For those of you who would rather not join the herd in wigging out over the puts and takes that come along with UA's print tomorrow morning, here's something to consider in your longer-term modeling.
Much like analyzing the changes in lease payment schedules can help uncover trends as to how a retailer is using off-balance sheet tactics to obfuscate the P&L, we need to do the same for companies that operate in the Athletic space -- but with athlete endorsements.
We've discussed this quite often in the past, and generally speaking, UA is tracking where Nike was it a similar point in its growth cycle.
But there are two considerations today...one positive and one not so positive.
On the plus side, 84% of the $169.5mm that UA is required to pay in MINIMUM obligations occurs over the next three years. This is a prudent and conservative strategy. In fact, that's a meaningful change from 69% just one year ago.
What does that mean? If UA wanted to be super aggressive, it could be locking in long-dated contracts with increasing minimums to athletes that might or might not be worth it. The company is definitely not doing this. That's the good news.
The bad news is that in this year alone, UA has about a $10mm step-up in endorsement expense. That's about $0.12 per share (7% of last year's earnings).
Even worse is that over the next 2 years, there's a minimum increase of $36mm. That's about $0.45 per share over 2-years ('13 and '14).
In the end, all this means is that UA has committed to get the assets in place to a) build product around, and b) subsequently bring to market. If they're like Nike, then they'll succeed. If they're like Adidas or Reebok, then they'll fail. We think it's more the former, but in fairness, UA is not yet proven in that regard.
Nonetheless, these are underlying numbers that people interested in the story should at least consider in their investment process.
