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27 JULY 2009


If I hear one more person tell me that Under Armour is too expensive, I’m going to scream. I’m not even going to rehash the consensus short case headed into the quarter as well as my rebuttal (see the half dozen notes I’ve written on this over the past few weeks), but would encourage those ‘valuation shorts’ to drill down what the really appropriate metric is for UA.  29x earnings and 11x EBITDA. Yes, scary at face value. But who are you going to compare this to? Abercrombie??? Coach???? Dick’s???  I’ll take that comparison, as well as just about any other in the entire Consumer space. But we need to consider the total addressable market size.  These are companies that are so much further down the market share penetration curve than UA that it’s almost ridiculous to make the comparison.  We’ve got to factor growth into the equation here.  We sliced and diced the addressable market for 18 different consumer names, and no one comes close to how cheap UA is on an Enterprise Value to Total Addressable Market ratio.  In fact, with UA at 1.4% we’re looking at a median closer to 5% for the names people traditionally view as peers.

Also, unlike many of these other companies – UA actually has a plan on how to tap this market.

Yes, this will spur plenty of hate mail from people that don’t like the story here (and there are plenty of them), but my challenge is this… Find me a real company in the Consumer space that is cheaper than UA relative to the addressable market that the company is proactively planning to capture.

UA: I’m issuing a challenge…. - table for post



Some Notable Call Outs

  • Beginning on Friday and lasting through Sunday, off-pricer Ruelala.com hosted its first Lululemon sale. While on the surface it may seem alarming that LULU is clearing goods through an online retailer other than its own site, it is important to keep this in perspective. The limited time event offered a total of 61 items, ranging from gym bags to pants. The items were mostly priced at 50% off original retail prices and it appeared that at least half of the items were sold out within an hour of the beginning of the sale. Given the growing list of prominent and premium brands taking advantage of this new channel for disposition of goods, we wouldn’t be surprised to see more events in the future. Furthermore, the ability to have a direct relationship with the customer via ecommerce offers great insight not previously available in a physical outlet or warehouse sale setting.
  • Back to school season is just beginning and the marketplace for computers already appears extremely competitive. Over the weekend on its blog, Wal-Mart advertised the first sub $300 laptop for the key back to school season. The model made by Compaq is full-sized (not a netbook) with a 160GB hard drive and 3GB of RAM. A quick check on Sunday night indicated the item is already sold out online after just one day. With the season still early and less competition in the electronics space, we’ll watch pricing very carefully for signs of what may also be a very promotional holiday season. With netbooks offering less features but at a more compelling price, we wonder if this is the first sign of price compression in the traditional notebook category beyond normalized deflation.


- Report on global high-end luxury market - The worst has become to an end in the global high-end luxury market, according to the Italian luxury association Altagamma.  "There're signs, in June and July, that show a significant improvement," said Santo Versace, president of Altagamma. Greater China, the Middle East and Latin America are showing signs of slight growth while the US were still seen a downward trend in July, Versace said.  Altagamma also expects the world's $249 billion fashion industry's earnings before interest, taxes, depreciation and amortisation to drop by 21% in 2009. <fashionnetasia.com>

- US clothing retailers are hoping to raise their bottom line by expanding their offering of accessories - Gap Inc launched the first accessories-only Edition under Banana Republic in May while Henri Bendel is expanding its offerings this summer with six new 2,000 sq ft accessories stores. Casualwear retailer J.Crew opened its first accessories boutique in New York last month and will release its third accessories catalogue. Accessories accounted for around $165 million last year, or 12% of its sales, almost double the amount in 2004. Jewellery and bags can yield as much as double the 40% profit margins of apparel, according to the international press, because they take up less space and have more of a timeless appeal. Women's accessories sales by unit for the three months ended April 30 were up 2% from a year earlier, according to market research company NPD Group. <fashionnetasia.com>

- US ban on imports from Burma has been renewed for three years - The American Apparel & Footwear Association (AAFA) has urged both chambers of the US Congress to promptly renew the Burmese Freedom and Democracy Act of 2003. The US ban on imports from Burma has been renewed for three years last week and the legislation is awaiting the White House's signature. "The US apparel and footwear industry strongly stands behind the commitment the US made in support of human rights," said AAFA president and CEO Kevin Burke. "These sanctions are justified by the countless atrocities committed against the Burmese people everyday." He continued: "Eliminating oppression from the world market must be a multilateral effort... The global community must join together and implement global sanctions to demonstrate that oppression will not be tolerated in the global marketplace."  <fashionnetasia.com>

- The Great Retail Rationalization of the Great Recession - And even though the economy already has forced retailers to take a scalpel — or a meat cleaver — to their store portfolios, there’s still plenty of excess to cut. There is currently 46.6 square feet of retail space for every man, woman and child in the country, an increase of 14.2% since 1990, according to CoStar Group. A few retailers are continuing to grow. Buckle Inc. plans to open 21 stores this year and Kohl’s Corp. is cutting the ribbon on 56 new outposts this fall. But that expansion largely comes at the expense of fallen nameplates or with the help of landlords who want to keep their malls filled. The days of unfettered expansion are over. Per capita retail space is down slightly from a year ago, the first decline since 2000. And the pullback is expected to continue. As of April, retailers were on track to close 4,600 doors this year, according to a report from the International Council of Shopping Centers. That’s on top of 6,913 closures last year.  <wwd.com/business-news>

