Under Armour (NYSE: UA) reported first-quarter earnings this morning, and the crowd went mild. As of this writing, the shares are already down 8% -- and falling. Clearly, the company must have reported bad news, right?

Nope. All the numbers that investors usually watch at Under Armour were right on target:

  • Revenues for the fiscal first quarter leapt 36% in comparison to last year's Q1
  • Profit margins expanded, too, with the result that earnings per share increased 64% to $0.23
  • Better still, management promised more of the same going forward, upping revenue guidance and earnings alike, and predicting low-to-mid 30s growth in 2011

And that's not all. As anyone who's been to a gym lately can tell you, UA sportswear is selling like hotcakes (or beefcakes, for that matter). Apparel revenue has risen 34% year over year, and accessories such as hats and gym bags are up 213%. The astounding rise in profits, out of all proportion to sales gains, owes to UA growing its high-margin direct-to-consumer business 53%. 

Even UA's 98-lb. weakling of a footwear segment is up 20% -- not too far behind the growth rates at shoe-intensive manufacturers such as Deckers Outdoor (Nasdaq: DECK) and Timberland (NYSE: TBL), and even a smidge ahead of Wolverine World Wide (NYSE: WWW). Don't get me wrong -- UA is no high-growth Crocs (Nasdaq: CROX), but its shoe sales growth is still multiples better than Nike (NYSE: NKE).

So why the selloff?
I'm still convinced that UA has a cash flow problem. GAAP profits are all well and good, but we really want to see companies generate free cash flow. Here, UA falls down. 

With a balance sheet that shows accounts receivable rising, and inventories exploding (up 48% and 68% respectively, versus 36% sales growth), UA may be tying up cash in all the wrong places. One year ago, UA burnt $19 million in pursuit of its expansion plans. A year later, we're watching UA hold a veritable cash bonfire, burning through $96.3 million in free cash flow over the course of three short months.

I wouldn't go long on Under Armour until it gets its inventory situation fixed.

Will Under Armour fix its underlying cashflow problems and win the gold for investors? Be the first to find out: Add the stock to your Watchlist today.