Under Armour's New Year's resolution: Make it a rebuilding year.
The Baltimore company, known for its athletic clothing that wicks sweat from the body, will open 15 new outlet stores, revamp its running shoes, upgrade its information technology systems, invest in its Web business and focus more on designing new products.
But all the new investment also means that spending and costs will outpace revenue growth, Brad Dickerson, Under Armour's chief financial officer, said in a quarterly earnings conference call with analysts Tuesday.
"We believe these investments are the key to building the growth platform for accelerated profitable growth in future years," he said.
Under Armour shares fell $1.66 on the news, or 5.95 percent, to close at $26.25.
Sam Poser, an analyst with Stern Agee, said the cost prediction causes some short-term concern.
"It's hard when you give guidance saying that you're going to be retooling," Poser said. "That [projected] increase in sales is a pretty big dollar amount and not leveraging any" selling, general and administrative expenses.
But he said Under Armour needs to make the long-term investment.
"I think they're doing exactly the right thing," Poser said.
Under Armour's fourth-quarter net income rose to $15.2 million, or 30 cents per share, for the fourth quarter ended Dec. 31. That was compared to $8.3 million, or 17 cents per share, the year before. Analysts polled by Thomson Reuters on average had projected earnings of 25 cents per share on revenue of $200.6 million.
Revenue increased 24 percent to $222.2 million, driven by apparel sales, which grew 26 percent in the quarter. Direct-to-consumer sales, which include those from the company's retail stores and Internet site, climbed 53 percent.
Company executives reiterated that this year it would take a "conservative" approach to its footwear business - which dropped 5.1 percent in the quarter - with no new retail launches. Instead the company will focus on its stronger categories, such as baseball and football cleats, where it expects to take market share.
"We learned we need to invest capital, both human and financial, to fully leverage the Under Armour opportunity in footwear," said company founder, chairman and CEO Kevin Plank.
The company hired a new footwear executive team last year and is revamping its running and cross-training lines. It is testing a basketball shoe with 10 Division I basketball teams and with the top 20 high school basketball programs. Brandon Jennings, a contender for NBA Rookie of the Year, is also testing the shoe.
"Footwear is a key part of our mid- and long-term growth story," said David McCreight, Under Armour president. "And 2010 will represent a year of continued investment and concentration for us."
Apparel and direct-to-consumer sales are expected to drive the company's growth this year. The company will have 50 outlet stores at the end of the year, although it doesn't expect to open full-price stores.
Women's apparel, which the company has redesigned in recent years, is also expected to be a strong driver for growth, analysts said. The company is also expected to soon release a padded compression Under Armour Core Short.
"Our strong brand and our willingness to invest provide us with multiple levers to pull for long-term growth," Plank said.
The company raised its 2010 revenue outlook slightly, to between $945 million and $960 million, an increase of 10 percent to 12 percent from last year. It expects earnings per share to grow in line with net revenue.
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