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Financial forecasting: Under Armour versus Nike

This is an excerpt from Sport Finance 5th Edition With HKPropel Access by Gil B. Fried,Timothy D. DeSchriver & Michael Mondello.

Under Armour (UA) forecasted that by 2018 it would have $7.5 billion in revenue with $800 million in earnings before interest and taxes (EBIT). Such a lofty projection was reduced in late 2016 when Wall Street analysts anticipated that the company’s profits would only increase 20% rather than the projected 28% to 30%. EBIT rose 28% in the third quarter of 2016, but revenue only rose 22%. While such strong revenue numbers would be great for any company, they were not great for UA, which had such strong prior growth that this amount (which surpassed expectations) was not good enough for the future. Investors avoided the company, and the stock tumbled 13% in one day and declined 30% over a six-month period in 2016 (Snider, 2016). Investors were hoping for stronger returns, and the decline in growth worried investors. The company’s chief executive officer, Kevin Plank, acknowledged numerous challenges and disruptions and even replaced the company’s chief financial officer (CFO) in early 2017 with a new CFO (Bomey, 2017). In 2017 the 2016 numbers came in, showing that revenue was up 22% to $4.83 billion and the projections for 2017 decreased to only 11% to 12% growth, reaching nearly $5.4 billion. Operating income was also projected to decrease from $420 million in 2016 to $320 million in 2017 (Bomey, 2017). By the end of 2019 revenue was $5.27 billion, then declined to $4.47 billion because of the pandemic, and then started going up to around $5.7 billion for 2021 and 2022. EBIT had varied over the last couple years, at $231 million in 2019 and then dropping to a negative $445 million in 2020. Things rebounded in 2021, with EBIT reaching $526 million in 2021 and then dropping to around $423 million in 2022. During this window, UA stocks went on a roller coaster. The stock price reached a high of $22.38 in October 2018. By March 2020 shares were selling for $8.06. In late 2020 shares were trading around $12.00 each and over the next year at times flirted with the $20 range. Then in April 2022 shares dropped down to under $10 per share. In January 2023 shares were going for around $10.50 each (Yahoo Finance, 2023). Thus, if someone invested in UA shares when the last edition of this text was written in 2019, they possibly lost over half their value in UA shares. Obviously, this is not what investors nor the financial executives of UA expected.

Part of the decline around 2017 was based on bad performance associated with Stephen Curry, because his shoes did not sell as well as expected. To much fanfare, UA won Curry away from Nike in 2013. Nike had paid him $4 million a year, and UA was willing to pay around the same amount, but Curry felt UA offered a greater opportunity. Steph Curry’s UA line of SC30 shoes was selling for $139.99 a pair. In contrast, Nike sells Michael Jordan’s Air Jordan shoes for $185 a pair. In 2023 UA was still selling various Stephen Curry–related shoes.

One of the major expenses for a shoe or apparel company is sponsorship deals. UA had entered into the largest sponsorship deal in the history of college sport when it signed UCLA to a 15-year contract for $280 million in 2016 (Monroe, 2016). The COVID-19 pandemic cause a rapid downward spiral. By late 2020 things were not going well on the sponsorship front, and UA was canceling or negotiating their way out of deals such as the UCLA deal and less expensive deals at UC Berkeley and University of Cincinnati (Roberts, 2020).

The cost to grow a company can also represent a significant investment. Building a company costs a lot of money, but when changing or growing a business, expenses can skyrocket. UA was interested in moving from downtown Baltimore to another part of the city with a UA-planned 50-city-block development. The development was meant to highlight Baltimore and was more than a corporate office but a planned community with 7,500 housing units, a hotel, a shopping center, and even two light rail stops. Such an ambitious plan was not without detractors, both in the political and financial world. For example, the development was seeking $1.1 billion in support from local, state, and federal government agencies including $535 in tax increment financing from the city of Baltimore (Monroe, 2016). During planning meetings, members of the city’s Urban Design and Architecture Review Panel were impressed with the proposed project’s bling, such as a whiskey distillery, but there were no post offices, fire stations, libraries, or schools. These deficiencies were corrected in a subsequent plan. While UA was trying to receive significant city funding to help build the community, such a massive project exposed the company to significant financial risks. The financial forecast for such a project had to include real estate markets and lending markets, and it had to maintain certain financial costs and projections. By 2022 UA’s envisioned project was moving slowly. There was still talk about building a regulation field, but the grand plans had been altered by the reality of financial conditions (Lynch, 2022).

