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Under Armour (NYSE: UA ) reported earnings for its third quarter this morning, reporting that overall net revenue rose 24% to $575 million from the same quarter last year. Net income was also up 25% from last year, and earnings per share checked in at $0.54, a 23% increase. Despite these seemingly impressive numbers, shares of the apparel maker have been down nearly 8% this morning. What scared investors?
What I was watching
Investors may have been scared by a reduction in footwear revenue from the previous quarter. While the product segment saw a 21% increase from the same quarter last year, there was a 6% decrease from the second quarter. With CEO Kevin Plank stating that the long-term vision is to see the footwear business larger than apparel, the regression could not have been welcome.
If it wants to compete with Nike (NYSE: NKE ) , declining revenue in its footwear segment is not a good thing. In a reversal of the previous quarter, revenue growth in the footwear segment trailed apparel revenue growth, something that needs to be reversed if the company truly plans on dominating footwear. With a planned extension of its UA Spine footwear line into basketball during the upcoming quarter, it might be able to reverse the trend.
What I like going forward
Under Armour continues the expansion of its business beyond its performance athletic wear. It continues to tout the performance of new products, including its Studio brand for women. This brand looks to compete directly with the offerings of lululemon athletica (Nasdaq: LULU ) , providing yoga and other fitness apparel for women.
Direct-to-consumer revenue is also important for Under Armour. Without a major retail presence like Lululemon has, Under Armour relies on retail partners like Dick's Sporting Goods (NYSE: DKS ) to sell its products. Nevertheless, its direct-to-consumer revenue represented 24% of total revenues for the quarter, with year-over-year growth of 31%.
What it all means
These quarterly results prompted Under Armour to increase its guidance for the year, and it now expects revenue for the year to be around $1.82 billion, an increase of 24% over last year. In order to meet this goal, it needs to show stronger growth in its footwear segment, its most important segment, in my opinion. It will always be able to move performance athletic gear like moisture-wicking shirts. For it to truly compete with Nike, I'll be looking for it to grow its shoe business even more.
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