Earnings Review: Under Armour Beats All Expectations, Delivers 35% Topline Growth

Under Armour (NYSE:UA), a developer and distributor of athletic apparel, footwear and accessories, beat all earnings estimates and posted a very strong quarter in Q4 2013 with 35% net revenue growth to $683 million and a full net revenue growth of 27%. The company maintained its solid growth momentum, as it represented the 15th consecutive quarter of over-20% increase in its top-line. We believe the company will continue to show strong growth in the future as consumers continue to respond to the strength of its brand and as the company’s efforts to lure in women customers are successful. ^[1]

Gross margin improved by 100 basis points to 51.3% in Q4 2013, as compared to 50.3% in Q3 2012, primarily driven by growth in its top-line. Customer response over the quarter showed the strength of Under Armour’s brand name as newly launched products such as expanded fleece offerings and new ColdGear InfraRed technology sold in high numbers. Selling, general and administrative expenses as a percentage of net revenues were 36.9% in the fourth quarter of 2013 compared with 34.2% in the prior year’s period, primarily reflecting higher expenditures on marketing. Following these results, the company has raised its revenue guidance for 2014 to the higher end of its previous forecast range of 22% to 23%. (( Under Armour Reports Fourth Quarter Revenue Growth, Seeking Alpha, January 2014)

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 35% to $546 million, primarily driven by expanded fleece offerings and new ColdGear Infrared Products. This represented the 17th consecutive quarter of more than 20% growth in this product category. We believe the solid results in UA’s biggest product category are highly encouraging. The strong growth indicates that opportunities still exist in the company’s established men’s apparel business and that the company has a strong brand image that it can leverage to exploit those opportunities.

Footwear sales grew by 24% to $55 million, owing to strong growth in the running category. Accessories revenues rose by a strong 52% to $65 million, due to high sales of headwear and gloves. Direct-to-Consumer net revenues, which represented 39% of total net revenues for the fourth quarter, grew 36% year-over-year.

Review of Full Year Operating Results

For the full year 2013, net revenues increased 27% to $2.33 billion compared with $1.83 billion in the prior year and ~3% compared with the Company’s prior outlook of $2.26 billion. Gross margin for 2013 was 48.7% compared with 47.9% in 2012, primarily driven by favorable sales mix and lower year-over-year North American apparel and accessories product costs. Operating income grew 27% to $265 million in 2013 compared with $209 million in the prior year, slightly higher than the Company’s prior outlook of $260 million.

Apparel net revenues increased 27% to $1.76 billion compared with $1.39 billion in the prior year, led by new product launches across old product categories like HeatGear and Fleece as well as newer technologies such as Storm, ColdGear Infrared and Charged Cotton.  Footwear net revenues increased 25% to $299 million during 2013 compared to $239 million in 2012, reflecting expanded offerings in both the running and cleated businesses.  Accessories net revenues increased 30% to $216 million during 2013 compared to $166 million in 2012, primarily driven by headwear and gloves.  Direct-to-Consumer net revenues, which represented 30% of total net revenues for the year compared to 29% in 2012, grew 33% over the prior year.

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. 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 2013, Under Armour’s direct-to-consumer revenues rose by 33%, outpacing the overall revenue growth at the company. The company opened 4 new factory house stores in Q4 and will also expand 9 existing stores during the year. 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 $74 price estimate for Under Armour after the earnings release.

See More at Trefis | View Interactive S&P Capital IQ Analyses (Powered by Trefis)

1. Heard During UA’s Earnings Call, Seeking Alpha, January 2014 [↩]