UNDER ARMOUR STRATEGIC AUDIT

Under Armour Strategic Audit

Faculty Advisor:

Student:

July 25, 2019

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UNDER ARMOUR STRATEGIC AUDIT

Under Armour Strategic Audit

Under Armour is a young American company offering a variety of sportswear, accessories

and shoes. Under Armor was founded in 1996 by Kevin Plank, a former football player at the

University of Maryland.

Thanks to innovative ideas and a non-standard approach to creating clothes, Kevin Planck

managed to create a powerful brand in a relatively short time, with significant opportunities to

expand beyond North America.

Under the Armor brand, the mission is to make all athletes better thanks to passion, design

and a relentless pursuit of innovation (Under Armor, n.p.). To make all athletes better. This analysis

is aimed at studying the internal and external environment of the UA, the company's strategic

directions, its goals and missions, as well as providing strategic recommendations for improving the

economic situation of the company.

At the moment, the company's strategy is to outperform its competitors through actions

aimed at increasing sales and market share through modern and attractive design, better quality and

a wider choice of products. The company is also actively working to distribute its product to

international markets. Under Armor brand is positioned as the highest quality and the best available.

Under Armor pursues a growth strategy aimed at further expanding the company's product range.

The product line strategy is to create a diverse product line. Armor's sports marketing strategy

includes signing equipment agreements with various university and professional sports teams,

sponsoring a range of sports and sporting events, and selling Under Armor products directly to team

leaders and individual athletes. Their retail marketing strategy provides for an increase in retail

space, exclusively for Under Armor products, in the main retail stores.

I have developed several strategic alternatives for the company. They are as follows:

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1. Strategic Alternative #1 – Growth – Concentration: Vertical growth aimed at improving the

product.

2. Strategic Alternative #2 – Growth – Concentration: Horizontal Growth with product distribution

internationally

3. Strategic Alternative #3 – Combination – Stability, Expansion and Retrenchment.

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Table of Contents

Current situation ……………………………………………………………………………….……6

2018 review…………………………..………………………………………………………6

Management ………………………………………………………….……………………..……… 7

Board of directors ……………………………………………….…………………..………7

Committees …………………………………………………….…………………….………7

Audit committee ……………………………………….….…………………………7

Compensation Committee…………………………..….………………….…………7

Corporate Governance Committee………………..…….……………………………8

Finance and Planning Committee…………………….………………………………8

External environment ………………………………………………………………………..………8

Societal Environment……………………………………………………………..…………8

Economic Environment………………………………………………………………………8

Technological Environment………………………………………………….………………9

Summary of External Factors…………………………………………….…………………10

Internal Environment10

Marketing …………………………………………………………………………………10

Finance…………………………………………………………………………………..…11

Research & Development ………………………………………………….………………11

Operations………………………………………………………………………..…………11

Human Resources………………………………………………………..…………………12

Summary of Internal Factors ………………………………….……………………………12

Analysis of Strategic Factors …………………………………………………….…………………13

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UNDER ARMOUR STRATEGIC AUDIT

Situational Analysis (SWOT) ………………………………………………………………13

Strength ………………………………………………………………..……………13

Weaknesses………………………………………………………….………………13

Opportunities …………………………………………………….…………………13

Threats ……………………………………………………………………………13

Review of Current Mission and Objectives ………………………………………………………14

Strategic Alternatives and Recommend Strategy …………………………………………………15

Strategic Alternatives ………………………………………………………..……………15

Recommended Strategy…………………………………………………………………… 15

References ……………………………………………………………………………….…………17

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Current situation

2018 review

Revenue rose 2 percent to $ 1.4 billion (an increase of 3 percent without currency).

Income from wholesale sales increased by 1 percent to $ 737 million, while income from direct

sales remained at the same rate of $ 577 million, which represents 41 percent of total revenue (UA

Annual report, 2019)..

Revenue in North America decreased by 6 percent to $ 965 million, but international

presence increased by 24 percent to $ 395 million, which represents 28 percent of total revenue. In

the inter-item markets, revenue grew 32 percent in the EMEA region, 35 percent in the Asia-Pacific

region (by 39 percent in neutral currency) and 15 percent in Latin America (11 percent in neutral

currency).

Income from clothing production increased by 2 percent to $ 970 million, with growth in the

train category.

Gross profit increased by 160 basis points to 45.0 percent over the previous year, including

an impact of 2 million (UA Annual report, 2018). Shoe sales revenue decreased by 4 percent to 235

million US dollars, mainly due to a decrease in sales in the channel, not related to prices. Revenues

from accessories fell 2 percent to $ 108 million.

Excluding the restructuring efforts in both periods, the adjusted gross margin increased by

160 basis points to 45.1 percent compared to the previous year, which was mainly due to regional

and channel composition, improved production costs, reduced advertising activity and reduced air

traffic, which partially offset by changes in foreign currency.

