Under Armour going public....

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Under Armour could offer up $100 million in stock

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By Darren Rovell
ESPN.com

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<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR><TD vAlign=top><!-- begin leftcol --><!-- template inline -->Like Phil Knight, who two decades before sold Nike shoes out of his car, Under Armour founder Kevin Plank's first warehouse in 1996 was also his trunk.

Plank, a former University of Maryland running back, sold $17,000 worth of his shirts that year.

Today, Under Armour, based in Baltimore, is a booming business, with net revenues surpassing $200 million last year. And Friday, the company declared its intention to go public by filing its registration with the Securities and Exchange Commission, seeking to sell as much as $100 million in common stock.

The filing offered the first glimpse into a company that has managed to thrive in an extremely competitive environment usually dominated by the goliaths of the industry, including Nike and Reebok, which attempted to stunt Under Armour's growth with their Dri-FIT and NFL Equipment lines, respectively.

Under Armour proved that moisture wicking or compression apparel could not be sold to athletes only, but also to the mass market. Sales of lightweight microfiber performance apparel are expected to top $500 million this year.

"Under Armour is no longer an up-and-coming brand," said Ben Sturner, president of Leverage Sports Agency, a New York-based sports marketing firm. "They have positioned themselves as a real player in the industry and in the eyes of consumers in only a few years' time."

The company also sells its product to teams in Major League Baseball, Major League Soccer and the National Hockey League, and has been the undergarment of choice to at least 700 Division I men's and women's college teams. The company's only official college relationship is with the University of Maryland football team. The company is now the third largest branded sports apparel company in the United States. It currently owns 7.5 percent of the market and is only behind Nike and adidas, according to Neil Schwartz of SportsScanINFO, a retail tracking firm.

Not only has the company branched into apparel specifically designed for the playing surface or season, it has also quickly expanded into other products branded with its now familiar interlocking "UA" logo, including wristbands, underwear, socks and gloves.

"It's a remarkable story to come into the market and do what they have been able to do," Schwartz said. "Every category that they have gone into, they have been successful."

Last year, the company branched out into making performance gloves. Schwartz says Under Armour now owns 30 percent of the market, only behind Nike, which maintains a 50 percent share.

"Their growth has been phenomenal," said Jeff Hennion, senior vice president and chief marketing officer of Dick's Sporting Goods, which carries Under Armour product in its 239 sports specialty stores throughout the U.S. "The UA logo now really means something to athletes and kids alike."

Thanks to developing a tactical line, one of its largest customer is now the Army and Air Force Exchange Service, a retailer that sells gear to military personnel and their families.

In the early going, Under Armour did very little advertising. Most of the buzz came from word of mouth and from fans who saw the logo on the clothes of America's most famous athletes. The company eventually signed endorsers, which now include NFL players LaVar Arrington, Jonathan Vilma and Eric Ogbogu, Texas Rangers second baseman Alfonso Soriano, women's soccer star Heather Mitts and tennis player Robby Ginepri.

Under Armour also advertised cheaply by taking advantage of product placement opportunities in movies. Its big break came in the 1999 Oliver Stone movie "Any Given Sunday." When it was discovered the movie had a significant impact on sales, Under Armour became the gear of choice in movies ranging from "The Replacements" to "Dodgeball." The company received more exposure by outfitting the Cougars in the ESPN mini-series "Playmakers" two years ago.

It wasn't until August 2002 that the company unveiled its first television commercial. Its subsequent campaign, featuring the "We Must Protect This House," tagline, was widely acclaimed and earned the company an ADDY Award given by the American Advertising Federation.

Under Armour has only 535 employees in the United States, compared to Nike's 12,000, but the company continues to push the envelope. Tired of having to put its tight-fitting performance gear on non-athletic mannequins, the company made their own -- using Ogbogu and Mitts as models -- and shipped it out to retailers so that its gear could be modeled more accurately. Under Armour products are now in 8,000 stores, up from the 500 retailers that carried the brand five years ago. The company's heavy reliance on online sales differentiates them from the traditional market leaders and reduces costs.

