Under Armour shoe entry has competitors on their guard

BALTIMORE —The countdown has struck 00:00:00 as the long awaited debut of Under Armour’s first shoe penetrated the athletic footwear market. The New Prototype is here.

With its slogan, “The future is ours,” Under Armour has stepped onto new territory with the performance trainers that cater to the entire family. In unveiling the new category offering on May 3, the retailers installed special fixtures and brought in extra sales staff. Dick’s Sporting Goods even orchestrated a “ladder drill” to show customers the benefits of the shoe.

Without a doubt, Under Armour hyped-up the release when it aired a 60-second Super Bowl spot and installed a countdown clock on its Web site. But the question now is: Will it pay off?

Overall, it’s expected that the UA trainer will bring in about $45 million in wholesale sales, which equals approximately 5% to 6% of the company’s overall revenue for this year, reported Vivian Ma, chief financial analyst at Oppenheimer & Co.

Under Armour announced that net revenues increased 26.6% to $157.3 million for the first quarter ended March 31.While apparel revenues rose 24.6% to $129.2 million, footwear revenues jumped 40.2% to $16.6 million, which can be attributed to a limited amount of Performance Training Footwear shipped during the quarter.

“We enter the next chapter of our growth story with the launch of our Performance Training footwear,” said Under Armour chairman and ceo Kevin Plank in a statement. “We have invested much to get us to the point of launching our footwear, and we must continue to invest if we are to realize the opportunities for growth in new categories and new regions.”

The company expects 2008 annual net revenues in the range of $765 million to $775 million, an increase of 26% to 28% over 2007.

Performance trainers will play a role in helping Under Armour bring in the dollars—mainly because including a footwear category also completes the brand as a whole, strengthening its entity. “They are deepening the relations with their core consumer by offering more categories, and this allows them to continue to explore the brand,” said Matt Powell, retail analyst at SportsOneSource.

Sure, competitors like Nike may release sneakers every few months, or so it seems, but the styles typically aim at a clique of sneaker aficionados. In fact, the athletic shoe giant just announced the July release of Nike Hyperdunk, the lightest basketball shoe on the market. Created in partnership with Kobe Bryant, this 13-ounce shoe is 18% lighter than the average Nike basketball shoe. To top it off, the Hyperdunk will be competing for gold in 32 sports during the Olympics in Beijing this summer.

That said, competing directly with the likes of Nike will not be easy. Just in the United States, Nike sold 125 million pairs of shoes last year. Under Armour’s New Prototype just reached the 1 million pair mark, said Powell. Clearly, Nike is not shaking in its sneakers—yet.

But analysts are taking notice of Under Armour, which happens to have the leading share in performance apparel. The New Prototype has received positive analyst reviews, with some even reporting that collector-type customers purchased the shoes without trying them on.

One of the strengths of performance trainers is that the model appeals to the entire family: mom, dad and kids of all ages. “The shoe will be popular. Under Armour has a tremendous franchise with the high school athlete,” said Powell. “This is really the first Under Armour shoe that kids can wear to school.”

Analysts at Deutsche Bank Equity Research also observed that the trainers sold at Dick’s Sporting Goods stores were “above their numbers,” which shows that customer response is pointing in a favorable direction. The release also mentioned that Under Armour plans to sell 1 million pairs of its training footwear this year.

So far it appears that the $90 model is the most popular. Simple deductions show that total sales can reach $90 million in 2008. Thus far, cross trainers represent about $14 million of the current inventory mix, 60% of which are planned for delivery by the end of June, reports Piper Jaffray & Co.

Upbeat reactions are good news to Under Armour’s retailer partners. In the case of Dick’s Sporting Goods, analysts believe that a warm reception to the trainers is an indication for positive comps this year.

According to a release from research analyst Michael Baker of Deutsche Bank Equity Research, in 2007 Dick’s share of Under Armour was 19.9%. “Using that same share would imply that [Dick’s] would generate $18 million in sales from the footwear, which would equate to a comp of 0.5% on the 2007 sales base …We also expect the comp benefit to build through the year as [Under Armour] has only shipped about 10% of its units at this point.”

All is not perfect, however. The cross-trainer segment has been on a decline for about 10 years, said Powell, and sales for last year were flat, compared to the previous year. “Kids today want unique sneakers,” he added. “They want products that their friends don’t have. Consequently, they are gravitating to low-tech, athletic lifestyle shoes.”

Since footwear categories go in and out of fashion, sport-specific footwear like training and basketball shoes are easily replaced by casual-wear kicks. The trend is also correlated to a more distinct separation between sports apparel and fashion apparel. As a result, brands like Puma, Converse and adidas take away from the market share.

The cross-trainer category only amounts to $250 million in annual sales in a $19 billion footwear industry. For the sake of the trainers, lets hope Under Armour lives up to the hype.