Under Armour Posts Solid Quarterly Results, But Gives Cautious Outlook

Under Armour (NYSE:UA), a developer and distributor of athletic apparel, footwear and accessories, posted another strong quarter in Q3 2013 with 26% net revenue growth to $723 million. The company maintained its solid growth momentum, as it represented the 14th consecutive quarter of over-20% increase in its top-line. We believe the company will sustain its growth momentum in the future, as it is still scratching the surface of its various growth drivers including its women’s, international, direct-to-consumer, and footwear businesses.

Gross margin declined slightly to 48.4% in Q3 2013, as compared to 48.7% in Q3 2012, mainly owing to increase in import duties. However, its operating margin rose to 16.7% as compared to 15.8% in Q3 2012, primarily due to a decline in marketing expenses as a percentage of net revenues.

The company has raised its revenue guidance for 2013 to the higher end of its previous forecast range of 22% to 23%. However, the company gave a cautious outlook for 2014 as it expects the increase in net revenue and operating income during the year to be at the lower side of its long-term growth target of 20% to 25%. ^[1]

See our full analysis for Under Armour

Strong Growth Across All Product Categories

Apparel sales, which comprise for about 75% of Under Armour’s net revenues, rose by 26% to $561 million. This represented the 16th consecutive quarter of more than 20% growth in this product category. Growth in the Storm and Charged Cotton platforms, coupled with the introduction of ColdGear Infrared technology drove apparel sales during Q3. We believe the solid results in UA’s biggest product category are encouraging, as it indicates that continued opportunities exist in the company’s established men’s apparel business.

Footwear sales grew by 28%, owing to strong growth across running and football categories. Accessories revenues rose by 18%, due to increased sales of headwear and bags.

Key Future Growth Drivers To Keep Under Armour’s Growth Story Intact

We believe Under Armour’s key growth strategies of expanding the women’s, footwear, international and direct-to-consumer business will continue to fuel strong growth at the company in the future.

The company aims to grow the women’s business to around $1 billion by 2016, and is taking several measures to accomplish this goal. ^[1] It has expanded its creative talent within the women’s business and altered its product portfolio and retail presentation to suit the tastes of female customers. Within the footwear segment, UA plans to increase its market share with Highlight baseball and football cleats, Spine running platform and a new SpeedForm technology. The distribution of both women’s and footwear products is being increased across its doors, and hence we believe these steps will continue to drive growth at Under Armour.

During the third quarter, Under Armour’s direct-to-consumer and international revenues rose by 34% and 38% respectively, outpacing the overall revenue growth at the company. The company opened 6 new Factory House stores during Q3, and plans to open 4 new factory house stores in Q4. It will also expand 9 existing stores during the year. ^[1] Moreover, the company plans to expand its operations in the markets of Asia, Europe, Australia and Latin America. The share of international sales in overall sales is forecast to rise from 6% in 2013 to 12% by 2016. Hence, we think the revenue growth at both these segments will surpass the overall revenue growth of the company in the long-run.

We are in the process of revising our $66 price estimate for Under Armour after the earnings release.

1. Under Armour Management Discusses Q3 2013 Results – Earnings Call Transcript, Seeking Alpha, October 24, 2013 [↩] [↩] [↩]