Annual Report Review

Nike has been a world market dominant in the clothing industry and many companies have struggled to beat it in competition. The market inception of Armour however seeks to change the change the status quo. There are many things that the new company is doing right, and it is projected that in the next few years, it should be able to pose a major threat to Nike and other big companies.

Competitor Strategies

There are a number of strategies that the company has implemented to make its competition strategy the best. The company has signed start athletes to strengthen its pitch. It has also made sure that its logo is on the uniforms of major college teams. The company has also made an entry in the NBA sport; using Stephen Curry to offset Nike’s all world talent LeBron James. In the recent years the company has managed to raise its shares by 64 percent to Nike’s 46 percent. The company carries out vigorous marketing and promotion hoping to gain a large maker share in the future years. However its revenue cannot be compared to Nike. Armour’s $3.1 billion in revenue is one-tenth of Nike’s $30.1 billion.

Net Income Margins

Armour management consciously foregoes bottom-line profits in favor of investing heavily to take market share, expand internationally, and ultimately achieve its top-line goals. And its tactics appear to be working. Last quarter, for example, revenue growth accelerated to 31% (33% at constant currency), for total sales of $1.17 billion, notably including 22% growth from its core apparel business, to $865 million, a 95% increase in footwear sales, to $167 million, and a 25% increase in high-margin direct-to-consumer revenue, which represented 36% of total sales. International revenue also climbed 70% year over year (85% at constant currency), but still only represented 12% of total sales. Nike managed to increase quarterly revenue a modest 7.7% year over year, to just over $8 billion, and grow net income and earnings a much more impressive 20% (to $950 million) and 22% (to $0.55), respectively.

 Inventory Management

If we are to consider Under Armours’s inventory turnover ratio, it is indeed one of the lowest amongst their competitors. The ITR was locked to 3.0x during last year, in 2015. If we are to compare Nike on these grounds, then its ITR is 4.0x, while LuLu keeps it at 4.5x. Two elements – Swiftness to market and rich assortments drives the demand for footwear and apparel companies. The inventory management initiatives of Under Armour apparently reflects company’s strategic alignment towards utilizing inventory management as a cost-cutting tool which in turn can yield high inventory turnover with an active SCM.

Cash is King

Armour Cash Flow from operating activities includes the core business activities. This line item refers to the cash generated from the same and stood at a negative value of $-44.1M for UA. Cash Flow from investment activities used $695.16M cash due to investment activities. It includes the use of cash outside of normal day to day activities like buying fixed assets, plant and machinery etc. Nike decreased its cash from operating activities to $1.58B in 2016. Operating activities include production of goods or creating a product or providing a service, and collecting payment for the same from customers. The cash generated from these activities is referred to as cash flow from operating activities. Cash Flow from investment activities: This includes buying/selling of land and equipment, acquisitions and mergers, sell-off, investment in other companies like buying bonds, stocks etc., and was $3.1B for NKE in last year report.

 Liquidity

Under Armour's growth has shown strong, rapid, and so far sustainable growth. Revenue for 2014 increased more than 32% from the year prior, and I believe their revenue for 2015 will end over $3.9 billion, or a 27% increase. It should be no surprise that with Nike's massive size their revenue growth is much slower and closely mirrors the footwear and accessories industry average. However, Nike has shown that their growth is sustainable, so as long as they're maintaining their margins and growing net income like they have, they deserve acknowledgment for their healthy growth. And while there may still be more growth in foreign markets for Nike, Under Armour hasn't even begun to penetrate those markets nearly to the extent of Nike.

 

References

Michael, C. (2013). Corporate Finance: A Focused Approach. Chicago: Cengage Learning.

Paul, D. (2010). Financial Accounting: Tools for Business Decision Making. Chicago: John Wiley & Sons.

Appendix

Net income margins

Inventory Management