Editor's Note: This is an edited excerpt from a research note sent out earlier this morning by our Retail team. Click here for more information on how you can subscribe to Hedgeye research.
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Under Armour has struck gold in the first 4+ months of 2015.
Stephen Curry? Nails all year long. That ultimately culminated in his MVP award announced yesterday. From overlooked college recruit to NBA's Most Valuable Player.
Add to that 21-year-old Jordan Spieth's record-breaking first major victory at Augusta last month...
And don't forget Tom Brady's win at the Super Bowl in February...
It makes sense why Under Armour Founder/CEO Kevin Plank dedicated a significant amount of real estate to the company's athletes roster during the last conference call.
But, that's been expensive for UA as endorsements as a percentage of sales climbed around 400 basis points over the past two years with the top line growing at an average of 30%.
If there’s any real takeaway here it’s that as UA grows and succeeds in its own right, it is competing increasingly against the big boys (NKE, Adidas, Reebok, Puma) for marketable talent. It has a great advantage in that the brand is so hot, authentic and relevant. But those factors do not trump the economics associated with a higher ante-chip for sponsorship deals.
We can see what’s coming on the cost side, now we just need the revenue to follow. It’ll probably come. But anyone looking for margins to go up might be in for a surprise.