Operating loss was $ 10 million. Adjusted operating income was $ 40 million.

Sales, general and administrative expenses decreased by 1 percent to $ 587 million, or 42.3

percent of revenue. The cost of restructuring and impairment was $ 48 million. Cash and cash

equivalents increased by 78 percent to $ 557 million. Net income was $ 4 million, or $ 0.01 per

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share. Adjusted net income was $ 42 million, or $ 0.09 adjusted earnings per share. Stocks fell 12

percent to $ 1.0 billion.

Management

Board of directors

Positions of the chairman of the board of directors and the general director can sometimes

be performed by the same person and sometimes different, depending on the circumstances.

The Corporate Governance Committee reports to the Board of Directors on who is planned to be

appointed to the position of the General Director and other members of the executive management

who may be determined by the Board of Directors.

A senior director can be appointed by one of the directors of the company to the position of

chief director. In the Company's annual power of attorney, the name of the lead director or other

means allowing individuals to communicate directly with unmanaged directors are indicated.

Committees

Audit Committee

The audit committee is associated with the Board of Directors in such a way as to help to

fulfill its oversight responsibilities to Under Armor and its shareholders (UA Annual report, 2017).

Also, the audit committee controls the processes and systems of accounting, financial reporting, the

accuracy and quality of the company's financial statements, as well as internal accounting. This

governing body also controls those who maintain financial statements, perform the functions of an

independent auditor, and also controls the company's compliance with legal and regulatory

requirements, including the disclosure of information about controls and procedures by the

company.

Compensation Committee

The purpose of this committee is to analyze, evaluate, and approve company compensation

plans and strategies that top managers and executive management want to engage. It is also the

responsibility of this committee to review and approve Under Armor policies for company directors.

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Corporate Governance Committee

This committee analyzes the activities of employees and selects candidates for the Under

Armour Board of Directors. The committee recommends candidates for the posts of directors for

each annual meeting of shareholders and candidates filling any vacancies on the Board of Directors,

as well as developing and improving new corporate governance principles.

Finance and Planning Committee

The Finance and Investment Planning Committee assists the Board of Directors in managing

the company and making profitable decisions in the area of finance and investments. Under

Armor’s planning for its long-term goals is also organized through this committee.

External environment (EFAS table, Exhibit 1)

Societal Environment

Under Armor actively participates in the community of such packages as UA Give Back, UA

Power in Pink, UA Freedom and UA Win Global. The company also takes an active part in the

annual “International Day of Girls” that promotes women's participation in sporting events.

Cooperation with the NBA League, Gisele Bundchen, Stephen Curry, The Rock and the increase

brand awareness among women and children (O5).

When exposed to strong heat and flame, clothing containing some synthetic materials such

as polyester can melt on the skin. This can lead to burns. According to Stars & Stripes, there is a

message on the company's website that prohibits wearing Under Armor products when exposed to

strong heat radiation or open flame. Under Armor products can melt at high temperatures in excess

of 350F. After this message, the company lost most of the military market, which naturally reduced

sales (T1).

Economic Environment

In international markets, Under Armor provides many opportunities to increase sales and

attract new customers. The brand has the strongest sales in the Asia-Pacific region, in which sales

grew by 35 %. The company currently sells its products in certain countries under license (O2).

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At the moment, middle-level and top-level department stores such as Kohl's, Macy's,

Dillard's and Neiman Marcus already sell Under Armor products. Collaboration with similar stores

gives good predictions for future sales growth (O3).

The main competitors of the company are Nike and Adidas, as they have higher brand

awareness and better experience abroad. Adidas confirmed that it is strong and has a growing

pressure on the sports field (the company's sales grew by 26% in the US and Canada), stealing the

market share from Under Armor and Nike (T2).

The raw materials used to make fabrics for UA main apparel include oils and cotton (UA

Annual report, 2015). Fluctuations in the prices of raw materials or their lack can have a direct

impact on the value of UA goods. Also, it is necessary to take into account the price on

transportation of products, their distribution and sale. These factors are also sensitive to the price of

raw materials fluctuations, mainly due to oil prices. Since more than 60% of the production is made

in China, Vietnam, Jordan, and Malaysia, goods must be transported by third parties over the long

distances, hence increasing the price of oil can significantly increase costs of the product. Any of

the fluctuations can increase the cost of production and have a negative impact on the company's

profit and financial position (T5).

Technological Environment

E-commerce is another great opportunity for Under Armor. According to Statista, e-

commerce retail sales in the United States will exceed 736 billion dollars in the next 4 years. UA

has already invested in various e-commerce and fitness applications (MapMyFitness,

MyFitnessPal), which can be used to collect user data about customers, as well as increase loyalty

and brand awareness. Also, Under Armor set up the machines so that athletes could scan the body

and find the exact shape and size (O4).

