Summer has arrived, and with it, the season of outdoor sports. Could there possibly be a better time for Under Armour (NASDAQ:UA) to report earnings? The sportswear maker's Q2 results are due out on Tuesday.

What analysts say:

  • Buy, sell, or waffle? Fourteen analysts follow Under Armour, giving it a half-dozen buy ratings and eight holds.
  • Revenue. On average, the analysts expect to see sales rise 32% to $105.2 million.
  • Earnings. Profits, however, are predicted to slide 40% to just $0.03 per share.

What management says:
In last quarter's press release, Under Armour chose to trumpet its sales growth (42% year over year, since you ask), and downplay the fact that profits grew at only one-third the rate of sales. Despite the apparent disconnect, CEO Kevin Plank boasted of the "growing strength of the Under Armour Brand" and an "increase in average selling prices for our apparel products."

What management does:
And yet gross margin expansion seems to have stalled, unable to break above the 50% barrier and stay there. Rolling operating margins have declined in each of the last two quarters, and net margins are showing no clear upward pattern -- they rise one quarter, only to fall in the next.

Margins %

12/05

3/06

6/06

9/06

12/06

3/07

Gross

48.3%

49.7%

49.2%

49.6%

50.1%

49.6%

Op.

12.8%

14.6%

13.6%

14.3%

13.6%

13.1%

Net

7%

8.4%

7.8%

8.9%

9.1%

8.6%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Considering the apparent contradiction between Plank's statements and the black-and-white numbers you see above, a Fool could be forgiven for wondering whether the CEO "got the memo" about Under Armour's lackadaisical margin performance.

Never fear. He did. In fact, Plank made a special effort to address the issue in last quarter's news, pointing out that while yes, gross margins are slipping, this doesn't indicate a lack of pricing power, but simply the introduction of new product offerings -- namely footwear, which Plank argues "carries a lower gross margin than apparel." Indeed, if you look at Under Armour's more footwear-oriented competitors -- Adidas, Nike (NYSE:NKE), K-Swiss (NASDAQ:KSWS), Deckers (NASDAQ:DECK), Skechers (NYSE:SKX), Timberland (NYSE:TBL), and Wolverine (NYSE:WWW) -- every one earns gross margins several points shy of Under Armour's. For better or for worse (considering the economics of footwear), the gang at Motley Fool Rule Breakers thinks Under Armour is making the right move in diversifying its business, praising the firm for "making great inroads in footwear" in a recent update on our recommendation.

Of more concern is the fact that analysts may have set Under Armour up for a fall tomorrow. The company hasn't had a great history of outperforming analyst estimates in recent quarters. Tomorrow, Wall Street is calling for $0.03 per share in profits -- yet at last report, while Under Armour itself thought it might earn $0.03, it warned of the possibility that it would only earn $0.02. Remember to lace up tight tomorrow, Fools. If the analysts turn out to have been too optimistic, this stock could get slippery.

Want to know more about Under Armour? Peel off a few layers of Foolish prose. Read 'em in your boxers if you like:

Under Armour is a Motley Fool Rule Breakers selection. Fool co-founder David Gardner and his team are always keeping their eyes out for groundbreaking companies. See their latest picks with a free 30-day trial.

Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.