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Under ArmourNYSE: UA

Porter’s Five Forces

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Porter’s Five Forces is a model named after Michael E. Porter that takes into consideration five market forces that play out on any given company or industry. The five forces are: power of buyers; power of suppliers; threat of substitutes; threat of new entrants; and industry jockeying.

This model examines these forces thereby helping to determine a given company’s strengths and weaknesses.

Porter’s Five Forces is also a way to view the potential risks to which any given company may be exposed.

Porter’s is a valuable yet somewhat subjective tool. It is a starting point meant to encourage further discussion.

What is Porter’s Five Forces?

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Please note there is no official method to score the model. This method is simply a way to further categorize companies.

Each market force is scored on a scale of 1 – 5 with 1 representing the lowest threat and 5 representing the highest threat.

All five forces are totaled for a final score. The lowest possible score is 5 and the highest possible score is 25.

5 – 11 implies a lower threat rating.12 – 19 implies a medium threat rating.20 – 25 implies a higher threat rating.

Scoring

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Power of Buyers The buyers in the case of UA are consumers

like you and me. Professional athletes are advertising. They get

the gear out there for us to see. Athletic gear/apparel/footwear is a $200

billion-plus market opportunity. It’s a mistake to underestimate brand power.

Look at what Nike has built over the past 50 years.

Consumers will often pay for what they really want.

UA’s expanding gross margin over time helps to substantiate this.

Score - 3

5

Power of Suppliers Suppliers are those that supply the materials

and produce the goods UA sells. Per the company’s 10-K: “In 2013,

approximately 50% to 55% of the fabric used in our products came from six suppliers.”

“[I]n 2013, fourteen manufacturers produced approximately 65% of our products.”

Approximately 66% of UA products are manufactured in Asia.

UA appears to be well-diversified, however exposure to emerging economies will quite possibly result in higher costs of production via wages, etc. down the line.

Score - 2

6

Threat of Substitutes One of the greatest threats in virtually every

walk of retail is the threat of substitutes. Generally speaking there are plenty of

substitutes in athletic apparel/equipment. Materials and products exclusive to the brand

help to mitigate this threat. Moisture wicking products, Storm Fleece,

ColdGear Infrared, these are types of products that will continue to separate UA from its competition.

Competition will continue to keep pace for the most part so innovation will be key.

Score - 4

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Threat of New Entrants I’m sure back in 1996 when UA was just

getting started in Kevin Plank’s grandmother’s basement that Nike management more or less dismissed it as a concern.

The UA story is a unique one and certainly very levered to the phenomenal leadership of Kevin Plank.

Barriers to entry are tame in comparison to energy or tech for example. No real regulatory concerns either.

What happens if Plank leaves? Leadership is crucial to the UA story.

Score - 4

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Industry Jockeying How competitive is this industry in general? Signs of an active and competitive industry

can be seen in innovation, SG&A costs, social media presence, etc.

Nike and UA maintain similar levels of R&D and SG&A as a percentage of revenue.

Constantly signing new athletes and endorsements. For a while Nike was the big name in the space, however UA has made a name for itself in a short amount of time.

Given the global nature of sports and their popularity, this industry should remain very competitive for the foreseeable future.

Score - 5

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Power of Buyers – 3 Power of Suppliers – 2 Threat of Substitutes – 4 Threat of New Entrants – 4 Industry Jockeying – 5

TOTAL – 18

Score