Under Armour 2007 Annual Report Download - page 37

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in this section should be read in conjunction with our consolidated financial
statements and related notes and the information contained elsewhere in this Form 10-K under the captions
“Risk Factors,” “Selected Financial Data,” and “Business.”
Overview
We are a leading developer, marketer and distributor of branded performance apparel, footwear and
accessories for men, women and youth. Since our incorporation in 1996, we have grown and reinforced our
brand name and image through sales to athletes and teams at all levels, from youth to professional, as well as
through sales to consumers with active lifestyles around the globe. We believe that Under Armour is a widely
recognized athletic brand known as a performance alternative to traditional natural fiber products.
Our net revenues have grown to $606.6 million in 2007 from $115.4 million in 2003. We believe that our
growth in net revenues has been driven by a growing interest in performance products and the strength of the
Under Armour brand in the marketplace relative to our competitors, as evidenced by the increases in sales of our
men’s, women’s and youth apparel products, footwear and accessories.
We plan to continue to increase our net revenues by building upon our relationships with existing customers,
expanding our product offerings in new and existing retail stores, offering new products and building our brand
internationally. In recent years, we expanded our product offerings to include cleated footwear and additional
men’s and women’s performance products as well as additional products for off-field outdoor sports, including
hunting, fishing, running, mountain sports, skiing and golf. New product offerings in 2008 will include
non-cleated footwear, with the introduction of performance training footwear in May 2008. As we have expanded
into new product lines, sales of our existing product lines have continued to grow.
To date, a large majority of our products have been sold in North America; however we believe that our
products appeal to athletes and consumers with active lifestyles around the globe. As early as 1999, the Under
Armour brand has been sold in the Japanese market place through a third-party. Our products are also offered in
the United Kingdom, France and Germany. Overall, our products are offered in approximately 15,000 retail
stores worldwide. In addition, we have signed strategic distribution agreements to sell our products in Australia,
Benelux, Italy, New Zealand, Panama, Scandinavia and Spain. We plan to increase net revenues internationally
by adding product offerings through our Japanese licensee and by expanding our European distribution. In order
to support this initiative, during 2006 we opened a European Headquarters in Amsterdam, The Netherlands that
houses our European sales, marketing and logistics functions.
Our license revenues have grown to $24.0 million in 2007 from $1.7 million in 2003. We have entered into
licensing agreements with established, high-quality manufacturers to produce and distribute Under Armour
branded products to further reinforce our brand identity and increase our net revenues and gross profit. In
exchange for the use of our trademarks, our licensees pay us license revenues based on their net sales of core
products of socks, hats, bags, watches, eyewear, and other accessories. We seek to continue to grow our license
revenues by working with our existing licensees to offer additional products and increase their distribution, and
by selectively entering into new licensing agreements.
We believe there is an increasing recognition of the health benefits of an active lifestyle. We believe this
trend provides us with an expanding consumer base for our products. We also believe there is a continuing shift
in consumer demand from basic cotton products to performance products such as those we offer, which are
intended to provide better performance by wicking perspiration away from the skin, helping to regulate body
temperature and enhancing comfort. We believe that these shifts in consumer preferences and lifestyles are not
unique to the United States, but are occurring in a number of markets globally, thereby increasing our
opportunities to introduce our performance products to new consumers.
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