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Under Armour's Q2 Earnings Beat, Guides High

Zacks Equity Research

Shares of Under Armour Inc. (UA) jumped 12.2% to close at $69.38 as the company came up with robust second-quarter 2013 results. Under Armour’s quarterly earnings of 16 cents a share surpassed the Zacks Consensus Estimate of 14 cents and surged 166.7% from the year-ago quarter.

Aided by strong performance of the Apparel category, total revenue came in at $454.5 million, up 23% year over year and ahead of the Zacks Consensus Estimate of $448 million.

The company witnessed strong year-over-year performances across all its segments. Consequently, Under Armour raised its guidance for 2013. The company now expects net revenue in the range of $2.23 billion – $2.25 billion, up 22% – 23% year over year. Earlier, it forecasted 2013 revenues in the range of $2.21 billion – $2.23 billion, representing growth of 21% – 22%.

Category Performance

Under Armour’s largest product category, Apparel, once again witnessed strong sales. In fact this is the 15th straight quarter in which the segment registered at least 20% growth. Apparel sales jumped 22.7% to $310.2 million, reflecting strong performance of the new HeatGear Sonic Baselayer product. The company’s youth apparel businesses and innovative products such as Studio and Armour Bra also contributed significantly to the growth.

Footwear net revenue soared 21.1% to $81.7 million during the quarter. The company is witnessing strong demand of its Highlight cleats and UA Spine products. Moreover, the company is witnessing improved sales at its various distribution partners following which the company plans to invest more in shop-in-shops at its key partner, Dick's Sporting Goods Inc. (DKS).

Net revenue in the Accessories category rose 30.1% to $51 million during the quarter, while Licensing revenues elevated 16.7% year over year to $11.6 million.

Baltimore, Md.-based Under Armour announced a 29% surge in direct-to-consumer net revenue during the quarter, representing 30% of the total revenue.

Margin Performance

Gross profit rose 29.6% to $219.6 million during the quarter, while gross profit margin expanded 240 basis points to 48.3%, reflecting lower input product cost and favorable sales mix.

Operating income jumped 175.7% to $32.3 million, whereas operating margin expanded 390 basis points to 7.1%, reflecting increased gross profit and lower marketing, product innovation and supply chain costs.  

Going forward, Under Armour forecasts a modest expansion in gross margin for 2013. However, the company raised its operating income outlook for 2013 in the range of $258 million – $260 million, up 24% – 25% year over year. Earlier, the company projected operating income in the range of $256 million – $258 million, reflecting growth of 23% – 24% year over year.

Stores Update

This Zacks Rank #3 (Hold) stock opened 3 new Factory House stores during the quarter, taking the store count to 105. The company earlier stated that it intends to add 13 total Factory House stores in 2013.        

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $223.8 million, long-term debt decreased to $55 million from $74 million, while shareholders' equity was $877 million.

Capital expenditures came in at approximately $22 million for the reported quarter. Management now expects 2013 capital expenditures to be in the range of $85 million – $90 million, up from its earlier projected range of $80 million – $85 million.

Other Stocks to Consider

Until any further upgrade in Under Armour’s Zacks Rank, other stocks in the Apparel, Footwear & Accessories industry worth considering include Wolverine World Wide Inc. (WWW) and Brown Shoe Co. Inc. (BWS), both carrying a Zacks Rank #1 (Strong Buy).

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Read the Full Research Report on WWW

Read the Full Research Report on DKS

Read the Full Research Report on BWS

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