Under the Hood of Under Armour's Growing Business Segment
The performance apparel and fitness app company, Under Armour (NYSE: UAA)(NYSE: UA), reported in its most recent quarter that its direct-to-consumer business grew 20% to $386 million or 35% of the total revenue for the quarter. This business is made of three distinct concepts; e-commerce and digital, Brand House retail stores, and Factory House outlet stores.
The company doesn't split out out the details of this business segment, and I've been critical of Under Armour's lack of transparency in this area, especially since it is a key growth driver for the company. Let's dive under the covers as to what is behind each of these concepts and how they contribute to Under Armour's overall strategy.
E-commerce and Under Armour Apps
Probably the first thing investors think about when direct-to-consumer is mentioned is e-commerce. The company certainly understands the importance of this medium to reach customers. Earlier this year, Kevin Plank has gone on the record, saying companies can't "invest heavily enough in digital right now."
The focus that the company has had on building its digital presence has been impressive. In September 2015, the company set a goal to have 30 e-commerce sites globally offering specific localized experiences, and it beat its own plan by two years.
The company also has a full-functioning mobile shopping app and mobile experience that can be reached from any of its three fitness apps: MapmyFitness, Endomundo, and MyFitnessPal without a separate login. The shopping app has features such as personalized product recommendations based your profile, ApplePay, notifications for new products, and a barcode scanner that will allow you to learn more about the products when you are in a physical store.
Further evidence of the company's focus on digital came during the annual shareholders meeting. Many of the questions from investors focused on the consumer habits shifting from "bricks to clicks." Plank answered every one of these questions personally and pointed to the company's implementation of SAP and the capability to have a "single view of the customer," which should help the company deliver what customers want.
While the company has invested heavily in its digital presence, it also is continuing to expand its brick-and-mortar retail experience around the globe.
Brand House Stores
Under Armour opened its first Brand House store in Annapolis, Maryland in 2007. This concept is a full price retail experience with consumer access to the company's expansive product line and the opportunity for the company to highlight its brand. Since then the company has expanded to 63 brand stores globally, with the international driving the bulk of this growth adding 18 stores in the last year.
In the company's investor day meeting in 2015, the company indicated that the Chicago Brand House store (pictured above) gets about three times the average traffic of the typical brand house store. The success of the Chicago store has driven the company to open more of these large format stores in marquee locations such as New York's former FAO Schwartz store opening in 2018.
Brand House stores only represent 24% of the total store count for Under Armour, Factory House stores make up the rest.
Factory House
The Factory House store plays a critical role in the retail supply chain and brand image for the company. First, with 205 locations globally, this footprint allows Under Armour to reach more customers. In the 2015 investor day presentation, Susie McCabe, then the senior vice president of global retail indicated that 50 million people walked through its Factory House stores that year. This is a significant opportunity for the company to reach new and more value centric customers.
Second, these stores enable Under Armour to sell excess, discontinued, and out-of-season products while protecting the brand image by not having to sell the product to discount chains. To give you an idea of the discounting, I recently visited one of these stores and bought a quarter-zip pullover for 44% off the original price.
The bulk of these stores are in North America, but internationally the company added 19 stores over the last year, growing the international Factory House store base to 45. Internationally, the company grew revenue 57% in the most recent quarter, so these investments in brick-and-mortar outside of North America are aligned with the growth areas of the company.
I would love more detailed reporting of this important and growing portion of Under Armour's business. But, investors are just going to have to be satisfied with the company's chief financial officer, David Bergman's report of the health of direct-to-consumer from the most recent quarterly report.
I don't know about you, but as a shareholder, I was hoping for a little more.
10 stocks we like better than Under Armour (A Shares)When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Under Armour (A Shares) wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of August 1, 2017
Brian Withers owns shares of Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool owns shares of and recommends Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool has a disclosure policy.