature line of basketball shoes, as well as growth in running and cleated categories, led by its new football cleat, the Highlight Cleat.

Eyes on Innovation

Under Armour seeks to define itself through its innovation and wants to beat the competition by out-innovating it. With the SpeedForm Apollo running shoe, one of its most popular, the idea came from a Chinese bra-maker who believed that the material and molding in sports bras would work well in sneakers. What the company came up with from there was a stitch-free heel and a shoe that's lightweight supportive.

The company used a similar technique with its line of ClutchFit shoes which are made of a "revolutionary second-skin material."

Earlier this year, Under Armour also introduced the Architech, which features a 3D-printed midsole, and could be the first in a long line of 3D-printed advances.

Harnessing star power

For a generation, Nike has reigned supreme over the sports world, and the biggest reason for that rise is arguably its partnership with Michael Jordan, whose own Jordan Brand brings in nearly $3 billion in annual revenue for Nike. Star power is crucial in the sports apparel industry, and Nike, well aware of this, followed up its success with Jordan by signing Lebron James to a lifetime contract of $1 billion.

The arms race for the next big star is always fierce, but Under Armour has made its presence felt, nabbing Stephen Curry from Nike, and making other key signings. Despite his Warriors team falling short in the Finals this year, Curry has been the most captivating player in basketball for the last two years, has won back-to-back MVP's, and given Under Armour tremendous exposure around the world because of his fame and success as basketball offers the best platform for selling sneakers. While it would be difficult to match the success of the Jordan Brand, Curry's shoe sales should continue to grow if he continues to play like he has in the last two years.

For Under Armour, investors should expect its strong footwear growth to continue. It won't be easy to topple Nike, but the company seems to be making all the right moves so far.

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Jeremy Bowman owns shares of Nike. The Motley Fool owns shares of and recommends Nike and Under Armour (A Shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.