Under Armour's Footwear Foray

The popular performance apparel maker will battle Nike and Adidas on the athletic shoe wall, hoping to transform itself in the process

by David Kiley

Walk into the Dick's Sporting Goods (DKS) in Brighton, Mich., and you come to an Under Armour (UA) display of shirts, shorts, hoodies, underwear, and socks. The display is about the same size as Nike's space, despite Nike (NKE) being 10 times the size of the Baltimore upstart. That's because when it comes to reaching 10- to 24-year-olds, Under Armour "performance" apparel—which wicks perspiration off the skin instead of absorbing it—draws more dollars at Dick's than Nike does. Nearby, though, an entire wall is devoted to footwear, the turf on which Nike and Adidas (ADSG.DE) dominate. Under Armour is nonexistent beyond baseball and football cleats, yet it is on that very formidable wall that Under Armour CEO Kevin Plank aims to grow the company.

On Feb. 3, Under Armour will run its first-ever Super Bowl ad for a cross-trainer sneaker it figures will start to challenge Nike, Adidas, Reebok, and New Balance in the heavily competitive athletic footwear category. The 60-second ad, for which the company is spending more than $5 million, features a computer-generated version of company spokesman "Big E" (former NFL player Eric Ogbogu). "This is a huge turning point for the Under Armour brand, and this is exactly the right venue to launch our first sneaker," says Steve Battista, vice-president of marketing.

Share Volatility

The ad plays to Under Armour's near cultlike following. It is a combination of live-action film and CGI. The first part of the ad features people working out in UA apparel and wearing one of the three versions of the new Prototype cross-trainer shoes. The settings, though, are cinematically shot warehouses and alleys, giving the ad a distinct video-game look even before the CGI effects come into play. Other athletes in the ad include the New York Giants' Brandon Jacobs, the San Francisco 49ers' Vernon Davis, and the Chicago Cubs' Alfonso Soriano.

Is Under Armour mad for challenging Nike and Adidas in sneakers? After all, Nike in particular can outspend UA 10 to 1 (BusinessWeek.com, 4/30/07) in advertising, not to mention its capacity to cut prices to push volume.

Its track record in apparel would suggest, however, that UA has an opening in the market. "We believe the company's growth prospects in the footwear product category are very strong," says John Shanley, analyst at Susquehanna Financial Group, which recently initiated coverage of the company with a "neutral" rating on the stock. Shanley says Under Armour is entering a treacherous category fiercely defended by the big players, which is a cloud that hangs over the company this year as he waits to see how the two bigger rivals respond. Still, Shanley points out, "Under Armour is one of the fastest growing and best differentiated brands in the athletic marketplace today."

Under Armour's Super Bowl debut comes just before it reports earnings and after a period of volatility for its shares. Earlier this month, the stock tumbled after the company said its first-half earnings for 2008 would come in below expectations, or about a nickel a share instead of the 40¢ analysts were expecting. That's because of the costs of launching the new sneakers. The stock tumbled to a 52-week low of $25 on Jan. 22, from more than $45. (In August, the stock traded above $73.) The shares have rebounded more than 30% since, and closed Jan. 29 at $36. The rebound comes, in part, on anticipation that UA's sneakers will score with its public.