- Several designer jewelry firms win lawsuit - Several designer jewelry firms won an apology and “substantial” cash settlement last week from an online jeweler who used the phrase “inspired by” alongside the jewelry brands’ names in its marketing. Under the terms of an agreement revealed July 24, Overstockjeweler.com and its president, Elena Castaneda, promised not to use the trademarked designs of David Yurman, Cartier, Van Cleef & Arpels, Bulgari and Gucci in the future and apologized for the harm its unauthorized wares had already caused the companies. The plaintiffs said the settlement also included a “substantial cash component,” which wasn’t disclosed. The U.S. District Court in Manhattan issued a permanent consent injunction against Overstockjeweler.com on July 9, barring the Web site from further infringements. The jewelers filed two separate lawsuits against the Web site in 2007, which the court eventually consolidated into one case. They accused the site of copying various trademarked designs and selling them as “inspired by” or “replicas of,” among other allegations. On Friday, the site’s homepage included jewelry identified as “Tiffany inspired.”  <wwd.com/business-news>

- Insight into the sneaker retail business - For owner Farshad Arshid, opening his Standard sneakerhead boutique in Atlanta was a return to retail. Today, the stores stock footwear, apparel and accessories, with 40 percent to 45 percent of the business done in shoes. This time, being back in retail is a labor of love, Arshid said. “We’re fans of this stuff. We wear it ourselves.” THE RIGHT MIX: Standard stocks sneaker favorites such as Nike, Vans, Puma, Alife and DC. PROMOTIONAL STRATEGIES: The store’s Website gets 2,000 to 3,000 unique hits a day, and both the store and its staff are on Twitter — Arshid also likes to reach out the old-fashioned way. There are 3,000 clients on Standard’s direct-mail list, and cross-promotions with other local stores draw new ones. In addition, Arshid leverages his connections in music to bring new artists and DJs into the stores. And even in price-conscious times, Arshid said he is trying to limit how often he goes on sale. FACING CHALLENGES:  If sales are down in the 10-to-15 percent range, he said, they will count themselves lucky. Their dollars-per-ticket has dropped tremendously. They work twice as hard to make the same sale. <wwd.com/footwear-news>

- Prints by artist Alexander Girard will hit retail for the first time - The artwork moves from museum walls to a home collection this month at Urban Outfitters, in partnership with máXimo: art & research. Alexander Girard for Urban Outfitters, manufactured by The Millwork Group, features printed bed linens, pillows, drapery, shower curtains and wall art. The line includes prints from original Girard works such as Alphabet, Multiform, Eden, Loveheart and Moon with Flag. máXimo: art & research is the agent to the Estate of Alexander Girard. Besides Girard, the Los Angeles-based Millwork Group's other licenses include Robert Crowder Collection and Christopher Bettig/The Mountain Label. The home textile company also plans to announce a new license with a world-renowned pop artist. <licensemag.com>

- A pop-up art gallery featuring the fall's Gap Red Artist Edition T-shirt Collection - The exclusive T-shirt designs for men and women are produced by various established and up-and-coming artists, including James Jean, Deanne Cheuk, Stine Persson and others. The exclusive designs are available for $28 at the gallery, as well as at Gap stores nationwide, gap.com and the Whitney Museum of American Art in New York City. The line is in partnership with Red, where 50 percent of profits sold go toward the Global Fund to help eliminate AIDS in Africa. The pop-up art gallery, which will close on Aug. 30, will also feature original works of art from featured T-shirt artists, including paintings, sculptures and sketches. <licensemag.com>

- It took a harsh economic downturn to teach apparel exporter R. Sivaram what works and what doesn’t in Indian retail - When his Royal Classic Mills Pvt. Ltd, a company based in the Tamil Nadu textile town of Tirupur, rolled out its first store in 2005, the domestic retail sector was growing and many exporters were eyeing a share of the market. Four years later he is rethinking its domestic business model. In June 2008, Royal Classic shut its flagship store on Brigade Road, a Bangalore high street, where it was paying a monthly rental of Rs1 lakh. Since then, Royal Classic has shut nearly 10 stores in other cities, relocating from shopping malls and premium locations to cheaper areas. Exporters who have already got into retail don’t have a choice, but no one would get into the business now. <livemint.com>

RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): UA

07/24/2009 09:47 AM


After an awful downgrade by Sterne Agee, the stock is up +17% in less than 2-weeks. I'll sell here and buy it back on a down move. McGough continues to be the bull. KM


WEYS: John Florsheim, President & COO, sold 24,054shs ($577k) after exercising the right to buy 24,054shs less than 10% of common holdings.


UA: I’m issuing a challenge…. - SV 7 27 09