Under Armour Beats, Ups Outlook - Analyst Blog

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 2010 results buoyed by the strong demand for athletic apparel and lower effective tax rate.

Quarterly Discussion

The quarterly earnings of 44 cents a share beat the Zacks Consensus Estimate by 7 cents and soared 46.7% from 30 cents delivered in the prior-year quarter. The earnings for the quarter benefited about 4 cents from a lower effective tax rate of 33.4% versus 42.1% in the prior-year quarter.

Under Armour's net revenue for the quarter came in at $301.2 million, up 35.5% from the year-ago quarter, and surpassed the Zacks Consensus Revenue Estimate of $274 million.

The double-digit growth in top-line was driven by a growth of 32.2% in apparel net revenue of $254 million and an increase of 28% in accessories net revenue of $14.8 million. Footwear net revenue climbed to $21.9 million in the quarter from $8.7 million in the year-ago quarter, principally due to introduction of basketball products and increase in baseball cleats.

Under Armour remains optimistic about strong market for footwear products in 2011. Licensing revenue climbed 6.3% to $10.5 million.

Baltimore, Maryland-based Under Armour said that direct-to-consumer net revenue surged 56% during the quarter, reflecting new Factory House store growth, healthy retail same-store sales and robust Web business. Under Armour opened four new Factory House stores during the quarter under review, increasing the store count to 54.

Despite a 34.3% increase in cost of goods sold, gross profit jumped 36.6% to $155.6 million, whereas gross profit margin expanded 50 basis points to 51.7%, reflecting sustained growth in the higher-margin direct-to-consumer business, and lower footwear markdowns. Operating income surged 30.7% to $35.2 million, whereas operating margin contracted 40 basis points to 11.7%.

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $203.9 million, total long-term debt of $15.9 million, shareholders' equity of $497 million and a revolving credit facility of $200 million. Capital expenditures were approximately $8 million for the quarter under review and $33 million for fiscal 2010. Management anticipates capital expenditures to be in the range of $40 million to $45 million for fiscal 2011.

Guidance

Riding on the back of better-than-expected results, sustained growth in the apparel category and direct-to-consumer channel, and improved outlook for the year management has raised its fiscal 2011 guidance.

Under Armour now expects fiscal 2011 net revenue between $1,330 million and $1,350 million, representing an increase of 25% to 27% over the prior-year.  Earlier, the company had expected a growth rate of 20% to 25%. For fiscal 2011, the company projects operating income between $143 million and $147 million, reflecting year-over-year growth of 27% to 31%.

Following an optimistic outlook, a positive sentiment may be palpable among the analysts covering the stock, and we could witness a rise in the Zacks Consensus Estimates in the coming days.

The current Zacks Consensus Estimate for first-quarter 2011 is 21 cents and for fiscal 2011 is $1.59 per share, whereas the current Zacks Consensus Estimate of revenues for the first quarter is $284 million and for fiscal 2011 is $1,297 million.  

Currently, Under Armour, which competes with Nike Inc. (NKE), holds a Zacks #3 Rank, which translates into a short-term Hold rating.

 
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