Innovations Will Keep This Apparel and Footwear Retailer Growing

Under Armour's shares went from around $6.20 per share in March 2009 to nearly $80.30 per share at the time of writing. The stock seems quite expensive because it is trading at around 28.20 times its EV/EBITDA, or earnings before interest, taxes, depreciation, and amortization. However, the business has kept growing at an impressive rate. One of the main factors driving the business growth is Under Armour's ability to innovate to keep up with fast-changing customer behavior.

Fantastic growth, driven by innovations
In the third quarter, Under Armour reported that its revenue increased by 26%, while diluted earnings per share rose to $0.68. The company believes that its business is growing at an industry-leading pace, and considering this was its 14th consecutive quarter with net revenue growth of more than 20%, they probably aren't wrong. The net revenue growth was driven primarily by product innovations and expansions, including the Storm and Charged Cotton platform and the introduction of ColdGear Infrared technology.

The ColdGear Infrared uses ceramic thermo-conductive inner coating to absorb and retain body heat, making users warm, while SpeedForm is based on the innovative idea of fit. Interestingly, these shoes were not made in normal footwear factories, but bra factories instead, where fit was considered one of the most important factors. Because of these innovations, Under Armour can place premium pricing on its products. 


Competitors also renovate themselves to stay ahead
In order to keep growing, Under Armour should keep innovating and staying ahead of its competitors. Nike , the global leader of athletic footwear and apparel, also relies on innovation to fuel business growth. For Nike, it always starts with the athlete. Its product innovation goals are to make athletes stronger, faster, and help them achieve new performance levels.

In the first quarter of fiscal 2014 the next generation of Flyknit, the Nike Free Flyknit, was introduced to the market. The Nike Free Flyknit combines both Flyknit and Free technology to create a "compression fit with free flexibility" to keep the foot in place all of the time.  In the sportswear category, the Nike Tech Pack new line of premium apparel was launched. The Tech Pack is designed to improve fit, comfort, and breathability for the consumer and it is expected to be a big growth driver for Nike's sportswear category in the future. The innovation in Footwear products could really move Nike's operating performance ahead, as Footwear was the biggest category of Nike's business. In the first quarter of fiscal 2014, Footwear generated nearly $4 billion in revenue, accounting for more than 57% of the company's total revenue.  

Another peer, Columbia Sportswear Company has also spent a lot of money on a major marketing campaign for its Omni-Freeze ZERO fabric. This fabric uses the industry's leading cooling technology and provides prolonged cooling for its users. This could be considered an important new franchise to complement the existing franchise innovations portfolio of Columbia Sportswear. Its fall 2014 product lines have been structured so that they were more reasonably priced to drive sales growth for the company.

The good news for investors is the recent increase in the company's quarterly dividend, from $0.22 per share to $0.25 per share. Thus, the dividend yield reaches 1.50%, higher than Nike's dividend yield at only 1.10%. Under Armour does not offer investors any dividends. 

My Foolish take
Under Armour's innovative abilities have enabled the company to win with consumers and enhance its powerful pricing model. According to Kevin A. Plank, its founder, chairman and CEO, the innovation agenda allow Under Armour to be the premium brand at retail destinations and helps separate the company from its competitors. Indeed, with its intense focus on bringing new and transformational products to the market, Under Armor should keep delivering significant growth in the future.

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The article Innovations Will Keep This Apparel and Footwear Retailer Growing originally appeared on Fool.com.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Nike and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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