Under Armour 2007 Annual Report Download - page 23

In addition, while a component of one of our key growth strategies is to increase floor space for our
products in retail stores, retailers have limited resources and floor space and we must compete with others to
develop relationships with them. Increased competition by existing and future competitors could result in
reductions in floor space in retail locations, reductions in sales or reductions in the prices of our products, and if
retailers earn greater margins from our competitors’ products, they may favor the display and sale of those
products. Our inability to compete successfully against our competitors and maintain our gross margin could
have a material adverse effect on our business, financial condition and results of operations.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse
of that technology could harm our ability to effectively operate our business.
Our ability to effectively manage and maintain our inventory and internal reports, and to ship products to
customers and invoice them on a timely basis depends significantly on our enterprise resource planning,
warehouse management, and other information systems. The failure of these systems to operate effectively or to
integrate with other systems, or a breach in security of these systems could cause delays in product fulfillment
and reduced efficiency of our operations, and it could require significant capital investments to remediate any
such failure, problem or breach. We cannot assure you that such events will not occur.
Our profitability may decline as a result of increasing pressure on margins.
Our industry is subject to significant pricing pressure caused by many factors, including intense
competition, consolidation in the retail industry, pressure from retailers to reduce the costs of products and
changes in consumer demand. These factors may cause us to reduce our prices to retailers and consumers, which
could cause our gross margin to decline if we are unable to offset price reductions with comparable reductions in
our operating costs. If our gross margin declines and we fail to sufficiently reduce our cost of goods sold or grow
our net revenues, our profitability will decline, and we could incur operating losses that we may be unable to
fund or sustain for extended periods of time, if at all. This could have a material adverse effect on our results of
operations, liquidity and financial condition.
A decline in sales to, or the loss of, one or more of our key customers could result in a material loss of
revenues and negatively impact our prospects for growth.
In 2007, approximately 33% of our net revenues were generated from sales to our two largest customers in
alphabetical order, Dick’s Sporting Goods and The Sports Authority. We currently do not enter into long-term
sales contracts with these or our other key customers, relying instead on our relationships with these customers
and on our position in the marketplace. As a result, we face the risk that one or more of these key customers may
not increase their business with us as we expect, or may significantly decrease their business with us or terminate
their relationship with us. The failure to increase our sales to these customers as we anticipate would have a
negative impact on our growth prospects and any decrease or loss of these key customers’ business could result
in a material decrease in our net revenues and net income.
Sales of performance athletic products may not continue to grow and this could adversely impact our
ability to grow our business.
We believe that continued growth in industry-wide sales of performance athletic products will be largely
dependent on consumers continuing to transition from traditional alternatives, such as basic cotton T-shirts, to
performance athletic products. If consumers are not convinced that these athletic products are a better choice than
traditional alternatives, growth in the industry and our business could be adversely affected. In addition, because
performance athletic products are often more expensive than traditional alternatives, consumers who are
convinced that these athletic products provide a better alternative may still not be convinced that they are worth
the extra cost. If industry-wide sales of performance athletic products do not grow, our ability to continue to
grow our business and our financial condition and results of operations could be materially adversely impacted.
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