Under Armour plans to battle Nike head-on next year, when it unveils its line of cleats.

Darren Rovell, who covers sports business for ESPN.com, can be reached at Darren.rovell@espn3.com.

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Triple digit silver kook
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Good post Viking. They have a good product and seems like all the top athletes are wearing their gear.

Keep us posted.
 

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Update...

Under Armour Inc., the Baltimore sports apparel maker, expects to net $72.7 million from an initial public stock offering and use the money to pay off debt and reward longtime employees and investors, according to regulatory documents filed yesterday.

The company, in an updated filing with the Securities and Exchange Commission, said it plans to sell about 12 million shares at $7.50 to $9.50 per share. No date has been set for the offering.

The company plans to use $12 million of the proceeds to cash out a major investor, Rosewood Capital, and a combined $48.1 million to repay debt.

If successful, the offering will make Under Armour founder Kevin A. Plank a multimillionaire and lay the foundation for its expansion in the highly fragmented and competitive athletic-wear industry.

"This seems to have all the earmarks of a deal that's going to do well," said David Menlow, president of IPOfinancial.com.

The offering is coming at a time when retailers are worried that consumers will cut spending in the face of higher fuel expenses and rising interest rates.

But analysts said Under Armour seems to have captured a niche in the apparel industry with high-powered athlete endorsements and a hip slogan, "Protect This House."

Yesterday's filing suggests Plank will be doing that somewhat literally.

Despite the fact that he is selling 1 million of his 16.2 million shares in the offering, Plank will retain 32.8 percent of the company's outstanding stock, including all of its Class B shares, which are worth 10 votes each. That will give him 83 percent of the voting power and, essentially, total control over the company's decisions.

IPO experts said the concentration of voting power doesn't concern them.

Domestic entrepreneur Martha Stewart did something similar when she took her brand public.

Numerous other entrepreneurs have structured IPOs in similar fashion over the years.

"Those companies are saying, 'You're not going to change our culture. This is what we do,'" Menlow said.

"People who are buyers of IPOs have to realize they have a say [in the company], but it's like being in the middle of a forest with no one around to hear."

However, analysts did express some concern about the number of shares being offered by Plank and other company insiders as part of the deal.

Of the total being offered, slightly more than 2.5 million will be sold by insiders, who will keep the proceeds for themselves. Investors prefer to see insiders hanging on to their stock as a show of confidence in the company's prospects.

"That'll be an issue for us," said Kathy Smith, an analyst with Renaissance Capital, the Greenwich, Conn., IPO tracking firm. "We'd like to see that they [company insiders] feel there's a lot of upside to the stock."

Menlow, the IPO analyst, said, "It's a little disappointing when you see that as part of an IPO. Anytime you have selling shareholders as part of the offering, the question is: Is this IPO about creating a public vehicle for the insiders to use as an exit strategy?"

But Under Armour is helped by its strong track record, the analysts said. The company is profitable and still growing.

Sales grew from $5.3 million in 2000 to $263.4 million in the 12 months that ended Sept. 30. For the first nine months of 2005, net income grew to $10.9 million from $8.7 million in the corresponding period last year.

Gone are the days when companies with little or no profits could attract investors with promises of future gains.

"This [profitability] is almost a prerequisite for today's IPO market," Menlow said.

Other niche apparel makers have done well with recent IPOs. Smith pointed to Volcom Inc. The Costa Mesa, Calif., company is a branded maker of surf-wear that launched its IPO in June and has seen its stock gain 69 percent.
 

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While there are several promising IPOs on the calendar this week, performance athletic gear maker Under Armour got the nod as our pick of the week because of its well-known brand and strong prospects for growth in the athletic and consumer apparel markets – both of which should lead to a winning debut in today’s increasingly selective IPO market. Under Armour (UARM) is offering roughly 12 million shares at a price range of $7.50 to $9.50 through lead underwriter Goldman Sachs. The IPO is expected to price on Thursday evening.

