Idea Alert: UA

09/21/12 08:48AM EDT

Keith added UA back on the long side of the Real-Time Positions yesterday. Pressure in retail/apparel presented an opportunity to buy back one of our favorite TAIL ideas. There’s no chance to the research call. While this is one of our favorite TAIL ideas, look for us to keep a TRADE a TRADE on this one.

On a TAIL duration (3-Years or Less):

  • UA should put up $3bn in revenue by ‘14 – impressive given a $1.5bn print in 2011.
  • It’s tough to find any name out there growing EBIT in the 25-30% range. This translates to over $2 per share in earnings at UA’s current margin structure (which we think is sustainable). Simply put, UA was built to be expensive.
  • There’s no fundamental reason why footwear should not attain share at least in line with lesser brands like New Balance, Reebok, Brooks, Saucony…Admittedly it has not happened yet, but will – the big risk is that it costs them more to do it.
  • International is also next on the docket with the hire of Charlie Maurath.
  • All in, it’s true that it faces a stiff competitor in Nike, but barriers to entry here are immense, and UA has already invested to jump that hurdle. Few others have.
  • In addition, UA has ~2x the Direct-to-Consumer exposure as Nike – that’s one of the benefits of building a business without a legacy wholesale model that’s dependant on dinosaur retailers to conform to its marketing plan.

Near-term TRADE duration (3-Weeks or Less) factors:

  • Our estimate is 7% ahead of the Street in the upcoming quarter reflecting strong sales trends and share gains in both apparel and footwear.
  • Apparel sales have continued to outpace the broader industry posting greater than 2pts of share gain quarter-to-date.
  • Meanwhile, footwear sales have reaccelerated since early June reflecting the early success of the new Spine platform and launch of UA’s new basketball line.
  • On the flip side, UA just lost its SVP/Sourcing, which is not good. Also, DKS writing off its investment in UK’s JJB is not great for UA’s int’l growth given the relationship between the two. We’re more concerned with perception than reality, but the facts can’t be ignored. When concerns are high, we’re buyers.

Idea Alert: UA - UA TTT


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