Ua Kelly Ohara
U.S. Soccer player Kelley O'Hara is another Under Armour Athlete in the limelight. Source: Under Armour

Under Armour's (NYSE: UA) sales continue to grow at a crazy pace. The company just reported its second quarter financial results, and here are the highlights:

  • Net revenue up 29% to $784 million. 
  • Apparel sales up 23%; Footwear up 40%.
  • Net income and operating income both decreased on rising costs and acquisition expenses.

So while sales are absolutely booming, the company's costs are accelerating even faster. Let's take a closer look at Under Armour's earnings report -- there are a few key things to pay close attention to. 

1. Taking a page from Google's playbook 
In mid-June, the company announced that it would be creating a new share class later this year, and in short, it's doing it so that founder and CEO Kevin Plank can retain control of the company. As things currently stand, Under Armour has two share classes, A and B. Plank's stake in the business is in B shares, and as long as he maintains 15% ownership of the company's A and B shares, the current class structure allows Plank to retain control. 

However, share dilution has put Plank at risk of his stake falling below 15%, so the company has decided to take the same approach Google took recently, and will create a non-voting class of shares, designated "C" shares. These new shares will trade on the NYSE under a new ticker, and all existing shareholders of record will receive a single share of the new "C" class stock once the process is complete. 

This will be a stock split, so once it's complete, shareholders will retain exactly the same ownership and voting power as before, but going forward, Under Armour will have -- as Plank put it -- "...a new form of currency for corporate uses, including equity-based employee compensation and stock-based acquisitions."

I'll be honest: I'm not crazy about these moves that create a class of non-voting shares, especially when they further entrench management and make it easier for that management to dilute shareholders while maintaining control. But with that said, Under Armour's success is undoubtedly tied to Plank, just as Google's is tied to its founders. Only time will tell how this works out in terms of creating per-share value. 

2. Accelerating growth in every segment
Under Armour's biggest growth category over the past year has been footwear, and that remained the case last quarter, with another 40% gain from the prior year. Apparel sales also grew strongly, with a  22.7% gain. The recent success of Under Armour's athletes is likely helping to accelerate sales, as was outlined in the earnings preview

The Connected Fitness category is also accelerating, with the 148% sales growth being driven by the recent acquisitions of MyFitnessPal and Endomondo. Plank stated on the earnings call that the company now has more than 140 million users of its connected fitness apps, in several countries. 

Ua Stephen Curry
Under Armour athlete Stephen Curry is at the top of the basketball world. Source: Under Armour

3. Growth outside North America also speeding up 
Sales overseas accelerated 93% last quarter, and the company is really focusing on this. On the earnings call, Plank said the company would open one new store overseas every single day in September, signifying an even greater push to grow brand awareness internationally. At the end of June, the company only had international 20 stores in total. 

As a percentage of sales, international revenue jumped from 7.6% last year, to more than 11% this quarter. Based on the push to open more stores overseas as well as to add more distributor channels in key markets in Asia, expect the international mix to grow a lot in the next few years. 

4. Costs increasing, but part of long-term strategy 
Operating income and net income fell in the quarter, but that was entirely a product of the company's big investments in Connected Fitness:

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Source: Under Armour earnings release.

As you can see, operating income improved in both product segments, while the expenses the company took on with its recent acquisitions -- and has added to with more resources to further accelerate the growth in this category -- of MyFitnessPal and Endomondo (and MapMyFitness prior to those) are dragging on the bottom line. In short, management sees the investments in Connected Fitness as being incredibly important to building the company for the future, and while they may weigh on the bottom line when broken out, those investments are key to driving product sales and that will only grow over time. 

The company has also made the decision to increase its marketing spend this year, seizing on the success of its top athletes and its "I Will What I Want" women's campaign to further accelerate that growth. 

Crossing the finish line 
Revenue has grown at a much higher rate than earnings over the past several quarters, and that's likely to continue to be the case for some time. And while that's an important trend to watch -- and one that eventually needs to reverse -- there's little doubt that Kevin Plank is playing the long game here, as those increase costs are almost all tied to increased marketing spend, acquiring and developing new technology and products, and accelerated international expansion. 

In short, these cost increases are the "right" kind -- investments in growth that are paying off huge right now. Over time, investors will want to see all that growth add to per-share earnings, but for now management is in full-on growth mode. 

Ua Brianna Cope
Pro surfer and Under Armour athlete Brianna Cope

Jason Hall owns shares of Under Armour. The Motley Fool recommends and owns Google (A and C shares) and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.