Forget about the clothes, Fools. The emperor is wearing no shoes.

Athletic clothing upstart Under Armour (NYSE:UA) reported second-quarter earnings yesterday morning. The headline numbers looked good:

  • Under Armour "beat" earnings estimates by a nickel, reporting $0.03 per share in profit.
  • Sales beat as well, rising 5.1% year over year.
  • Why, Under Armour even exceeded expectations on guidance, predicting it will earn $0.80-$0.82 per share by year's end on $810 million in sales.

And the rest of the news was pretty good, too. Under Armour continued to draw down inventories (1.4%). Operating costs declined as a percentage of net revenue, helping to avoid the expected quarterly loss and deliver the earnings beat. Perhaps best of all, Under Armour held the line on prices -- which, as I argued last quarter, was essential if it's going to gain a premium-brand status similar to that of an Apple (NASDAQ:AAPL) or a Coach (NYSE:COH).

Despite "liquidating" some stale inventory, the company sacrificed only 20 basis points in total gross margin, which remains north of 45%. And to hear Chairman and CEO Kevin Plank tell it, that profit margin's only going to swell as Under Armour closes the gap in operating margin with more profitable footwear makers such as Deckers (NASDAQ:DECK), Nike (NYSE:NKE), and Wolverine (NYSE:WWW).

Um ...
And yet, that may be precisely Under Armour's problem. You see, the thing that really struck me about yesterday's report wasn't the earnings beat. Nor was it the "16% growth in apparel net revenues" that Under Armour execs just wouldn't stop talking about. Rather, it was what that number implies: If apparel revs rose "16%," but total sales grew only 5% ... then something else must have grown a lot less or even shrunk. And that something was shoes, the sales of which slid 18.5%.

Running on empty
Management spins this as no big deal, of course. Says Plank, Under Armour expected "the Training Footwear business to be down in 2009 ... [because of the] introduction of Running Footwear in January." But I'm sorry, Fools -- that makes no sense.

Introduce a new product, and sales are supposed to go up. Even if the new product cannibalizes sales of the old, you wouldn't expect total sales to actually fall -- at worst, they might go flat. But footwear sales did fall and management said that cannibalization wasn't as apparent as it had expected. So things might be a little softer than management is letting on.

Foolish takeaway
Plank insists that Under Armour will one day become "a great athletic footwear brand." He calls footwear "a long term growth platform for our company." Last quarter, that looked like a real possibility.

But this quarter, I'm not seeing it.

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Fool contributor Rich Smith does not own shares of any company named above, but Under Armour is a Motley Fool Rule Breakers pick, a Motley Fool Hidden Gems recommendation, and the Fool owns shares of it. Also, Apple and Coach are Stock Advisor recommendations. The Motley Fool has a disclosure policy.