Plank will find game is harder, less forgiving in big leagues


THE FIRST TIME Under Armour founder Kevin Plank got his picture in The Sun was a decade ago as a back for the University of Maryland. The 1995 Terps had beaten North Carolina to go 2-0 for the first time in years, and Plank was on Page One, hoisting victorious quarterback Brian Cummings off the ground.

"Terrapins' perfect start rekindles fans' interest," said the headline a few days later.

Maryland went 6-5 that year. It lost five of its last seven games and wasn't picked for a bowl game.

So much for promising beginnings. As Plank and his Under Armour team celebrate the corporate equivalent of 2-0 - building a great business from scratch and preparing to sell public stock - let's hope the next phase diverges from the 1995 model.

The company, which has hoisted sales from $5 million to more than $200 million in five years, intends to keep pushing its close-fitting athletic wear into new products and stores to obtain the fast growth that public investors want.

It has performed beautifully since it virtually invented a new clothes category - the moisture-wicking "compression shirt" - and linked it to a sports-combat ethos. (A necessity, perhaps, for selling Lycra/Spandex-like garments to men.)

But the combat is about to become tougher - and not just because of the visibility, regulatory hassles and other challenges that come with being a public company.

Under Armour's success has caught the attention of very large, very smart rivals, including Nike and Reebok. Delivering what the stock market wants will require full doses of the innovation, moxie and marketing genius that Plank & Co. have already shown, plus skills that they haven't demonstrated yet.

Financial accounting at Under Armour has apparently been a problem in the past, according to documents the company filed yesterday with regulators. An independent auditor found inadequate documentation and other bookkeeping weaknesses that required a restatement of the company's 2002 results.

This isn't unheard of in a small company that is doubling revenue annually, and it isn't as big a deal for a closely held concern as it would be for a public outfit. Under Armour appears to have done all the right things to fix it: bringing in outside advisers and hiring extra help, including new chief financial and information officers.

But it's not exactly an upbeat item for the Power Point slides that offering underwriter Goldman Sachs will use to hawk Under Armour shares. Investors want companies aiming for geometrical growth to have shown they can do it glitch free.

And accounting isn't the only place that fast-growing businesses can mess up.

The companies Wall Street loves the most are those whose sales rise much faster than costs. That supercharges the bottom line. But Under Armour hasn't been doing this in recent quarters. After posting a terrific 8 percent net profit margin last year, the company recorded profit of 4 percent of sales for the first six months of 2005 - less than the 4.8 percent margin for the first half of 2004.

Presumably part of the decline is related to one-time expense for cleaning up accounting, costs to prepare for going public and other investments for the future. But for now investors must take it on faith that Under Armour can keep costs from racing ahead as fast or faster than revenue.

And they'll have to take some of the future revenue growth on faith, too.

There can be no denying Plank's accomplishment. He saw a need, rigged up an effective product, brilliantly marketed it by getting top-level athletes to adopt it and built an organization to make it and get it into stores all over the world.

But the road to $500 million in sales from $242 million - the company's revenue for the 12 months ending in June - could be longer and tougher than from $120 million to $240 million.

Among other items disclosed yesterday, Under Armour said it will enter the shoe trade next year by introducing football cleats - a very different line of business that might distract executives and burn cash. And, the company said, while it has applied for patents for some of its products, it holds none now. That's an opening for rivals.

Not least among the hallmarks of Under Armour's success is the sincere but brutal flattery it is attracting from Nike and Reebok. This year Nike launched what The New York Times reports is a $20 million to $30 million ad campaign that aims straight at the compression-wear market. Thirty million dollars is almost half of Under Armour's entire administrative expenses for last year.

The next phase will be as tough as playing Clemson at home.

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