under armour final presentation

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Under ArmourThe Future of Performance Sportswear?

An Evaluation

FIN 553June 4th 2009

INDUSTRY BACKDROP

UA OVERVIEW

VALUATION

RISKS TO VALUATION

REAL OPTIONS

CONCLUSION

IN THE BEGINNING…

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WE’VE COME A LONG WAY, BABY

WE’VE COME ALONG WAY.

MATERIALS

TECHNOLOGY

HIGH END

• “In the six-year period to 2012, just-style forecasts performance apparel will outperform all sportswear by a factor of two, raising the US$ money value of performance sportswear to US$7.20bn .”

• (Source: Taking the lead in performance apparel: just-style.com, 21 September 2006 |

INDUSTRY OVERVIEW

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INDUSTRY BACKDROP

UA OVERVIEW

VALUATION

RISKS TO VALUATION

REAL OPTIONS

CONCLUSION

“The core strength of our brand is its connection to athletes who

understand the benefits of performance products.”

( (Source: Letter to Shareholders, UA 2008 Annual Report )

COMPANY SCOREBOARD

2004 2005 2006 2007 2008

$205,181

$281,053

$430,689

$606,561

$725,244

5 YEAR ANNUAL COMPOUND GROWTH RATE - 44.4%

NET REVENUESIN THOUSANDS; YEAR 2004-2008

2004 2005 2006 2007 2008

$25,153

$35,810

$56,918

$86,265

$76,295

5 YEAR ANNUAL COMPOUND GROWTH RATE - 50.5%

NET REVENUESIN THOUSANDS; YEAR 2004-2008NET REVENUESIN THOUSANDS; YEAR 2004-2008INCOME FROM OPERATIONSIN THOUSANDS; YEAR 2004-2008NET REVENUESIN THOUSANDS; YEAR 2004-2008INCOME FROM OPERATIONSIN THOUSANDS; YEAR 2004-2008

80%

12%

4% 4%

NET REVENUES BY PRODUCT CATEGORYYEAR 2008

APPAREL

FOOTWEAR

ACESSORIES

LICENSE REVENUES

COMPETITIVE LANDSCAPE

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CORPORATE GOVERNANCE

Name Title Age Total cash compensations

Kevin A Plank CEO and Chairman of the Board 35 $528,656 USD

Brad Dickerson CFO 43 Unavailable

Wayne E. Marino Executive VP/COO 47 $308,369 USD

Matthew C. Mirchin DVP 48 $394,935 USD

James E. Calo Other Executive Officer 45 $789,026 USD

Melissa A. Wallace VP, Divisional 49 $722,225 USD

Name Title Age Affiliation

Thomas J. Sippel Director 61 Partner of the law firm Gill, Sippel & Gallagher

Harvey L. Sanders Director 58 Former Chairman of the Board of Directors of Nautica Enterprises, Inc

William R. McDermott Director 47 Former CEO of SAP Global Field Operations

Anthony W. Deering Director 63 Chairman of Exeter Capital, LLC

A.B. Krongard Director 71 Executive Director of the Central Intelligence Agency

Byron K. Adams, Jr. Director 54 Managing Director, Rosewood Capital, LLC

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CURRENT CONSIDERATIONS

Share performance vs. S&P 500 (source FT.com)

Under Armour Inc. (UA) Key financials (Source: Yahoo Finance)

Current Price $25.23

52-Week range $12-$44

Market Capital $1.25 billion

P/E ratio 32.06

Recent returns(Source: Woolframalpha.com)

Day 2.81%

Month 5.13%

YTD 5.83%

Year -27.44%

Annual Volatility(Source: Woolframalpha.com)

UA 84.40%

S&P 500 45.68%

Bonds 5.71%

T-Bills 0.00%16

INDUSTRY BACKDROP

UA OVERVIEW

VALUATION

RISKS TO VALUATION

REAL OPTIONS

CONCLUSION

INTRINSIC VALUATION ASSUMPTIONS

rf 3.65%

rd 1.78%

rm 3.90%

β 1.15

g 3.00%

D/V 0.03

E/V 0.97

CAPM 8.25%

WACC 8.04%

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NIKE INTERNATIONAL GROWTH COMPARISON

