In case you haven’t been watching the winter Olympics in Sochi this year, the Games have found a way to impact the fundamentals of athletic-equipment firm Under Armour (UA). The company’s CEO Kevin Plank recently defended allegations that its high-tech suits were responsible for the US speed-skating team’s poor performance on ice. Many have pointed to the air vent in the back of the suit that allegedly acted more like a drag-racing parachute (slowing the athletes down) than second-saving aerodynamic technology. Still, even after suit modifications that patched the vent, the US speed skating team failed to win a single medal at the Games.
We don’t think the poor publicity will impact Under Armour’s long-term international growth potential, but we are viewing it as a missed promotional opportunity on the global stage. If the US speed skaters had done well using its next-generation suits, for example, Under Armour may have experienced a nice boost in positive global brand awareness, which could have accelerated international growth plans. During 2013, international revenues (those outside of North America) were just 6% of Under Armour’s total revenue. The company expects international revenues to be 12% of total sales by 2016, a level that may not be as easily achieved given recent events.
Image Source: Under Armour
Valuentum’s Take
We don’t think the speed-skating suit debacle is quite as damaging to Under Armour’s brand as lululemon’s (LULU) transparent black luon yoga pants issue was to its, but we don’t think either firm will suffer long-term consequences from the negative media coverage. Our fair value estimate for Under Armour remains unchanged.