Benefiting from breakout events from several of its star athletes, Under Armour reported its 21st consecutive quarter of 20 percent plus net revenue growth.

Revenues in the second quarter climbed 28.5 percent to $783.6 million. On a currency-neutral basis, revenues increased 30.9 percent compared with the prior year's period. The gains reflected percentage growth near the 40s’ in emerging categories such as footwear and accessories but also a solid 22.7 percent in its core apparel category.

Net income decreased 16.5 percent to $14.8 million, or 7 cents a share, inclusive of the impacts of the February acquisition of Endomondo and MyFitnessPal. The decline was expected with results beating Wall Street’s consensus estimate by 2 cents a share.

The profit decline reflected investments to support its Connected Fitness segment (UA Record, MapMyFitness, Endomondo, MyFitnessPal) and the opening of global Brand House stores in the quarter, as well as foreign exchange losses and increased airfreight expense in response to the West Coast port disruption. Interest expense grew to $2.2 million from $846,000 a year ago.

Looking ahead, Under Armour now expects 2015 revenues of approximately $3.84 billion in 2015, representing growth of 25 percent over 2014. That’s up from previous expectations of revenues of about $3.78 billion, representing growth of 23 percent.

Operating income is expected to rise in the range of $405 million to $408 million, representing growth of 14 percent to 15 percent over 2014. The EPS projection was essentially narrowed from a range from $400 million to $408 million previously, which represented growth of 13 percent to 15 percent over 2014.

Management said it could have increased its earnings target as well but it wanted to seize on recent standout performances by its primary athletes to further invest in marketing in the second half. These stars included Stephen Curry, who won the NBA’s MVP and led his team to a NBA championship win; Jordan Spieth, golf's biggest rising star at just 21 years old who won the Masters and U.S. Open; and Misty Copeland, who just became the American Ballet Theatre's first-ever African American female principal dancer.

“In a period where we have seen unprecedented success from our athletes on a global stage, we believe we have a unique opportunity to position ourselves more aggressively in key long-term growth categories such as basketball and golf, which we believe can curate brand halo's across the Under Armour portfolio,” said Brad Dickerson, UA’s COO and CFO, on a conference call with analysts. “As a result, we expect to spend more than originally planned in marketing throughout the remainder of the year, and this is the primary reason we are raising our full-year net revenues guidance while maintaining the upper end of our previous operating income guidance.”

Among categories, apparel grew 22.7 percent in the second quarter to $515.3 million, representing its 23rd consecutive quarter of 20 percent growth. The strength seen in the first quarter continued in the second quarter, including strong sales of its new Armour base layer, updated training products, and expanded golf and hunting lines.

FOOTWEAR BOOSTED BY RUNNING AND BASKETBALL

Footwear led the way across categories with a revenue hike of 40.2 percent, to $153.6 million. The gains reflected continued expansion across the running category and a buzz created in basketball from the launch of Curry’s signature product

“Speedform remains a key growth story for our brand and we are beginning to introduce this innovation across a wider range of styles and categories this year,” said Dickerson. “We capitalized on the incredible success of Stephen Curry in basketball with new colorways quickly selling out during his MVP and championship run with the Warriors.”

Accessories grew 38.6 percent to $83.0 million, primarily driven by strong consumer demand for its bags.

Global direct-to-consumer revenues jumped 33 percent for the quarter, representing approximately 32 percent of revenues. Said Dickerson, “We continue to be encouraged with our recent Brand House openings including the first full-quarter results for our Chicago and Mall of America stores as well as of the new second-quarter openings in Indianapolis and Orlando.”

Globally, Under Armour ended the second quarter with 160 owned stores, including 139 factory house stores and 21 Brand House stores.

E-commerce delivered a  “standout quarter,” benefiting from investments in mobile optimization across its expanding number of global sites. Said Dickerson, “While an ongoing focus on mobile is key, we were also able to drive strong trafficking through more effective email communications as well as by leveraging the incredible success of our athletes during the period.”

In the North America region, sales rose 22.0 percent to $680.8 million and expanded 23 percent on a currency-neutral basis. Operating income in North America rose 12.3 percent to $52.4 million.
 
INTERNATIONAL REVENUES NEARLY DOUBLE

Internationally, sales vaulted 93.4 percent to $89.2 million. On a currency-neutral basis, sales grew 111.8 percent. In the EMEA division, the focus remains on expanding in the U.K., Germany, and France while developing distributor agreements in the region, including the Middle East. In Asia-Pacific, gains were boosted by e-commerce growth in China and a new distributor agreement in Southeast Asia. In Latin America, balanced growth was seen across the region with many markets entered in 2014. The international segment’s operating loss shrunk to $4.4 million from $7.1 million. With a new location opened last week in Munich, Under Armour now has 17 regional offices.

