Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



The Under Armour Freight Train Continues

Performance apparel specialist Under Armour (NYSE: UA  ) reported strong first-quarter earnings Friday morning, but investors can't seem to decide whether they like what they see.

After quickly rising 5% at the open, shares of UA gradually fell back to even, then followed with another 2% rise later in the morning, then a dip into negative territory, and back to positive in the afternoon ... and on, and on ...

You know what? While I admittedly find these short-term fluctuations mildly amusing, I'd like to reach out and encourage you to tear your eyes away from your charts and focus on what really matters: What will Under Armour do over the long term?

The numbers
Before anything else, however, let's look at the figures the Baltimore-based company gave us Friday morning.

On one hand, first-quarter revenue increased by an impressive 23% year over year to $472 million. On the other, and in spite of that higher revenue, Under Armour actually earned 47% less than it did during the same period last year.

Yikes! Should investors be worried?

In a word: Nope.

So what happened? In the press release, the company reminded us that the drop in net income largely reflected "the planned timing of marketing expenditures." For those of you keeping track, this shouldn't have come a surprise, considering Under Armour CFO Brad Dickerson gave investors a heads-up way back in January by saying:

"We are planning to be more targeted in some of our marketing expenses this year, which we anticipate will create some significant year-over-year timing shift. The first quarter in particular is expected to see nearly 350 basis points of deleverage."

What's more, Dickerson also went on to explain that the second and third quarters would probably also reflect inconsistent year-over-year earnings as a result of this shift, and the fourth quarter would be more consistent with 2012. In the end, he concluded that Under Armour still plans to hold total 2013 marketing expenses "relatively flat as a percentage of revenues compared to 2012."

On another encouraging note, Under Armour's year-over-year inventory levels remained steady at $324 million -- a welcome relief from inventory concerns in prior years -- and the company managed to increase its cash and equivalents by 139% to $256 million, while at the same time lowering its long-term debt by 21% to $60 million.

The train's a-comin'!
As a longtime Under Armour shareholder, I'm happy the company has once again fulfilled its promise of profitably maintaining at least 20% top-line growth for the 12th consecutive quarter. In addition, this marks the 14th consecutive quarter of apparel revenues growth of more than 20% -- an impressive feat, considering Under Armour was already dominating the category that made it a household name.

Perhaps even more important, however, is the mammoth opportunity Under Armour is seizing in the athletic-footwear market, which itself, as a I pointed out earlier this week, is expected to grow by nearly 15% to $85 billion by 2018.

That's why I'm also impressed that Under Armour's first-quarter footwear revenue increased 27% to $81 million. While that might seem minuscule in the broad scheme of things, remember CEO Kevin Plank's words in 2011, when he placed Nike's (NYSE: NKE  ) 90% basketball shoe market share squarely in Under Armour's sights:

And what I can commit to you is that I'm not going to make predictions on exactly how much market share, but I would much rather be sitting where we are because it's coming. We will take market share. It's a freight train. And I believe that the opportunity we have is great.

Great indeed. While Under Armour may seem more like a pesky mosquito to Nike in the footwear market right now, I'm convinced it won't take long to morph into the freight train Plank described. In fact, given Under Armour's recent lawsuit against Nike over trademark infringement in its advertising, it's already becoming more evident Nike is taking Under Armour's threat seriously. 

Foolish final thoughts
In the end, however, despite the fierce competition, I'm still convinced that Under Armour's freight train has what it takes to continue full steam ahead.

More expert advice from The Motley Fool
In the world of sportswear retail, lululemon athletica is a strong player, with a solid presence in the yogawear market. Lululemon has the potential to grow its sales by 10 times if it can penetrate its other markets like it has in Canada, but the competitive landscape is starting to increase. Can Lululemon fight off larger retailers and ultimately deliver huge profits for savvy investors? The Motley Fool answers these questions and more in its most in-depth Lululemon research available. Thousands have already claimed their own premium ticker coverage; gain instant access to your own by clicking here now.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2374164, ~/Articles/ArticleHandler.aspx, 9/29/2016 4:23:28 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,143.45 -195.79 -1.07%
S&P 500 2,151.13 -20.24 -0.93%
NASD 5,269.15 -49.39 -0.93%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2016 4:01 PM
UA $38.60 Down -0.78 -1.98%
Under Armour (A Sh… CAPS Rating: ****
NKE $52.16 Down -1.09 -2.05%
Nike CAPS Rating: *****