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Under Armour sales up 34 percent in second quarter

Years of investing in global expansion and footwear is starting to pay off, Under Armour said Thursday after the Baltimore-based company reported a 34 percent jump in second-quarter sales that sent shares soaring.

The sports apparel maker's stock leapt nearly 15 percent Thursday to $69.55 per share.

Consumers are buying into the sports apparel maker's strategy of transforming itself into an international brand known for performance-based footwear as much as for its core clothing business, the company said. Better-than-expected sales prompted Under Armour to boost its sales forecast for the year to as much as $3 billion, a 29 percent jump from last year.

While the brand has seen big sales gains before, "what is unprecedented is the source of our growth," CEO Kevin Plank said during a conference call with analysts. "As we reach the midpoint … we will all look back on 2014 as a pivotal year in our diversification."

With strong, broad-based growth, "Under Armour is positioned for the future," wrote Sam Poser, an analyst with Sterne Agee, in a report. He added that Under Armour "is well on its way to becoming the solid #2 player" by eclipsing Adidas.

But another analyst warned that Under Armour still is up against bigger, more established brands.

Under Armour faces "intense competition from several established global athletic and footwear brands with significantly larger budgets for product development and marketing," said Michael Binetti, an analyst with UBS Securities LLC, in a report.

The brand's revenue increased to $610 million in the three months ended June 30, compared with $455 million in the second quarter of 2013. Analysts had expected sales of $573.8 million for the quarter.

While sales soared, income remained flat, which is what analysts expected. The company earned $18 million, or 8 cents per share, in the April-to-June period, the same as a year earlier.

The lack of income growth reflects previously planned marketing and brand innovation expenses, the company said. Its marketing budget increased to 11 percent of sales, for campaigns such as one to be unveiled later this month targeting women as Under Armour aims to increase sales in its women's lines from the current 30 percent level. The campaign — the company's biggest ever focused on women — features ballet soloist and Under Armour athlete Misty Copeland.

The company also continues to shoulder expenses related to its acquisition last year of fitness technology company MapMyFitness, said Brad Dickerson, Under Armour CFO.

During the second quarter, Under Armour's apparel sales jumped 35 percent to $420 million, compared with $310 million in the year-earlier period as the brand increased offerings in golf, outdoor, running, training and women's studio categories.

Such "nascent" categories can be expected to generate 30 percent growth rates for the foreseeable future, Poser said in his report.

Under Armour said its footwear sales climbed 34 percent to $110 million, led by new running shoes. At midyear, shoe sales — which account for 18 percent of overall revenue — already rival footwear sales for all of 2012, Plank said. Under Armour has been selling footwear since 2006 but expanded into the $7 billion running category more recently.

Momentum in shoes, driven by the running category, is growing as the company ramps up for a major product launch in early 2015. Plank described the $130 Speedform Gemini — the next generation of the Speedform Apollo running shoe introduced earlier this year — as every runner's shoe and "the shoe we were supposed to make."

Additionally, the company has been laying the groundwork for international growth and is starting to show results, Dickerson said. Under Armour made its first international push eight years ago into Europe and now has a presence in markets such as Brazil, Chile, China and Japan.

The company's fast-growing direct-to-consumer channel — via branded stores and online — now accounts for less than 31 percent of distribution but will be a big part of the international growth.

It will have five Brand House stores in the United States by year's end, including an existing Baltimore location in Harbor East, but it's opening more branded stores outside the country. When 2014 closes, it will have almost 10 in Latin America and China and at least a dozen more that will be owned and run by retail partners.

"We always had plans in place, but we had to wait to get into the year to see how consumers would react," Dickerson said. "We have seen a very, very strong response from the consumer, both in footwear and in international. … The consumer is starting to recognize us as a performance footwear brand."

lorraine.mirabella@baltsun.com

Copyright © 2014, The Baltimore Sun
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