Under Armour Gains Muscle, Q1 Sales Gains Strong

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All built up with a slew of new products, a major ad campaign and a growing retail presence, Under Armour is flexing its muscle.

That was the message the sports apparel outfit sent April 19 when it reported first-quarter results that beat views and raised 2013 operating income and revenue guidance.

Under Armour ( UA ) said it earned 7 cents a share, down 50% from a year earlier as it got hit by higher marketing and other costs. But earnings came in 4 cents ahead of forecasts by analysts polled by Thomson Reuters, helping to lift the stock. Revenue rose 23% to $471.6 million, topping estimates for $467.79 million.

It was the 15th straight quarter Under Armour scored double-digit sales growth.

"They're continuing to block and tackle and take share," said Piper Jaffray analyst Sean Naughton. "They were able to continue growing the top line at 23%, which is very admirable given they grew revenue 23% in the first quarter of last year."

Apparel sales popped 22% to $346 million, driven primarily by the launch of a new base-layer product and strong sales of fleece items. Accessory sales increased by the same amount to $36 million. Footwear sales rose by 27% to $81 million as it benefited from new running shoe styles led by its UA Spine Venom product.

Marketing Expenses

Naughton says a 42% increase in marketing expenses from a year earlier drove the earnings down, even with the nice bump in sales.

Under Armour also raised 2013 revenue guidance to a range of $2.21 billion to $2.23 billion from its prior outlook of $2.20 billion to $2.22 billion. It now expects 2013 operating income in the range of $256 million to $258 million, up from its prior estimate of $255 million to $257 million.

During the quarter, Under Armour got a nice lift from new products such as the Under Armour Alter Ego line of T-shirts featuring iconic superheroes such as Batman, Superman and Spider-Man. The line was the most successful product launch ever on its e-commerce site, said CEO Kevin Plank on the first-quarter conference call. It started shipping the line to its wholesale accounts late in the quarter.

To pitch its growing product lineup, it launched globally online its biggest worldwide marketing campaign to date. Featuring its "I Will" trademark, the campaign focuses on the passion and determination that drives all athletes and Under Armour's commitment to engineering innovative products that provide real performance advantages.

The campaign's principal creative spot features athletes such as Canelo Alvarez, boxing's welterweight World Champion. The commercial debuted on TV in the U.S. Feb. 16 on the TNT network during the NBA All-Star Weekend.

At the campaign launch event, Under Armour also showcased a new product, the Armour39 digital performance monitoring system. Launched in March, the product reflects an individual's overall effort during a workout session. It also tracks heart rate, calories burned and intensity.

Naughton says the Armour39 will be among the company's key growth products.

Under Armour is also gaining traction in footwear, says John Horan, publisher of Sporting Goods Intelligence, a weekly newsletter.

"Their footwear business is starting to get some real staying power," he said. "Their cleated business has definitely got a following and its Spine running business has given them some traction in running footwear."

On the conference call, Plank says Under Armour has gained market share in performance running as a result of its Spine technology platform.

In addition to upping its game on the product front, Under Armour is also revving up its brand power with an Olympic sponsorship. In February, it announced it will outfit USA Gymnastic athletes, coaches and staff through the 2020 Games.

The eight-year partnership marks Under Armour's first sponsorship of a national governing body for a summer Olympic sport. Under the pact, Under Armour will be the official performance apparel and footwear outfitter for USA Gymnastics during training and conditioning as well as national and international competition. Under Armour said it will collaborate with GK Elite Sportswear to create U.S. National Team competition apparel for men's and women's gymnastics, trampoline and tumbling.

Naughton says the Olympic sponsorship should be good for building the brand on a global stage as Under Armour looks to grow internationally. Right now, Under Armour gets only 6% to 7% of total sales outside of North America.

"International growth will likely show material acceleration beginning in 2015," wrote Sterne Agee analyst Sam Poser in a recent report. "We believe that management is licking its chops as it positions the brand in Brazil for the 2016 Olympics."

Brazilian Network

He says Under Armour has a distribution network set up in Brazil. And, he notes, Charlie Maurath, who became president of Under Armour International last September, has had more than eight years of recent experience heading up Latin America forAdidas AG ( ADDYY ).

Horan says the new marketing campaign carries much more of a global message than past efforts, and Under Armour should be able to build on that message as it looks to expand overseas.

Expanded distribution is also helping Under Armour gain some mileage. Within its youth category, which includes the Alter Ego line and its women's business, growth will come from expanding retail distribution at department stores such asMacy's ( M ), Dillard's ( DDS ) andNordstrom ( JWN ), says Naughton. He says Under Armour is growing its presence at these retailers in more stores. The assortment is more tailored to the consumer, who shops at department stores with the mix more weighted toward fashion athletic gear than sporting goods.

Analysts polled by Thomson Reuters expect full-year earnings to rise 21% to $1.46 a share. They expect a 26% gain in 2014.

"We are confident, based on our retail channel checks and Under Armour commentary, growth in all categories is sustainable," writes Poser. "Continued product improvement in youth and women's apparel, steady growth in footwear led by running, and an accelerating international business led by Latin America, positions the brand well for the future."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas

Referenced Stocks: ADDYY , DDS , JWN , M , UA

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