At the same time, UA was pursuing other initiatives. Technology was another key investment strategy pursued by UA. It spent $150 million on exercise app MapMyFitness in 2013, $475 million for MyFitnessApp in 2014, and $85 million for Endomondo in 2015—a European fitness app (Olson, 2015). This resulted in an investment of almost $1 billion on apps, and two of the three companies were not profitable (Foster, 2016). Morningstar retail analyst Paul Swinand felt such an investment for UA was very risky (Foster, 2016). UA was hoping to leverage the information from 150 million fitness app users to help design better products for them (Foster, 2016). This included the fact that more than 60% of connected fitness users are women, while only 30% of UA sales were to women. Furthermore, while only 11% of UA sales were international, 35% of those using fitness apps owned by UA were from outside the United States (Foster, 2016). Thus, it was hoped that purchasing these apps would help UA grow revenue from sales to women international customers. Through building more e-commerce into its apps, UA was hoping to leverage the fact that fitness enthusiasts purchase more right after a workout, and UA orders from app users were 26% higher than purchases from other options (Foster, 2016).

It was expected in 2015 that mobile health apps and gadgets would hit sales of $120 billion by 2020 (Olson, 2015), and 2015 sales had 45.7 million units sold with an estimate that 126.1 million units would be sold by 2019. Wristwear was expected to slightly drop in its dominance (from 89% to 80%), and smart clothing was expected to grow from less than 1% of all such tech sales to 4% (Olson, 2015). Those numbers are across the entire industry, and UA was hoping to take a big chunk of that market. However, sales were not as strong for the wristwear and related tech market. For example, Apple faced disappointing sales of its Apple Watch (three to four million units by 2015) (Olson, 2015). This investment represented a significant amount of cash and was not viewed favorably by some analysts. That skepticism panned out. Some apps have failed to take off while others have taken their place. UA was still offering various apps in 2023 including MapMyRun, UA HealthBox, and Total Fitness UA, all of which were available on various App stores.

Personnel is another big issue. In 2016 UA had a quarter of a million people making something associated with the brand. Kevin Plank was expecting that to increase by another 200,000 by 2019 (Monroe, 2016). Having so many employees (including mostly contractors working with third-party manufacturers) might sound impressive, but it creates a significant financial drain in terms of salaries, benefits, office space, human resources departments, and so on. Total direct UA employees has varied in the early 2020s. Some reports showed significant changes in employment numbers, while UA’s annual report at the end of 2021 showed around 17,500 employees. Employee fluctuation can put significant stress on companies, on issues ranging from parking spaces, offices, works areas, health care, unemployment insurance, workers’ compensation, benefits, and numerous other variables.

UA tried to be as cutting edge as possible. It entered into a partnership with DuPont to custom design and manufacture a midsole that made the shoe partially a 3D-printed shoe and could reinvent UA’s supply chain (Monroe, 2016). These innovative options are possibly great opportunities, but they can also represent major financial risks if they do not generate significant sales. This is where break-even analysis comes into play.

Words used throughout this analysis have included hoped, could, and possible. UA had numerous aspirational statements and thoughts. Reality is different, though, and that is why forecasting is so critical. Everyone hopes for the best and paints a rosy picture of the future, but that often does not materialize. Proper planning can help reduce some potential bumps in a company’s financial road, but companies will always experience hurdles, and the hallmark of a great leader is the ability to act when financial pressures arise.


