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Under Armour shares roar back on strong sales and earnings

Baltimore, MD -- CEO Kevin Plank at Under Armour's annual shareholder meeting in April at its Locus Point headquarters.
Baltimore, MD -- CEO Kevin Plank at Under Armour's annual shareholder meeting in April at its Locus Point headquarters. (Amy Davis / Baltimore Sun)

Under Armour shares roared back Thursday after the Baltimore-based athletic apparel company topped estimates for sales and profit in the fourth quarter.

The company's stock, which has been hammered since November amid questions about its holiday sales, leapt 22.5 percent to close at $84 a share.

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Fourth-quarter sales and profitability were driven by surging popularity of the brand's basketball shoes — thanks to the appeal of Under Armour athlete and NBA star Stephen Curry — as well as strong apparel sales and a wider reach to consumers globally.

Its net income jumped 21 percent to $106 million in the October-to-December period, compared with $88 million a year earlier, the company said Thursday. Earnings per share hit 488 cents, up from 40 cents.

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Sales soared 31 percent to $1.17 billion for the period that ended Dec. 31, compared with $895 million a year ago.

For the quarter, analysts had been looking for the company to earn 46 cents a share on sales of $1.12 billion.

Sales for the full year jumped 28 percent to $3.96 billion from $3.08 billion in 2014, topping the company's outlook of $3.91 billion.

"I'm very impressed with what the company has been able to do, especially on the revenue side," said David Meier, portfolio manager for Motley Fool Wealth Management. "Under Armour has proven time and time again that it knows how to create great product and create demand for those products that turn into sales.

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"This is a company that knows how to grow," Meier said. "The success of the Steph Curry basketball shoes, holy cow. That's incredible."

Footwear, a relatively small but fast-growing segment for Under Armour, accounted for $167 million in sales, a 95 percent increase over last year, as consumers snapped up Curry's signature shoes and had more to choose from in the running category.

During a conference call Thursday, CEO Kevin Plank reminded analysts that the brand ventured into footwear sales only a decade ago. It now makes up 17 percent of Under Armour's business. He said sales of the recently introduced Curry II were "like nothing we've ever seen before."

Demand for gear for training, running, golf and basketball spurred apparel sales, which increased 22 percent, to $865 million from $708 million in the same period a year earlier. It was the 25th consecutive quarter of more than 20 percent sales growth in apparel, by far its biggest product category.

Plank and outgoing CFO Brad Dickerson responded to recent reports raising concerns about market share losses and pricing.

Earlier this month, Morgan Stanley downgraded Under Armour stock, citing data from SportScan that showed Under Armour lost market share and dropped prices in apparel, with the trend more pronounced in women's apparel, a key area for the brand. Also, the warmer-than-usual winter in many areas of the country was expected to dampen sales of cold weather gear.

Dickerson, who is stepping down to move to a startup meal delivery company and being replaced by former PetSmart executive Chip Molloy, said data used in the report captures only a portion of Under Armour's business, missing international, online and branded store sales.

"Weather plays into part of the conversation [for the fourth quarter], and each year we answer those who doubt us with strong numbers," Plank said. "Here in the U.S., we have football in the fall, basketball in the winter, baseball in the spring and, like soccer, personal health and fitness is year-round in all weather. Our business is more diverse than it ever has been and we do not let weather play a decisive role."

The brand's international sales, a key growth area that makes up 12 percent of overall sales, shot up 70 percent year over year in the fourth quarter. Plank said sales outside the U.S. are growing as the company opens more of its global Brand House stores and focuses on international websites.

While the company has had success creating apparel that resonates with customers and aligning itself with the next generation of elite professional athletes, it needs to focus on operations to catapult to the level of industry leader Nike, Motley Fool's Meier said.

Meier said he has seen the brand take steps toward that end, such as beginning to improve the efficiency of its supply chain, which should help boost operating profit margins.

"That will take them from a great company to a truly world-class company," he said.

Under Armour said its sales are expected to grow 25 percent to $4.95 billion in fiscal 2016, the company's 20th year in business, which Plank called an "incredible milestone."

"For us," he said, "it means the next generation entering the workforce doesn't know a world where Under Armour did not exist and doesn't recognize us as an underdog."

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