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Takeaway: Here’s a look at one of the short ideas from the call, courtesy of our Retail team.

SHORT Under Armour (UA)/Retail – Brian McGough

Brian recently came down on the short side of Under Armour, Inc. (UA) a leading sports apparel company.  Brian says the brand “came out of nowhere” and now owns a 12% market share in sports apparel – flanked by Adidas (8%) and Nike (25%).  Brian says UA has “done a great job,” but the perception  driving stock price now is at odds with reality. 

The company describes itself as a designer, developer and distributor of “apparel, footwear and accessories for men, women and youth worldwide.”  Brian says they really dominate one segment: males ages 12-30 in the US.  To get to the next level, UA needs to grow, and McGough cautions there are challenges the market does not recognize.

Growing this business will be expensive.  Very expensive.  And as UA spends to grow, a gap will quickly open between their growth rate and their operating profit.  Brian says when the market recognizes this, there will be a significant move to the downside.

Brian points out that UA’s core consumer will buy apparel associated with any sport.  And men in the 12-30 age group are notoriously not finicky shoppers.  They want to get in, get their shoes, Ts and sweats, and get out.  UA can sell just about anything, just about anywhere.  But to really grow, UA needs to succeed in two markets: international, and women.

The international market is focused on one sport: soccer, a market dominated by Adidas and Reebok which between them have over 90% share.  It will be difficult and expensive to break into this market, and the takings are likely to be extremely small.  And, says, McGough, the “killer” is that, after five successful years, UA still doesn’t even have 1% of the domestic footwear market.  How will they stand up to these established global footwear giants when they try to expand overseas?

The female consumer is very different from the male.  Men hate shopping.  Women connect to shopping.  Women shop preferred locations.  They look for store ambience – compare the inside of a Lululemon with Dick’s Sporting Goods.  And women look for fit and fashion, not just comfort, even in athletic wear.

McGough thinks the company has a capital problem which will become evident as they spend more to push sales growth. 

One final word of caution: Brian thinks the company has orchestrated very good looking quarterly comparisons.  He would definitely not be short the stock with an earnings report due out soon.  But once that report hits the tape, he thinks the game will change significantly for UA, and the rest of the year will be very tough for them.