Ranking No. 28 on the Forbes list of the 200 Best Small Companies in America, athletic clothing maker Under Armour (NYSE:UA) has managed to gain its impressive ranking on the company league tables by achieving above-average growth without having to accumulate a lot of debt on its balance sheet. Over the last five years, the company's average annual rate of sales and earnings per share (EPS) growth has topped 65% while total debt levels still remain at just 11% of equity.

UA Discovered a Niche Market
The key to the company's success was recognizing a sizable niche for true performance apparel back in 1996. It also understood that athletes were willing to pay a premium price for apparel that wicked moisture away, controlled body temperature and enhanced comfort, mobility and performance. By 2007, this active use market had grown to a $9.4 billon subset of the total $47 billion active wear market which also includes sports inspired casual wear.

Function Plus Fashion Won Over the Women's Market For Lululemon
Another success story is Canadian apparel maker Lululemon (Nasdaq:LULU) whose, highly technical but fashion conscious designs found an almost cult-like following among affluent young women who were drawn to the benefits of alternative forms of fitness training like pilates and yoga. While the company reported a 48% sales gain in its most recent reported quarter, it recently earned an analyst downgrade due to the fact that it pays for 80% of its goods in US dollars and the more than 20% depreciation in the Canadian dollar is now expected to hurt its bottom line.

Lifestyle Sporting Market Opportunity Draws in New Players
The potential of the women's "lifestyle" active wear market has also attracted other players to the game. Last September Gap Inc. (NYSE:GPS) paid $150 million to acquire private brand Athleta Inc., which sells clothing for 13 different activities, including yoga, cycling and hiking via a successful e-commerce channel. Following the announcement of the deal Lululemon disclosed it had also been considering a bid for Athleta, but was now focused on launching its own e-commerce channel. Other recent entrants into this yoga inspired niche market, include industry giant Nike (NYSE:NKE) and J. Crew (NYSE:JCG).

The Bottom Line
While competition is likely to heat up in the active wear market, there still appears to be enough potential there to allow both the original players and newer entrants to achieve above average rates of growth in 2009.

To learn more about analyzing stocks in this sector, read Analyzing Retail Stocks.

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Tickers in this Article: UA, LULU, GPS, NKE, JCG

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