3 Takeaways From Under Armour, Inc.'s Blowout Quarter

As an investor, I sure do love starting my day with a good spiffy pop.

To be sure, only four years ago investors could have picked up shares of Under Armour  (NYSE: UA  ) for less than $13 apiece. So far today, shares of Under Armour have risen more than 22% -- an amazing increase of $19.18 per share -- thanks to the company's fourth-quarter report, which absolutely crushed expectations. 

So how did the athletic apparel specialist pull it off?

Yesterday, I suggested three things investors should be watching going into the report. Here's how Under Armour fared:

1. On 2014 guidance
First, remember that last quarter Under Armour warned 2014 growth in both net revenue and operating income would arrive at the low end of its long-term 20% to 25% target range. However, noting the company had issued nearly the exact same warning in the same year-ago period only to later raise guidance, I wanted to know whether management would do the same thing this time around.

And they did: Under Armour now expects 2014 net revenues in the range of $2.84 billion to $2.87 billion, or year-over-year growth of 22% to 23%, and 2014 operating income of $326 million to $329 million, or a 23% to 24% increase over last year.

Under Armour CEO Kevin Plank, Image source: Under Armour.

2. On Under Armour's balance sheet and inventory
Second, considering both Under Armour's past inventory woes and its $150 million November acquisition of MapMyFitness, I wanted to confirm its balance sheet was still healthy as inventory growth remained in check.

Wouldn't you know it, but year-end inventory stood at $469 million, a 47% increase over the prior year -- perfectly acceptable considering Under Armour's growth. And the balance sheet remains solid as well, albeit with some new debt; even after using $50 million in cash to partially fund its acquisition, Under Armour's cash and equivalents rose 2% to $347 million. Under Armour pulled the remaining $100 million from its $300 million revolving credit facility. Meanwhile, Under Armour reduced its long-term debt by 14% to $53 million.

3. On lower international and footwear growth
Finally, I kept in mind a warning from Under Armour CEO Kevin Plank from last quarter's conference call, when he told investors to expect "minimal growth" in footwear and international thanks to a significant shift in the timing of its shipments.

Sure enough, fourth-quarter footwear revenue grew "just" 25% year over year to $55 million, comprising only 8% of total sales and lagging Under Armour's overall Q4 growth of 35%. By comparison, more than $3.6 billion of Nike's  (NYSE: NKE  ) $6.07 billion in Nike brand sales came from footwear last quarter alone.

And Under Armour's International revenue, for its part, increased only 9% to $37 million, representing just 5% of total net revenue. For some perspective, note that more than 54% of Nike brand sales originated overseas last quarter.

The silver lining? This means Under Armour has yet to seize its massive global opportunity. Assuming Under Armour can replicate its stateside success internationally over the next several decades... well, let's just say investors will regret not getting in early. Under Armour says it's planning big pushes in both footwear and international going forward, with the two segments' respective growth beginning to accelerate in the first and second halves of 2014.

Foolish takeaway
But regardless of Under Armour's weaker-than-expected showings in footwear and overseas, it still managed to outperform analysts' already-optimistic expectations.

Sure, the stock looks expensive now, trading around 69 times last year's earnings. But when do shares of Under Armour not look overpriced? We're talking about a premium company with a premium valuation, and Under Armour's global growth potential easily stands as one of the most impressive I've ever seen. In the end, that's why I still love the stock, and have no intention of taking profits today.

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  • Report this Comment On January 30, 2014, at 9:54 PM, cfrdog wrote:

    Good stuff. I'm not taking profits either. I agree its an expensive stock right now and while there will be bumps in the road the future is very bright. UA is just getting started. I'd really like to see them improve their footwear. Nike has that market almost to themselves and most of UA's shoes are not up to par w/ the exception of athletic shoes for baseball, football.... I suppose there is less margin in footwear but once u get those cool sneakers u then want to match w/ the shorts, shirt, hat, etc. So design some better tennis shoes!

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