You're Wrong to Kick Sand at Under Armour

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You wouldn't know it from how the stock reacted, but Under Armour (NYSE: UA) blew out da box on Tuesday:

• Earnings per share that were expected to decline year over year grew by a penny to $0.52, crushing the third-quarter 2009 consensus of $0.44.
• Revenue, expected to rise slightly, actually rocketed to a 16% improvement over last year's third quarter.

Under Armour tries an end run
How did Under Armour do it? In contrast to last quarter, when Under Armour leaned on its apparel segment for growth, this time footwear led the charge. Sales there spiked 150% year over year.

Meanwhile, a 62% surge in direct-to-consumer sales helped mitigate the lower margins that accompany footwear sales. As Jos. A. Bank (Nasdaq: JOSB) and iRobot (Nasdaq: IRBT) have taught us, consumer-goods manufacturers often fish for higher profit margins from this revenue model. And while I've nothing against distributors like Dick's Sporting Goods (NYSE: DKS) or Cabela's Inc. (NYSE: CAB), if Under Armour can boost its profits by making an end run around its middlemen, then it should just do it. (Apologies to Nike (NYSE: NKE), which just does the same.)

No good deed ...
No sooner had Under Armour reported beating expectations (with a stick) in Q3, than it upped the ante on full-year guidance. Management's latest prediction of $830 million in sales and $0.85 to $0.87 per share in profits eclipses Wall Street's expectations for the year.

So why, you might wonder, did investors dump the stock yesterday? Strictly speaking, Under Armour did everything right. It beat estimates. It raised guidance. What more does Wall Street want?

Judging from press reports, the knock against Under Armour goes like this: Yes, Under Armour beat estimates in Q3. Yes, these improved numbers allowed management to raise guidance for the year. But guidance didn't get raised enough to account for both better performance in Q3, and further great news in Q4. Crunching the numbers, one Wall Street wizard declared that Under Armour is promising only 11.6% sales growth in the current quarter -- a slowdown from the 16.2% pace set so far this year.

Foolish takeaway
But here's a question for the naysayers. Have you met Under Armour? You know this company beat estimates in nine of the last 10 quarters, right? Isn't it possible that Under Armour intentionally suggested light growth in Q4 so that it can more easily crush in Q4?

My advice: Before dissing Under Armour, take a moment. Ponder the possibility.

Then take another moment to take the Motley Poll below and fill up the comments section with your opinions.