Under Armour continued its onslaught on the performance apparel market for the second quarter ended June 30, posting consolidated results that were far superior to what most analysts had expected. Net revenues surged 24% for the quarter, propelled by impressive 34% growth from the company’s apparel business. The spike in apparel sales was the highest growth rate for UA in ten quarters dating back to the third quarter of fiscal 2007.
In a conference call with analysts, company Founder, Chairman and CEO Kevin Plank said Under Armour’s apparel business was “revitalized” during the second quarter and added that there still remains “meaningful growth [opportunities]” for the brand’s apparel business despite soaring revenues. “The best and simplest part of the apparel story is that everything was up,” said Plank, pointing to strong double-digit sales across the men’s, women’s and youth apparel segments. Highlighting key growth areas for the quarter, Plank pointed to strong double-digit increases in training, golf, football and underwear for the men’s side along with training, underwear and baselayers for the women’s side. Plank added that the one common thread between the women’s and men’s segment was the continued success of the company’s fitted product. Regarding product offerings within the fitted segment, Plank said UA would continue to bolster its offering of silhouettes across key categories like baselayers, golf and running. This fall, UA will introduce an evolved edition of its popular ColdGear fabrication that Plank assured is warmer, softer and features a more generous fit. “Without question, fitted product will be an important driver for us in 2010,” said Plank, “but longer term, multiple fit options (and) new fabrications will be critical drivers of our growth ”
Among other growth drivers, Under Armour’s Direct sales grew 60% for the quarter, driven by new factory store growth, strong retail comps and sustained strength from its Web business. Plank said UA is on track to open 17 to 19 new stores by year end.
Also of note, amid talk that Under Armour will expand into cotton-based product something it has denounced in the past Plank largely evaded the topic, but said Under Armour would enter any new category with innovative products and higher price points. He added that the company has become much more sensitive to the idea of opening up to a broader consumer base. Plank also noted that there is definitely a significant contingent within the market that prefers a more loose-fitting ,non-obstructive garment. When asked a follow-up question about the prospects of UA entering the cotton market specifically, Plank responded by saying simply, “ performance is our friend.”
Despite commendable triumphs, however, Under Armour didn’t emerge from the second quarter completely unscathed, as the company’s floundering footwear business continues to act as its lone Achilles heel. Revenues for the footwear business slipped 4.5%, which actually represented a substantial improvement from a Q1 that saw segment sales plummet nearly 25% on weakness from non-cleated footwear.
Predictably, Plank declined to speak extensively about the struggling footwear business in the conference call, but assured analysts that footwear is a “long term proposition for Under Armour” and promised that UA “will deliver growth in [its] footwear business in Fall 2011.” The company previously indicated to analysts that running and training footwear revenues were expected to decline in 2010.
Based on the second quarter results and improved visibility for the full year, management said it now expects 2010 annual net revenues in the range of $990 million to $1.01 billion, an increase of 16% to 18% over 2009, versus previous guidance of revenues in the $965 million to $985 million range, an increase of 13% to 15% over 2009. UA also expects 2010 diluted EPS in the range of $1.11 to $1.13, an increase of 21% to 23% over 2009, versus previous expectations of $1.05 to $1.07 per share.
>>>The “Cotton is the Enemy” mantra is perhaps a bigger concern inside the UA building than outside. Retailers will debate the switch, and UA has some angst about reaction, but the chains are booking the heck out of the new “charged cotton” product for Spring 2011. Many have tried to get early deliveries but it looks like late February for the first run. The challenge for UA will be the “bad cotton” versus “good cotton” conversation. SEW suggests they put it aside and let the consumer buy the Under Armour brand the way they want to buy it. They just increased their potential audience by a factor of ten
>>>After getting burned by the running footwear launch and the accompanying hype on the Street, Plank is going to play this one much closer to the vest and then reap the benefits when the numbers jump next year. Don’t talk about it. Just do it Hmmm…