“Cotton is the Enemy”

Under Armour was founded in 1995 by former University of Maryland football player Kevin Plank with the intent to provide professional athletes, active outdoor enthusiasts and consumers with technically advanced apparel designed to enhance comfort by wicking perspiration away from the skin and regulating body temperature with the ultimate goal of improving performance under any weather condition. Management’s mission is to replace cotton in the world of athletics and fitness and gain share in the $39 billion US retail market for sports apparel, of which $12 billion is spent by active sports enthusiasts.

“Protect this House”

Under Armour sells branded, next-generation, synthetic T-shirts, shorts, underwear, outerwear, accessories and gloves to athletes and teams in the NFL, MLB, the NHL, major collegiate and Olympic sports, and consumers through 8,000 retail stores, four outlet stores, its website and call center mostly in the US. While the company has historically focused on the male athlete population, it is increasingly focusing on women’s apparel and also plans to enter the footwear market in the fall of 2006. Under Armour endorses several top athletes as part of its marketing campaign. Its products have also been featured in numerous magazines and newspapers, including a humorous bit referencing its slogan “Protect this House” on David Letterman’s Late Show.

On strong financial footing

Although Under Armour’s business has been around for nearly a decade, its business has taken off over the last few years. Revenues have grown from just under $50 million in 2002, to $115 million in 2003 and $205 million in 2004. In the first nine months of 2005, sales have grown 43% to $194 million. Despite its rapid growth, operating cash flow margins have also shown steady improvement, rising from 9.4% in 2002 to 9.6% in 2003 and 12.4% in 2004.

Every IPO has some chinks in its “Armour”

While Under Armour appears to be a well-run company judging by its impressive results to date, its aggressive growth strategy adds risk and it faces fierce competition from major apparel and sporting goods brand leaders, such as Nike (NKE), Reebok (RBK) and Adidas, as well as dozens of knock-off manufacturers. In addition, there is some customer concentration and quarterly results have been volatile due to the seasonality of the business.

Will Under Armour Out-Perform?

Despite some corporate governance issues, such as the sale of 2.5 million shares by insiders and the fact that Kevin Plank will retain voting control through his ownership of Class B common stock, we believe this IPO will be well-received by investors given its strong track record, powerful brand momentum and attractive prospects for growth. In addition, the price tag is likely to get investors’ attention based on its trailing cash flow multiple of 10.7x being a big discount to a comparable fast-growing branded apparel maker and recent IPO Volcom at 18.9x.
 

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i would stick all my money in under armour stock! i know alot of pro athletes, and they all wear it and want it!
 
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Shares have doubled off its IPO offering already. Shares trading at over $25 compared to its open of $10
 

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This opened at $13 and you would not have been able to purchase it at that most likely. It has already doubled off its IPO in one day!! This is probably not a good sign.
 

Rx. Senior
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I will be following this stock. Went in a few sporting goods stores and UA has the placement along with the biggies, Nike, Adidas, etc.
Seems intriguing, but will take a wait and see approach.
 

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Buying in after a hot IPO is usually a recipe for disaster. Wait for the fast money to leave the stock. Give it a few quarters. Compare sales multiples with competitors then make your mind up. Sportwear is VERY competitive and trendy, UA is a very small fish in a tank full of sharks. Nike, Addidas and Russell have introduced products that are very similiar to UA's...
 

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UARM up to 47.55...some nice profits made of this one!! Their deal with NFL really helped out!!
 

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A few other companies are tapping into this. I know Nike is and if Reebok and adidas follow this market may become saturated. I know the athletes love this stuff but the whole moisture wick system seems like bullshit. I work outside and have one of those cold gear shirts and IMO it does nothing. Plus the shirts are expensive
 

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Rovell

Did he leave ESPN? If so, anyone know why? I see him on CNBC now and they never mention him with ESPN anymore.
 

Give BB 2.5k he makes it 20k within 3 months 99out
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I opened a brand new position today around 62$ (using options). I think this can triple by 2011 if not sooner.
 

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