Nike ($ in millions) UA

Year 1981 1982 1983 1984 1985 2008 2015E

Actual sales

Domestic 432 651 774 761 730 692 2159

International 26 43 93 158 216 33 540

Total 458 694 867 920 946 725 2699

% Splits

Domestic 94.32% 93.80% 89.27% 82.72% 77.17% 95.45% 79.99%

International 5.68% 6.20% 10.73% 17.28% 22.83% 4.55% 20.01%

Total 100% 100% 100% 100% 100% 100% 100%

Average Nike International Growth 1982-1991 32%

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NET INCOME CALCULATIONS

($ in millions) Historical Projected

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015

Domestic Sales 562 661 720 785 903 1038 1194 1373 1579

International Sales 44 65 77 92 121 160 211 278 367

Total Net Revenues 607 725 797 877 1024 1198 1405 1651 1946

Gross Profit 305 355 383 421 491 575 674 793 934

Total Operating Expense 219 278 327 360 420 491 576 677 798

Operating Income 86 77 56 61 72 84 98 116 136

Depreciation 15 21 21 21 21 21 21 21 21

EBITDA 101 98 77 83 93 105 120 137 158

Total Other Income/(Expense) 3 (7) 16 18 20 24 28 33 39

EBIT 89 69 72 79 92 108 126 149 175

Provision for Income Taxes 36 32 26 28 33 39 46 54 63

Net Income 53 38 46 50 59 69 81 95 112

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DCF CALCULATIONS

($ in millions) Historical Projected

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 TV

EBIT 89 70 72 79 92 109 126 148 175

Taxes 36 32 26 28 33 39 46 54 63

Net Income 53 38 46 51 59 69 81 95 112

Depreciation 15 21 22 23 23 24 25 25 26

CapEx (22) (21 (16) (18) (20) (24) (28) (33) (39)

ΔNWC (53) (37) (39) (41) (43) (45) (46) (49) (52)

FCF (8) 2 13 15 19 24 30 38 48 974

Discounted FCF and TV 12 13 15 18 21 24 28 567

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PEER ANALYSIS

Name Country P/E Ratio

EV/EBITDA

Under Armour 12.15

Perry Ellis International Inc 9.7 7.37

Oxford Industries Inc 12.9 9.88

Columbia Sportswear Co. 13.27 8.04

Hanesbrands Inc 22.23 8.34

Mean N/A 14.53 8.41

Median N/A 13.09 8.19

Stock performance (Source: Yahoo.com/Ifinancilas.com)

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INTRINSIC VALUE

DCF Calculation

DCF $131m

Continuing Value $567m

Total Value $697m

Shares O/S 50.4m

Target share price $13.85

P/E Valuation Calculation

Net Income (2009) $45,915,181

No of shares 50,400,400

EPS $0.91

Multiple (Comparables) 14.53

Equity Value $666,918,005

Target Price per share $13.23

EV/EBITDA Valuation Calculation

EBITDA (2009) $77,146,699


Multiple 8.41

Enterprise Value $648,610,874

Net Debt $13,158,000


Target price per share $12.61

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INDUSTRY BACKDROP

UA OVERVIEW

VALUATION

REAL OPTIONS

RISKS TO VALUATION

CONCLUSION

WHAT-IF? SCENARIO (INT GROWTH AT 15%)

DCF Calculation

DCF $115m

Continuing Value $455m

Total Value $570m

Shares O/S 50.4m

Target share price $11.32

P/E Valuation Calculation

Net Income (2009) $45,915,181


EPS $0.91

Multiple (Comparables) 14.53


Target Price per share $13.23

EV/EBITDA Valuation Calculation

EBITDA (2009) $77,146,699


Multiple 8.41

Enterprise Value $648,610,874

Net Debt $13,158,000


Target price per share $12.61

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INDUSTRY BACKDROP

UA OVERVIEW

VALUATION

RISKS TO VALUATIONS

REAL OPTIONS

CONCLUSION

OPTION 1:CHINA

OPTION 2: DIRECT TO CUSTOMER

INDUSTRY BACKDROP

UA OVERVIEW

VALUATION

RISKS TO VALUATION

REAL OPTIONS

CONCLUSION

CONCLUSION

At $25 Under Armour is overpriced. We recommend

a target price of $13 a share

Reasons

• Investors regard Under Armour as the next Nike, hence the 25x P/E multiple.•However the days of double digit growth are over•Could be undercut by cheaper, private label merchandise

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CRAIG JOHNSTONKEVAN O’CONNOR

KEVIN LEWISDAVID CLARK

VISUAL PRESENTATION BY

DISCLAIMER: THE VIEWS CONTAINED IN THIS DOCUMENT ARE FOR INTERNAL PURPOSES ONLY AND DO NOT REFLECT THE VIEWS OF DEPAUL UNIVERSITY OR ITS EMPLOYEES

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