Under Armour, Inc. (UA“>UA), one of the leading developers, marketers and distributors of branded sports apparel, footwear and accessories, recently posted better-than-expected first-quarter 2011 results. The outperformance came on the heels of healthy apparel and footwear businesses, which encouraged management to provide an upbeat outlook.
The quarterly earnings of 23 cents a share topped the Zacks Consensus Estimate by 4 cents and soared 64.3% from 14 cents delivered in the prior-year quarter. Under Armour’s net revenue for the quarter came in at $312.7 million, up 36.3% from the year-ago quarter, and surpassed the Zacks Consensus Estimate of $294 million.
Let’s Dig Deep
The double-digit jump in top-line was driven by an increase of 33.5% in apparel net revenue to $230.5 million, reflecting growth across men’s, women’s and youth apparel businesses and strong performance of Charged Cotton apparel.
Footwear net revenue climbed 19.7% to $51.4 million principally due to the introduction of basketball products. Under Armour remains optimistic about the strong market for footwear products in 2011. Accessories net revenue rose to $23.5 million from $7.5 million in the year-ago quarter and Licensing revenue climbed 15% to $7.2 million.
Baltimore, Maryland based company, Under Armour, said that direct-to-consumer net revenue surged 53% during the quarter, reflecting new Factory House store growth and robust Web business. Direct-to-consumer business now represents 20% of total revenue.
Under Armour opened 9 new Factory House stores during the quarter under review, increasing the store count to 63. The company expects to open 16 more Factory House stores during the year bringing the total count to 79 at the end of fiscal 2011.
Despite a 37.7% increase in cost of goods sold, gross profit jumped 34.8% to $145.1 million, whereas gross profit margin contracted 50 basis points to 46.4%, reflecting increased footwear sourcing costs and unfavorable apparel product mix. However, the results were partially offset by sustained growth in the higher-margin direct-to-consumer business, and lower footwear markdowns and sales returns. Operating income surged 55.6% to $21.1 million, whereas operating margin expanded 90 basis points to 6.8%.
Other Financial Details
Under Armour ended the quarter with cash and cash equivalents of $110.8 million, total long-term debt of $13.6 million, shareholders’ equity of $525.2 million and a revolving credit facility of $300 million. Capital expenditures were approximately $12 million for the quarter under review. Management now anticipates fiscal 2011 capital expenditures to be between $45 million to $50 million, up from a range of $40 million to $45 million forecasted earlier.
Management’s Upbeat Guidance
Better-than-expected results, sustained growth in the apparel category and direct-to-consumer channel and improved outlook for the year, inspired management to raise fiscal 2011 guidance.
Under Armour now expects fiscal 2011 net revenue between $1,370 million and $1,390 million, representing an increase of 29% to 31%, and operating income between $149 million and $153 million, reflecting a growth of 33% to 36% over the prior year. As a result, operating margins are expected in the range of 10.9% to 11%, up 30 to 40 basis points from the prior-year level.
Earlier, Under Armour had expected net revenue between $1,330 million and $1,350 million, representing an increase of 25% to 27%, and operating income between $143 million and $147 million, reflecting a growth of 27% to 31% over the prior-year.
Currently, Under Armour, which competes with Nike Inc. (NKE“>NKE), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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