An extensive product line eliminates the risk of failure, as the company does not depend on

the sales of one particular product. The range of products UA is not limited to shoes, but also

includes clothing, accessories for sports, etc. In addition to this, the company is working hard to

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modify existing collections. The company is especially hard at work on children's goods. UA also

invests in new texturing techniques in fabrics that eliminate the need for elastane. Thanks to this, in

a year the company will steadily increase clothing sales by 60%, and for shoes – by 20%. (O1).

Summary of External Factors

Based on a score of 3.29 points, it can be concluded that the degree of influence of the external

factors (compared with a maximum of 5 points) is significant enough. There are factors that should

be taken into account during the planning and strategy development. These factors are big variety of

products and their constant modernization, international growth expansion in Asia-Pacific region,

collaboration with big stores, constant digital innovations and increasing competition.

Internal Environment (IFAS Table; Exhibit 2).

Marketing.

Marketing campaigns involving celebrities such as Stephen Curry of the Golden State

Warriors and Jordan Spit have been very effective and have made great profits in the company.

These advertising partnerships, along with new social and digital campaigns in the Internet, are

making a big impact on young consumers. Also, cooperation with the great players like Tom Brady

and Clayton Kershaw helps UA to maintain its reputation among influential young customers. (S4).

The disadvantage of Under Armour selling a wide range of products is that its brand image

can be weakened. Performance-oriented clothing is the brand’s inspiration, but currently Under

Armour is not always about Cold Gear materials and Heat Gear T-shirts. Stylish sports bras for

sports, headphones, backpacks and luggage can be additionally under UA emblem. And even

despite the fact that all these products can generate income, over the years they can reduce the

overall image of brand and its competitive advantage (W3).

Finance (see Exhibits 4 and 5)

By the end of the year, revenue grew by about 25%, and the company expanded to shoes and

other large categories of goods. For the next year it is planned that the profit may reach $ 1.50 per

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share. By that time, the currency situation should get a little better, and the margin should increase

as Under Armour uses its investment in infrastructure (S3).

Research & Development.

Kelvin Planck was the first to create clothing for athletes that remained dry and fresh for

long hours of training. Innovative technologies underpin the brand, which makes it valuable for

customers and causes pride among the creators and employees of the company. Currently UA

successfully modernizes its product and actively invests in innovations (S1).

The US Consumer Product Safety Commission announces the voluntary recall of Under

Armor sport cups, which can break if hit and cause serious injury. In addition, some products (chin

straps) are often criticized by experts for causing sports injuries. Any form of harm can damage the

reputation of the brand and alienate customers (W5).

Operations

The UA does a very good job of being involved in the community and organizing events.

Under Armour won the gold award in the “Best Press Event” category of the Ex 2018 awards (the

world's largest recognition program for experimental marketing) (S5).

The company is still relatively new with a limited operating presence in international

markets. 83% of its revenues are collected from its North American branches, which makes it

totally dependent on US markets (W1).

In the past three years Under Armor has risked high investment spending. Over the past two

years, they have spent about $1B. Cash costs mean that quarterly dividends probably won't come

soon, which could be a turning point for some income-oriented investors. In addition, costs may

limit Armour's future actions in other important areas (such as advertising and product distribution).

Although the company has proven its success by increasing revenue to 3%, it still faces the problem

of inventory management, if spending will increase by 11% to $1.3B (W2).

Human Resources

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Currently Under Armour has about 15.800 employees working in North America, Asia and certain

countries in Europe. As a progressive company, UA introduces corporate culture clubs. Each of

their clubs is engaged in supporting many unique groups working in Under Armor (Green Machine,

Parents for Professional Growth, Unified, Leading and Empowering Asian Development and

others). This helps to expand the company's capabilities by attracting talented employees (S2).

Summary of Internal Factors

Based on a score of 3.9 points, it can be concluded that the degree of influence of the internal

factors, compared with a maximum of 5 points, is quite significant. There are factors that should be

taken into account during the planning. For the Under Armor these factors are following high

investment spending, identity dilution and foreign market penetration.

Analysis of Strategic Factors

Situational Analysis (SWOT) (SFAS Matrix; see Exhibit 3)

Strength

S1: Unique product technologies

S2: Corporate culture

S3: Growth of revenue and bottom line

S4: Efficient advertising

S5: Social responsibility

Weaknesses

W1: Foreign market penetration

W2 High investment spending

W3: Identity dilution

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W4: Political issues

W5: Attacks on reputation of the company

Opportunities

O1: Big variety of products and their constant modernization

O2: International Growth Expansion in Asia-Pacific region

O3: Collaboration with big stores

O4: Constant digital innovations

O5: Participation in social programs promoting sports activities

Threats

T1: Harsh criticism of some communities

T2: Increasing Competition

T3: Change in customers’ needs and opportunities

T4: Expectations from investments

T5: Difficulties in supplying

Review of Current Mission and Objectives

➢ Improvement of a corporate and social culture (S2, S5, 02, O5).

