Can Under Armour Keep Its Streak Alive?

Jordan Spieth is taking golf by storm. Under Armour has him for another decade. Source: Under Armour

Under Armour has always focused on innovative products for high-performance athletes, and this approach has resonated in a big way with weekend warriors and pros alike. The company has managed to grow quarterly sales by at least 20% for 20 quarters in a row -- that's five years. It's been more thansix yearssince the company came up short of its quarterly guidance -- guidance that the company has consistently revisedhigher.

Under Armour has been like an elite athlete who knows what he or she is capable of doing and keeps delivering. That's why its stock has simply destroyed theS&P 500since going public:

UA data by YCharts

While even elite athletes eventually decline, Under Armour is still young, on a roll, and probably in the best shape of its career. OK, enough of the sports metaphors. Under Armour is set to report second-quarter earnings on July 23. What should investors expect? Let's take a closer look.

Its athletes are taking the world by stormUnder Armour's personalities are keeping the brand front and center, whether it's Jordan Spieth, who's taken the golf world by storm, winning two majors in a row and coming up only a couple of strokes short of winning a third this weekend; or Stephen Curry, who won the NBA's most valuable player award while his team claimed the league championship; or Misty Copeland, who's reached the pinnacle of professional ballet, breaking racial and social barriers along the way.

As innovative as the company's products are, its unconventional marketing approach, as with Copeland and supermodel Gisele Bundchen in its "I Will What I Want" campaign, has paid huge returns on establishing the company's brand with demographics beyond the performance athlete. Under Armour has also invested millions over the past year to establish a strong foothold in the fitness app business, acquiring several of the most popular fitness tracking apps in the U.S. and Europe.

Using its athletes using its products to market its apps ties the "ecosystem" together. Source: Under Armour.

Keep an eye on capital and cash managementThe $560 million Under Armour spent to acquire Endomondo and MyFitnessPal last quarter caused net earnings to fall from the year before, and the company added a lot of debt to make the deal happen. Recently, debt has gone up, but its cash position hasn't really improved:

UA Total Long Term Debt (Quarterly) data by YCharts.

Don't get me wrong: The company isn't over-leveraged. However, it's worth keeping a close eye on how the company pays for future expansion. Debt isn't necessarily bad, but the returns generated need to exceed the cost of that debt.

Products are driving the bottom and top lineWhile the marketing and social media/app development investments are important to the company's growth, product development and market expansion will be the key drivers. Its most mature business is men's apparel, which has been the core since the company was founded. Under Armour's apparel business grew 21% last quarter, marking five years of 20%-plus quarterly growth.

While the company doesn't break out apparel by subcategory, it's likely that the heavy emphasis on women's apparel over the past year-plus is helping drive growth. This will probably continue to be the case, but it may not be the most important category to keep an eye on.

Women's apparel is a key growth driver for Under Armour. Source: Under Armour.

Apparel is still more than two-thirds of total revenues, but footwear is expected to be a major growth driver for years to come. Last year, footwear sales grew about 40% but made up only about 15% of total sales. Last quarter, footwear sales (again) increased 40% and accounted for 20% of total revenue. CompetitorNikestill dominates the athletic shoe biz and gets 60% of its sales in this category, but Under Armour is making serious inroads.

While Under Armour may never be associated with shoes the way Nike is, there is huge room for it to continue growing its sales mix in the category. Under Armour's shoe business will probably be a huge growth driver this quarter, and for many quarters ahead.

Expanding international presenceNorth American sales grew just over 20% last quarter, while sales to the rest of the world increased 74%. This is huge, but it's still a tiny part of the company's business, at less than $100 million in sales last quarter. Going back to the Nike comparison, more than half of that company's sales come outside North America. It's hard to overemphasize how important global expansion is to Under Armour, and not just for the next few quarters.

It's estimated that the global middle class is going to expand by around 1billionpeople in the next couple of decades. For Under Armour to reach its full potential, the company needs to be sure its share of athletes have aUAlogo on their apparel and footwear. Expect management to talk a lot about this on the earnings call.

Running a marathon like a sprinterUnder Armour has grown so much, so fast, it's almost inevitable that at some point things will slow down. With that said, the company, led by founder CEO Kevin Plank, continues to invest heavily in product development, expand into new markets, and effectively and creatively market its products. Will the inevitable let-down come this quarter? Maybe. Maybe not.

Instead of getting too caught up in whether the company makes earnings estimates, keep an eye on how well the company manages its costs and generates a return when it does invest in new products, market expansion, or the addition and and marketing a new personality. Look for emphasis on the company's footwear, women's apparel, and international sales.

This will help you better understand the business, and that will prove far more important over time than how it measures up to Wall Street's earnings expectations later this week.

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Jason Hall owns shares of Under Armour. The Motley Fool recommends Nike and Under Armour. The Motley Fool owns shares of Nike and Under Armour. 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.

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