Under Armour Inc. is acquiring two companies that make fitness apps for $560 million as it works to build what it calls the world's largest online health and fitness community.
After making significant moves in the digital fitness arena last year, the Baltimore-based sports-apparel brand announced the two deals Wednesday as it released fourth-quarter results that showed soaring sales and profits.
Under Armour said that it is buying San Francisco-based MyFitnessPal for $475 million and that it had acquired Endomondo, based in Copenhagen, Denmark, for $85 million last month.
With the users Under Armour picked up in late 2013 with its acquisition of the MapMyFitness app, the company says its online health and fitness community now has more than 120 million global participants.
"This investment will enable us to better anticipate our consumers' needs and build brand loyalty by helping consumers … lead a healthy life," CEO Kevin Plank said during a conference call Wednesday with analysts. "The more someone exercises, the more they work out, the more apparel and footwear they are going to ultimately buy. …
"This will help us sell more shirts and shoes and reach more athletes," he told analysts.
Endomondo claims about 20 million registered users, mostly in Europe, while MyFitnessPal says it has more than 80 million users. That deal will close in the first quarter.
Under Armour released its own fitness app, called UA Record, at the Consumer Electronics Show in Las Vegas. UA Record is designed to aggregate users' data from a variety of fitness tracking devices and to create an online community in which users can follow, encourage and challenge each other.
Under Armour first got into fitness tracking in 2011 with its Armour39 biometric device. It acquired MapMyFitness, which includes websites that now have 31 million registered users, in December 2013.
Plank said Endomondo, MyFitnessPal and MapMyFitness will work as distinct platforms under the company's "Connected Fitness" banner.
Eventually, he said, UA Record will act as a dashboard, "in the same way you check your bank balance and check the weather."
Endomondo will help provide global scale, while MyFitnessPal is known for nutritional expertise — both areas that were lacking in Under Armour's existing digital community.
"Ultimately, it is a good move," said Jason Moser, a senior analyst with Motley Fool One in Alexandria, Va. "When you look at the power that the smartphone brings to the consumer these days, there is a lot of value in these apps."
Moser called Under Armour's embrace of technology "forward-thinking."
"People care about what they eat and taking care of themselves and the power that the smartphone has brought to the consumer is immense."
Having access to a large digital community should help the brand stay in tune with its customers, and could help it develop new products, Moser said.
"They made a good move getting into this early as opposed to playing catch-up," he said.
Plank said the decision to buy the companies came after much internal debate. In the end, he said, the move felt obvious — like the decision almost 20 years ago to go into business selling the stretchy, sweat-wicking t-shirts that launched Under Armour.
He said the potential of the mobile, digital world hit home in December, when the company learned that sales on mobile devices had jumped 77 percent in a year.
"The brand that doesn't evolve will be hard-pressed to compete in 2015 and beyond," Plank said.
Under Armour's profit jumped 37 percent to $88 million in the quarter that ended Dec. 31, up from $64 million a year earlier. Earnings per share hit 40 cents, up from 30 cents.
Sales reached $895 million in the October-to-December period, up 31 percent from the last quarter of 2013.
Sales grew across all categories: Apparel revenue, driven by new offerings in the training, hunting and studio lines, was up 30 percent to $708 million, and footwear sales, led by new running and basketball shoes, were up 55 percent to $86 million.
It was the company's 19th consecutive quarter of sales growth of 20 percent or more.
The results topped the estimates of Wall Street analysts, who projected Under Armour would earn 39 cents per share on $849 million in sales during the fourth quarter.
Before the announcement, shares of Under Armour rose 1 percent Wednesday to close at $73.57 on the New York Stock Exchange.
In a report Tuesday, Canaccord Genuity analyst Camilo Lyon reiterated a buy rating for Under Armour's stock amid expectations of a "solid" fourth quarter. He said strong sales of full-price merchandise during the holidays boosted the end-of-year performance and should lead to a strong start to the year.
Under Armour "is on its way to becoming the No. 2 global athletic brand with an opportunity to reach $10 [billion] in sales by 2019, driven by international expansion … and footwear," as well as by sales through the company's own stores and ecommerce sites, Lyon said.
Though the apparel sector is expected to see only sluggish growth this year, UBS analyst Michael Binetti said in a report previewing the quarter, Under Armour finds itself uniquely positioned to grow.
The company expects its global sales, now 10 percent of the business, to account for half its sales in the long term. Women's business, now at $500 million and less than half the size of men's, is projected to grow as big if not bigger than men's in the long term, while footwear, which accounts for 15 percent of sales, could equal or outpace apparel sales.
Moser said the Endomondo acquisition could boost sales overseas.
"It gives them that exposure to the international market that they're looking for," he said. "The good thing is they're buying communities that are already well established. They're not trying to build it."