Foolish Forecast: Under Armor Needs a Penny

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High-tech sportswear-weaver Under Armour (NYSE: UA) got off to a good start last quarter. Although earnings plunged in comparison to Q1 2007, management at least managed to trump expectations twofold, earning a half dozen pennies when Wall Street sought only $0.03.

And hey! That should make things positively easy for UA Tuesday morning. Analysts only expect it to earn a penny. Shouldn't take more than a couple minutes searching the couch cushions to triple that bet, or better -- right?

What analysts say:

• Buy, sell or waffle? Fifteen analysts follow Under Armour, with five of them calling this stock a buy, nine more sitting on the fence with "hold" ratings, and one saying "sell".
• Revenue. On average, the analysts expect to see sales up 30% to $156.4 million.
• Earnings. And like I said, they're only looking for a penny. How tough can that be?

What management says:
The biggest news at UA this past quarter was surely its poach of David McCreight from Sears Holdings (Nasdaq: SHLD). As we discussed earlier this month, McCreight brings with him three years of experience as President of Sears' Lands End division, as well as a spell spent at Disney (NYSE: DIS).

What management does:
Unfortunately, McCreight's Sears baggage also includes a record remarkably similar to what his predecessors at UA have racked up -- rising inventories that have recently crimped profit margins. Although Under Armour's gross margin remains the envy of the industry, its recent decline has helped to push UA's operating margin below those of Columbia Sportswear (Nasdaq: COLM) and Nike (NYSE: NKE), about even with Wolverine World Wide (NYSE: WWW), but still ahead of Quiksilver (NYSE: ZQK).

Margins	12/06	3/07	6/07	9/07	12/07	3/08
Gross	50.1%	49.6%	49.8%	49.8%	50.3%	49.9%
Operating	13.2%	12.6%	12.7%	13.4%	14.2%	11.7%
Net	9.1%	8.6%	8.6%	8.4%	8.7%	7.1%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Key to McCreight's -- and the company's -- success going forward will be his ability to execute on a promise made by CEO Kevin Plank last quarter. Acknowledging investors' concerns over UA's rapid rise in inventories, Plank assured us that "the Company expects the inventory growth rate to decelerate beginning in the second quarter, with inventory growing in-line with net revenues by the end of the third quarter."

Well, Messrs. Plank and McCreight -- your first big test on fulfilling that promise arrives Tuesday. We plan to trust... but verify.