Under Armour Shares Plunged: What You Need to Know

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What: Shares of sporty apparel maker Under Armour (NYSE: UA  ) fell more than 10% in early trading after the company reported a big spike in inventory.

So what: Or at least that's what the headlines are saying. The reality is much different. For the second straight quarter, Under Armour blew past analyst estimates in reporting financial results. The retailer earned $0.23 on $312.7 million in Q1 revenue, which was up 36% year over year. Wall Street had been calling for $0.19 on $293.83 million in revenue, according to Yahoo! Finance data.

Now what: Traders and investors alike looked past that performance and management's higher guidance and focused instead on inventory, which rose 68% and ate into cash flow.

Having been bearish on the stock myself, I can understand investors' nervousness. And yet Under Armour has worked through inventory spikes in the past and come out fine. Should we really believe this time is different? Or is management simply stocking enough supply to meet sharply rising demand? My vote is on the latter.

Interested in more info on Under Armour? Add it to your watchlist.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. Both our Rule Breakers and Motley Fool Hidden Gems services have recommended members purchase shares of Under Armour. You can try any of our Foolish newsletter services free for 30 days.

Tim didn't own shares in any of the companies mentioned in this article at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is at least 10% better than other disclosure policies.

Read/Post Comments (2) | Recommend This Article (9)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 26, 2011, at 1:45 PM, WhiteHatBobby wrote:

    Absolutely UA has to stock up. They're increasing their share in the marketplace, and have to increase their supply because the items sell quickly. Furthermore, work for the gridiron season has to start now with summer camps starting soon, they have to prepare -- and make sure there is plenty for purchase. They don't want to lose to Adidas or Nike.

  • Report this Comment On April 26, 2011, at 7:58 PM, MoveMoreWeight wrote:

    Following is an excerpt from the 10-K filed two months ago, I think it will answer the question at hand:

    "Our focus remains on inventory management including improving our planning capabilities, managing our inventory purchases, reducing our production lead times and selling excess inventory through our factory house stores and other liquidation channels. However, we do expect several factors to contribute to inventory growth in excess of sales growth in the first half of 2011. We are increasing our safety stock in core product offerings and seasonal products to better meet consumer demand. Core product offerings are products that we generally plan to have available for sale for at least the next twelve months at full price. In addition, beginning in 2011, headwear and bags are being sold by us rather than by one of our licensees, which will also contribute to our expected year over year inventory growth."

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