Olympic skier Lindsey Vonn appears in a promotional image for… (Handout photo - Under Armour )
Under Armour's first foray into cotton will be a $25 T-shirt that it plans to begin shipping to stores in February.
The Baltimore sports apparel company built its business on performance wear geared toward the hardcore athlete, but is now developing a new venture with the material it once deemed the "enemy."
"We've built a $1 billion foundation without cotton to date," Under Armour founder Kevin Plank told analysts during a quarterly earnings conference call Thursday. "This is a whole new category for Under Armour that makes us relevant to a whole new consumer. In addition, it makes us relevant to the consumer that we already have in just a different way."
Plank says now that it wasn't necessarily cotton the company was adverse to but the fact that the material could become so heavy with sweat. Under Armour's cotton shirt will still have the same "sweat wicking" qualities of its compression and performance wear, drying five times faster than the average cotton shirt, he said.
Under Armour also disclosed on Thursday new details on its plan to buy the Tide Point office complex in South Baltimore to turn into a corporate campus. The company is paying $60.5 million for the waterfront property, where it already occupies nearly half the development. Company executives said the purchase won't negatively impact cash flow and earnings.
Analysts said the cotton line will help the company broaden its customer base. Compression wear is a $2 billion to $3 billion market, while athletic cotton wear is a $12 billion market, according to UBS Investment Bank.
"The brand is extremely strong, and cotton is a huge opportunity," said Michael Binetti, an apparel and footwear equity analyst for UBS. "There is this big white space for which they have no product."
Reed Anderson, an analyst with D.A. Davidson & Co., said: "It's a continuation of a theme of Under Armour to bring in new products and innovation that broadens their portfolio."
The cotton line contains alternating hydrophilic moisture absorbing thread and hydrophobic moisture repelling thread so that it pushes out sweat when it comes in contact with the product, the company said.
"While Under Armour may have said cotton was the enemy, it certainly wasn't the enemy of our consumer," Plank said.
Plank also talked about the company's decision to buy Tide Point and its need to create a campus headquarters.
"As we expand the Under Armour brand on a global basis, we believe it's critical that our headquarters define our culture and provide a center of energy and inspiration for our team here and abroad," Plank said. "So, we're investing in our growth, investing in our hometown and are ensuring that we can create a world-class headquarters that will help attract the best and brightest as we move into this next phase of growth."
Company officials signaled they got a good deal on Tide Point because of the glut in the real estate market. The company is still working through the financing for the purchase, expected to close in 60 to 90 days. The $60.5 million price tag was considerably less than the $102 million the owners were asking for the former Procter and Gamble plant when it was on the market in 2008.
"This transaction will give us greater control over the development and expansion of our corporate headquarters as our business continues to grow," said Brad Dickerson, Under Armour chief financial officer. "From a financial standpoint, we believe the real estate market is favorable and expect the deal to have minimal impact on cash flow, both from a purchase perspective and on a go-forward operational basis."
Binetti, the UBS analyst, said he didn't have concerns about the multi-million dollar real estate deal, noting that company officials simply decided "to stop paying rent to other people."
The company also raised its sales forecast for the year, saying it expects 2011 sales in the range of $1.33 billion to $1.35 billion, a 25 percent to 27 percent increase from last year.
The company reported fourth-quarter net income of $22.9 million, or 44 cents per share, compared to $15.2 million, or 30 cents per share, for the same period last year.
Sales increased 36 percent to $301 million, compared with $222 million for the fourth quarter last year. The company crossed the billion-dollar sales threshold last year when sales increased 24 percent to $1.06 billion for all of 2010.