By any measure, the first-quarter results posted by Under Armour Inc (NYSE: UA ) this morning were incredible. Quarterly revenue rose 36% year over year to $642 million, handily exceeding expectations for sales of $598.81 million. More specifically, Under Armour's apparel revenue increased 33% to $459 million, footwear sales rose 41% to $114 million, and accessories increased 43% to $52 million.
Higher-margin direct-to-consumer revenue grew 33% during the same period -- and now represents 26% of all sales. Under Armour's global ramp-up is just beginning, with international sales rising 79% during the same year-ago period to comprise 9% of total first-quarter revenue.
Better yet, supply chain improvements and a favorable sales mix drove a 71% gain in diluted earnings per share, to $0.06 -- and that's adjusted for Under Armour's recent 2-for-1 stock split. By contrast, analysts were only looking for earnings of $0.04 per share.
Naturally, shareholders were rewarded with a 9% plunge in today's early trading.
You read that right. Under Armour's getting punished badly despite its stellar results. So what happened?
Look no further than the company's freshly raised guidance, which calls for 2014 net revenue in the range of $2.88 billion to $2.91 billion, or growth of 24% to 25% over last year, and 2014 operating income in the range of $331 million to $334 million, or an increase of 25% to 26% over 2013. By comparison, three months ago, Under Armour told investors to expect 2014 net revenue to be $2.84 billion to $2.87 billion, with operating income of $326 million to $329 million.
But given today's massive beat, the market is simply disappointed Under Armour didn't more aggressively raise its outlook. After all, if Under Armour started by increasing revenue 36% in Q1, why shouldn't that outperformance continue throughout the year?
As it turns out, Under Armour CFO Brad Dickerson answered that very question in the follow-up earnings conference call. Here's why Under Armour's forecast remains conservative for each of the next three quarters:
- Q2: Three factors, including normalization of Under Armour's factory house product mix, more consistent comparison on supply chain performance year over year, and the lack of its bags relaunch, which carried higher margins beginning in last year's second quarter.
- Q3: Anticipated higher U.S. import duties, which affected margins in last year's third quarter by 90 basis points.
- Q4: Higher expected mix of lower-margin international business, planned investments and approach to expanding direct-to-consumer business.
Don't sell Under Armour yet
In short, while Under Armour's first quarter was indeed exceptional, the remainder of this year's earnings reports might not look nearly as impressive compared to their respective year-ago periods. But does this mean investors should abandon ship? Absolutely not.
In fact, I respect Under Armour for its prudence, and think investors should be more than happy with today's earnings beat-and-raise. Moreover, whether management is being conservative with guidance right now is of little consequence to my long-term investing horizon, especially since none of the above factors represents a significant underlying problem with Under Armour's business. Rather, they're all fair challenges facing a promising, fast-growing company with incredible long-term potential.
As a result, I'm happily holding on to my shares today. And if Under Armour stock continues to get punished during the next few days, I look forward to adding to my position as soon as the Fool's trading restrictions allow.
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