In its Connected Fitness segment, revenues surged 147.8 percent to $13.6 million from $5.5 million. The loss in the segment widened to $16.1 million from $4.8 million. Across its Connected Fitness platform, UA said it has more than 140 million unique registered users and is adding on average more than 100,000 new athletes each day. Said Dickerson, “We are pleased with our progress and believe we are still in the early stages of uncovering the potential of what the world's largest digital health and fitness community can do to build consumer engagement and drive healthier lifestyles.”

Gross margin for the quarter eroded 80 basis points to 48.4 percent. About 60 basis points of the decline reflected the strength of the U.S. dollar against foreign currencies. Airfreight expense increased due to efforts to normalize product flow from the West Coast port disruption. Partially offsetting the margin pressure were better margins at its Factory House business combined with its higher-margin Connected Fitness revenues, lifting gross margins by approximately 20 basis points in the period.

SG&A expenses as a percent of sales in the quarter rose to 44.3 percent from 43.5 percent in the prior-year's period, primarily reflecting investments to support Connected Fitness and the opening of global Brand House stores. Companywide operating earnings declined 8.1 percent to $31.9 million.

In his remarks, Kevin Plank, chairman and CEO, elaborated on the success of Curry, Copeland and Spieth, and the brand’s related opportunities to build on the momentum seen in basketball, women's and golf.
 
“Their achievements these past few weeks represent a moment in time for the Under Armour brand,” said Plank.
 
UA’s “brand heat” from these victories by its stars is particularly evident online, with basketball traffic on its e-commerce platform up more than 300 percent. On social media channels, Under Armour added more followers on Instagram during the recent NBA finals than it did in all of 2014. Said Plank, “The Curry One shoe is a great success on our e-commerce site as we continue to gain share in key footwear categories with our wholesale partners.”

He added, “Our women's business continues to grow strongly in key areas like capris, shorts, sports bras, and running footwear, while our e-commerce golf business was exceptional growing about 60 percent year over year.”

Planks also underscored that its athlete’s successes is emboldening Under Armour to “think bigger” in seeking to capitalize on the brand’s momentum in the marketplace.

“We understand there are short-term benefits to this unprecedented momentum but we are focused on the long term,” said Plank. “To us, this moment provides a great chance to build a more meaningful connection with our consumer through the power of these transcendent athletes. That connection can be deeper and more powerful for our brand then any short-term spike in our revenues or our earnings.”

In basketball, for example, UA is finding success with some “very hot selling limited releases,” marked by lines outside its Brand House stores. Added Plank, “It has motivated our footwear team and it has given confidence to our retail partners about our expanding presence in the basketball category, amongst others, particularly in the mall.”

He also noted that Under Armour recently debuted a new shop-in-shop concept with Champ Sports, The Armoury, which highlights not only basketball but also a broader mix of UA product that consumers “have been historically unable to find from our brand in the mall.”

Plank sees similar opportunities in women’s and golf. Said Plank, “We are still developing a wide consumer audience in these three categories here in the US and the opportunity for us in international markets is abundant.”

To help capitalize on these opportunities and others, Planks also noted that the company moving to a sports category focus organizational structure that focuses on the needs of end consumer. Terdema Ussery, the former president of the Dallas Mavericks, has been hired as president, global sports categories, to steer the effort.

“This structure has proven successful for us in golf with a combination of great product, a great asset, and a great team that helped us double revenues in the past two years,” said Plank. “This increased category will help us drive our core business, a critical component in our long-term growth story.”

Finally, Plank talked up the opportunity around its Connected Fitness, with members across the platform expanding more than 30 percent year over year. So far in 2015, these users have voluntarily logged over 1 billion workouts. Said the CEO, “This level and detail of data will empower us to provide actual insights back to our community that will help them lead a healthier lifestyle, and we believe the brand equity that can provide us is immeasurable. Ultimately, the more people exercise, the more athletic footwear and apparel they will buy.”

Looking ahead, Under Armour officials expect the growth rate in footwear to continue outpacing the growth rate for the overall business during the second half the year. International growth is expected to ease from the growth rate achieved in the first half of 2015 as the brand cycles through its entry into Latin America as well as new distributor partnerships launched last year. Revenue growth is expected to be consistent in the third and fourth quarter.

Gross margins for the year are expected to be in line with last year's 49 percent rate. The margin in the third quarter is expected to contract 50 basis points primarily due to the negative impact of the stronger US dollar. Due largely to a higher planned marketing spend, SG&A is expected to expand in the third quarter at a similar rate as experienced during the first half of the year.