Under Armour gains

The Baltimore Sun

Warm weather left most retailers with racks full of clothing at the end of the third quarter, but sports apparel company Under Armour saw its business climb.

The Baltimore company, which makes clothes that wick sweat from the body to control temperature, reported yesterday strong sales and earnings for the three months that ended in September, widely beating Wall Street expectations.

Under Armour Inc. recorded sales growth in all categories of its core compression market. And it was helped by newer products, such as outdoor wear and golf apparel.

"Our core business is still strong," Kevin A. Plank, Under Armour president, chairman and chief executive, said in a telephone interview yesterday.

While many analysts applauded the company's third-quarter performance, some raised concerns about Under Armour's rising inventory levels, which more than doubled from this time last year. The company said it ordered more inventory because many stores ran out of merchandise last season.

The third-quarter slowdown other apparel sellers experienced could greet Under Armour before the end of the year, some analysts warned, just as that new inventory is arriving in stores.

Since Under Armour sells much of its merchandise to retailers such as Dick's Sporting Goods and Sports Authority rather than directly to the consumer, it might not have noticed a slowdown in sales right away, analysts said.

Under Armour said yesterday that it expects its sales growth to slow during the final three months of the year.

"They had some fairly heavy inventory growth and that coupled with what you're seeing in retail brings more concern about markdowns and clearance in the future," said Reed Anderson, an analyst with D.A. Davidson & Co.

"Strategically it makes sense," he said. "But against the backdrop of potentially slower discretionary spending, or whether there's warmer weather, it makes some people a little bit more cautious."

The initial angst among investors sent Under Armour shares down at the opening of the market yesterday. But the stock rebounded throughout the day to close up $4.98, more than 8 percent, at $63.71 in trading on the New York Stock Exchange.

The company posted net income of $20 million, or 40 cents per share, for the quarter that ended Sept. 30. That compared with $16 million, or 32 cents per share, for the corresponding period a year ago.

Net revenue increased to $186.9 million from $127.7 million.

Analysts had expected earnings of 34 cents per share and revenue of $171 million, according to Thomson Financial.

The company increased its revenue outlook for the year as a result of the strength of the third quarter. It now expects revenue in the range of $590 million to $600 million. That's up from the $580 million to $590 million it previously estimated for this year.

Plank said the company expects net revenue and income from operations to exceed its long-term growth target of 20 percent to 25 percent in 2008.

But the company, which has its headquarters in the Tide Point complex in South Baltimore, expects its growth rate in net revenue during the final three months of this year to reach no more than 24 percent, compared with 46.3 percent growth in the third quarter.

At the same time, the company said inventory levels went from $75 million this time last year to $151.8 million last quarter.

The company said it ordered more inventory because it couldn't keep up with demand last year.

"We were missing a tremendous amount of business," Plank said.

Some investors are watching to see if the company can support the inventory levels in a slower retail environment.

It's part of what caused the early stock drop yesterday, some analysts said.

"Anytime investors see something like that there's an emotional reaction," said Mark Fightmaster, an analyst with Schaeffers Investment Research.

Fightmaster said investors are used to seeing Under Armour's hefty returns and sometimes become more cautious when the outlook is lower, such as it is for the fourth quarter.

"They may expect more out of the company because the growth has been so great," he said. "That's one problem the company faces with being so successful, continuing to live up to its reputation."

Under Armour also launched a new Internet site yesterday and plans to open its first retail store at Westfield Annapolis Mall tomorrow. Company executives envision similar stores around the country that will showcase Under Armour's merchandise and branding.


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