Nike has been the biggest player in the sports shoe and apparel industry for a number of years. Its shares increased over 505% from 2006 through the end of 2015 (Lashinsky, 2015). Nike’s profits in 2015 totaled $3 billion—or 11% of sales. Nike’s growth since 2008 has been fueled by its adoption of an approach called category offense, where Nike divides the world into categories of sporting endeavors (e.g., golf, basketball, soccer) rather than geographic regions (Lashinsky, 2015). Also, due to its significant presence in some shopping areas, such as being in two or three stores in the same mall, Nike decided that some stores with a focus would not sell other Nike products, so maybe only one or two stores in a mall would sell basketball shoes while others would specialize in soccer or running shoes. This approach increased Nike sales in English malls by nearly 20% (Lashinsky, 2015). Nike, similar to other retailers, suffered through some rough times during and after the pandemic. The company closed several key stores in New York and Seattle in late 2022 and early 2023, some of which were based on lower sales or lack of foot traffic, but the store in downtown Seattle was supposedly due to something completely outside of Nike’s control—local crime that drove out other retailers as well (Rumpf, 2023).

Similar to UA, Nike developed a wearable technology product, which it called a FuelBand, but it discontinued the product after disappointing sales. The FuelBand was released in 2012 and discontinued in 2014 (Statt, 2014).

Similar to UA, Nike has its own well-established corporate campus—394 acres in Oregon—and has been there for years. Nike spent the past couple of years changing how it markets products and, for example, has cut print and TV advertising by 40% and shifted that spending to advertising on digital platforms. This resulted in expecting $7 billion in sales by 2020, up from $1 billion in 2015. Such an increase has to be pursued very carefully because such a huge chunk of business being taken away from retail establishments selling Nike products can backfire on Nike (Lashinsky, 2015). If Nike sells more shoes and apparel directly online, that might increase sales, but it can also harm the sale of Nike in mall stores, which purchase a significant number of items from Nike to resell to consumers.

Similar to UA, Nike has faced challenges. The company reported $13.3 billion in second-quarter 2022 revenue; total 2022 revenue was $46.7 billion compared with $44.5 billion in 2021, $37.4 billion in 2020, and $39.1 billion in 2019. That represented a 17% increase from the same period in 2021. While total revenue was up, net income was flat at $1.3 billion. The revenues for the Nike brand increased 18% year over year to $12.7 billion, while revenues for the Converse brand grew only 5% to $586 million. Nike purchased Converse in 2003.

Some additional highlights from the report include the following:

  • Revenue in North America increased 30% to $5.8 billion.
  • China sales declined 3% to $1.8 billion.
  • In other parts of the world (Europe, the Middle East, and Africa), revenue increased 11% to $3.5 billion, and sales in Asia Pacific and Latin America increased a solid 19% to $1.6 billion.
  • While revenues were up, inventories were also up at $9.3 billion, an increase of 43% compared to 2021. The increase in inventories were attributed to continued supply chain and higher input costs. One major area of concern was inventories in North America, which were up 65% from 2021 to 2022 (Front Office Sports, 2022).

While UA and Nike have pursued different growth strategies requiring different financial strategies, Nike has shown significantly more stability, with its stock price remaining between $50 and $65 per share over the 2016 to 2018 time frame and near the 53-week high at the end of 2017 ($62.50 per share). Share prices fluctuated in 2018 with the launch of the Colin Kaepernick advertisement and with Nike not meeting the high sales expectations set by analysis. The most striking difference is how stock prices of the two companies have responded so differently in the same market segment. Nike rose from around $68 per share in January 2018 to around $125 per share in January 2023. Thus, an investor would have doubled their money if they invested in Nike over the five-year period. In contrast, UA was selling for around $13.75 in January 2018 and for $10.25 in January 2023. An investor would have lost close to 25% of their investment value if they had invested in UA in this same five-year period. This example helps highlight how financial strategies from two different large shoe and apparel companies have resulted in significantly different results and different returns for investors.

More Excerpts From Sport Finance 5th Edition With HKPropel Access