➢ Development of the product line based on innovative technologies and research (S1, S3, O1,

O4).

➢ Participation and organization of social events, as well as to cooperate with other companies

and people for effective advertising (S4, S5, O2, O3, O5).

➢ Development of the strategy for distributing products to foreign markets (W1, O1, O2, O5).

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➢ Effectively advertise the brand as the most innovative and modernized product in the world

of sports (W1, W2, O2, O3, O4, O5).

➢ Work on the product improvement to further avoid complaints (W2, W5, O1, O4).

➢ Actively protect the reputation of the product by means of creating strategies based on social

responsibility (S1, S5, T1).

➢ Development of an effective strategy for the rational distribution of investments for the

subsequent active implementation in international markets (S3, T2, T4, T5).

➢ Investigation of the needs of customers, analyze the target audience for effective formulation

of product development strategies (S1, S3, S5, T2, T3).

➢ Development and implementation of new strategies to strengthen and improve the supply

chain (W1, W2, T2, T5).

➢ Investment most of the funds in the distribution of existing products than in the development

of new technologies (W1, W2, W3, T2, T4).

➢ Creation an individual strategy for introducing into the market of each new country taking

into account the needs of the client and the characteristics of the supply chain (W1, W2, T3,

T5).

Strategic Alternatives and Recommend Strategy

Strategic Alternatives

1. Strategic Alternative #1 – Growth – Concentration: Vertical growth aimed at improving the

product.

2. Strategic Alternative #2 – Growth – Concentration: Horizontal Growth with product distribution

internationally

3. Strategic Alternative #3 – Combination – Stability, Expansion and Retrenchment

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Recommended Strategy

2. Strategic Alternative #2 – Growth – Concentration: Horizontal Growth with product

distribution internationally

Horizontal growth is when a company expands or expands into similar markets for the

production of goods or services in a given situation, and the company must expand its presence in

the international market. Horizontal growth is cheaper and has less risk and competition.

– Under Armor is doing a great job for such a new company compared to its competitors.

But if Under Armor wants to continue to increase its presence in the market, they need to increase

the target audience.

– The first thing Under Armor should do is increase the market for women. Women's sports

are becoming more popular and this is a very helpful audience.

– Next Under Armor should continue to enter new international markets. With the opening of

the “Experience Store” in China, sales have dramatically increased, and they need to expand,

increasing the number of these stores around the world.

– Under Armor was not only able to sign an agreement with Tottenham (Europe’s leading

football team), last year they signed the Chilean gigantic football team Colo, which is very

important for Under Armor, since football is the largest sports market in the world.

Under Armor was able to sign equipment agreements for the US national gymnastics team

for the Olympic Games 2016 and 2020, the US national speed skating team until 2022, and began

targeting Mexico, the host country of the 2016 Olympic Games. Active advertising of the company,

as the choice of Olympic champions and the world's top teams, contributes to good advertising and

subsequent distribution to international markets.

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UNDER ARMOUR STRATEGIC AUDIT

– Also, the marketing department needs to continue to provide the maximum possible

support for distributing the product on the Internet, develop the brand in social networks and run

advertising in the Internet.

Under Armor is only now entering the international market. Therefore, if they continue to

make a good product, open more stores around the world, buy in the market for women and have

good customer service, they will not have anything that could stop them from reaching the top.

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References

Under Armoure. (2019). Annual Report 2018. Baltimore, MA. Retrieved from

https://about.underarmour.com/sites/default/files/2019-03/Under%20Armour%202018%20Annual

%20Report.pdf

Under Armoure. (2018). Annual Report 2017. Baltimore, MA. Retrieved from

http://www.annualreports.com/HostedData/AnnualReportArchive/u/NYSE_UAA_2017.pdf

Under Armoure. (2017). Annual Report 2016. Baltimore, MA. Retrieved from

http://www.annualreports.com/HostedData/AnnualReportArchive/u/NYSE_UAA_2016.pdf

Under Armoure. (2016). Annual Report 2015. Baltimore, MA. Retrieved from

http://www.annualreports.com/HostedData/AnnualReportArchive/u/NYSE_UA_2015.pdf

Under Armoure. (2015). Annual Report 2014. Baltimore, MA. Retrieved from

http://www.annualreports.com/HostedData/AnnualReportArchive/u/NYSE_UA_2014.PDF

Under Armour INC. (2014). Under Armour Form 10-K. Company Profile Print.

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