(UA) Under Armour Beats Estimates

Under Armour, Inc. (UA), one of the leading developers, marketers and distributors of branded sports apparel, footwear and accessories, recently posted better-than-expected fourth-quarter 2011 results. The company outdid the expectations on the back of healthy apparel, footwear, accessories and direct-to-consumer businesses.

The quarterly earnings of 62 cents a share moved ahead of the Zacks Consensus Estimate by a couple of cents, and soared 40.9% from 44 cents earned in the prior-year quarter. Under Armour’s net revenue for the quarter came in at $403.1 million, up 33.9% from the year-ago quarter, and was just ahead of the Zacks Consensus Estimate of $402 million.

Let’s Dig Deep

The double-digit jump in top line was driven by a 27.3% increase in apparel net revenue to $323.4 million, reflecting growth across men’s, women’s and youth apparel businesses, and strength witnessed at Charged Cotton apparel and Fleece.

Footwear net revenue soared 42.8% to $31.3 million, attributable to new running footwear introduced in 2011. Under Armour remains optimistic about strong market for footwear products.

Accessories net revenue rose to $36.8 million from $14.8 million in the year-ago quarter. This rise was on account of switching the licensed hats and bags business to in-house, beginning January 2011. Licensing revenue increased 10.7% to $11.6 million.

Baltimore, Marylandbased company, Under Armour, said that direct-to-consumer net revenue soared 50% during the quarter, and now represents 38% of total revenue. Under Armour opened four new Factory House stores during the quarter under review, increasing the store count to 80.

Despite a 34.1% jump in cost of goods sold, gross profit rose 33.6% to $207.9 million. However, gross profit margin contracted 10 basis points to 51.6%, reflecting lower margins from North American wholesale apparel product business and switching of licensed hats and bags business to in-house. Operating income surged 57.2% to $55.3 million, whereas operating margin expanded 200 basis points to 13.7%.

Other Details

Under Armour ended the quarter with cash and cash equivalents of $175.4 million, total long-term debt of $77.7 million and shareholders’ equity of $636.4 million. The increase of $61.7 million in the long-term debt from the prior-year quarter reflects the acquisition of corporate headquarters in July. The company had no borrowings under its revolving credit facility of $300 million at the end of the quarter.

Capital expenditures were approximately $8 million for the quarter under review. Management now anticipates fiscal 2012 capital expenditures between $60 million and $65 million.

Inventory for the quarter climbed 51% year-over-year to $324 million. Management hinted that the unseasonably warm weather led to a rise in inventory level. Going into 2012, the company will have to keep a close watch on its inventory position. The company is focusing on Stock Keeping Unit (SKU) rationalization program, which will help in eliminating SKUs based on lower sales volume or weak margins. Under Armour plans to lower its total assortment by 20% in fiscal 2012.

Strolling Through Guidance

Heading into 2012, management is taking a much more conservative approach on the inventory position, which remains an overhang. Consequently, Under Armour now expects revenue growth to be at the lower end of the long-term guidance range of 20% to 25%. Earlier, management had forecasted revenue growth to be at the higher end of the guidance range. However, management continues to forecast operating income growth at the higher end of the long-term guidance range of 20% to 25%.

Currently, Under Armour, which competes with Nike Inc. (NKE) and Columbia Sportswear Company (COLM), holds a Zacks #3 Rank that translates into a short-term ‘Buy’ rating.

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UNDER ARMOUR-A (UA): Free Stock Analysis Report

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