Under Armour stock surges as strong sales drive profit

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Under Armour finished 2013 with "eye-popping" quarterly results that beat sales and profit expectations and sent its stock price surging Thursday nearly $20 a share to over $100.

Shares in the Baltimore-based apparel and footwear brand rose $19.54 each — about 23 percent — to close at $104.76.


Under Armour's profit jumped 28 percent in the fourth quarter, with strong sales driven by the growing popularity of the brand's cold-weather sports apparel and gains in women's apparel business.

It reported net income of $64 million for the three months ended Dec. 31, up from $50 million a year earlier. Earnings per share hit 59 cents, up from 47 cents, and beating analysts' expectations of 53 cents.


Sales far surpassed expectations as well, climbing 35 percent to $683 million, compared with sales of $506 million in 2012's fourth quarter. Analysts anticipated about $620 million in revenue.

Even analysts who expected a strong finish to the year were surprised by such a sharp jump in sales, especially during the highly competitive holiday season when other apparel sellers struggled and marked down merchandise to attract consumers.

"It just shows how the momentum of the brand is accelerating and how it's broadening its reach to incorporate a wider breadth of consumers," said Camilo Lyon, a managing director of equity research for Canaccord Genuity in New York.

Demand is extending from its "core demographic" customer, who Lyon described as 14- to 21-year-old athletes who might play team sports, to even younger children and, increasingly, to women, a category where the company has gained traction and expects huge growth.

The company also is "becoming more productive and efficient to meet that demand," Lyon said.

Under Armour raised its forecast for 2014, calling for sales to grow 22 percent to 23 percent to a range of $2.84 billion to $2.87 billion.

"By any measure, 2013 was a banner year for the UA Brand," said Under Armour CEO Kevin Plank in the company's announcement Thursday.

With the 15th straight quarter of at least 20 percent sales growth, the company hit $2.33 billion in revenue for the full year, he noted.


"Under Armour is a growth company, and with growth comes change," Plank told analysts during a teleconference Thursday. "Under Armour is a different company every six months."

Plank highlighted new offerings that are driving sales, including ColdGear Infrared apparel designed to retain body heat, introduced in the third quarter.

On the footwear side, the company is launching a new marketing campaign — "This is what fast feels like" — to promote the latest version of its Speedform running shoe. Plank said it "may very well be our next defining product," positioning the company in the consumer's mind as a footwear brand.

Such rapid growth is sustainable "as long as they keep the accelerator pressed on innovation," said Lyon, who sees untapped demand in the international markets where the company is expanding.

"International is an under-penetrated opportunity for them," he said.

In the fourth quarter, Under Armour apparel sales rose 35 percent to $546 million, led by strong sales of fleece and ColdGear merchandise. Footwear sales were up 24 percent to $55 million, driven by running shoes.


John Zolidis, director of equity research for the Buckingham Research Group, called the quarter's performance "eye-popping," and said in a research report Thursday that the company's revised outlook surprised.

But now the stock was trading at nearly 50 times projected earnings for this year and "few stocks maintain multiples at these levels even when business continues to grow at a robust rate as we expect it will for UA," he said.

Still, Zolidis wrote, "we believe the company has created an aspirational brand and is developing a product pipeline and strategy that will allow it to continue to grow at robust rates over the foreseeable future."

The company's apparel sales in the last three months of the year benefited from improvements that allowed the company to get products from suppliers in a more timely manner as well as from temperatures that became progressively colder in many parts of the country, said Brad Dickerson, Under Armour's chief financial officer.

"We were really pleased with how the brand performed at full price in a channel with heavily discounted and off-price" merchandise, he said. "Consumers are willing to pay full price for the brand because they wanted the brand. We're giving them the product they want and they're willing to pay full price."

In fiscal 2013, Under Armour acquired fitness technology company MapMyFitness, opened the first two UA Brand House stores, including one in Harbor East, and invested more heavily in women's apparel, footwear and international sales.


The company opened a New York office earlier this month, in part to help attract New York-based designers who will create new lines in women's apparel, Dickerson said. The company expects women's business eventually will equal the well-established men's business.

"There's quite a shift going on where women are wearing athletic products out of the gym, and this shift is more permanent than some expect," with women emphasizing style as well as performance, Plank said during the analysts call.

As the company grows, some of the biggest challenges lie in expanding internationally, Dickerson said. Under Armour has taken its brand to Europe, Japan and China through a combination of retail partners and branded stores and will focus more this year on a push into Latin America through a more balanced mix of both channels.

"Every country has different rules around importing and how to do business," he said. "Consumers are different in each market."