Under Armour Inc. posted healthy third quarter profits on strong sales gains, but it slightly lowered its full-year outlook due to the economic environment. In the third quarter, net revenues increased 24.1% to $231.9 million from $186.9 million a year ago. Third quarter net income increased 28.1% to $25.7 million, or 51 cents a share, from $20.0 million, or 40 cents, a year ago.
“Delivering 24% top line growth in the third quarter is a testament to our growth strategy and our connection with the athletes of this generation,” stated Kevin Plank, chairman and CEO of Under Armour, Inc. “By maintaining our focus on delivering the most compelling technical products to our consumer, we not only strengthen our connection with them but build the foundation to enter new markets.”
Apparel net revenues for the third quarter rose 19.0% to $201.1 million compared with $169.0 million in the same period of the prior year. The Women’s business achieved the strongest percentage rate of growth during the quarter, increasing 27.5% to $50.3 million. Footwear revenues increased to $13.1 million from $2.2 million in the third quarter of 2007, primarily driven by Performance Training Footwear, which launched during the second quarter of 2008.
Gross margin for the third quarter of 2008 was 51.0% compared with 50.6% in the prior year’s quarter primarily due to increased reserves and allowances in the third quarter of 2007 related to discontinued cleated footwear styles. Selling, general and administrative expenses were 31.0% of net revenues in the third quarter of 2008 compared with 32.5% in the prior year. Marketing expense for the third quarter of 2008 was 10.7% of net revenues versus 11.5% in the prior year’s period. The company still expects to invest in marketing at the high-end of the range of 12% to 13% of net revenues for the full year.
For the first nine months of 2008, net revenues increased 26.5% to $546.0 million compared with $431.7 million in the prior year. Net income for the first nine months of 2008 was $29.9 million compared with $35.7 million in the same period of 2007. Diluted earnings per share for the first nine months of 2008 was 60 cents on weighted average common shares outstanding of 49.9 million compared with 71 cents per share on weighted average common shares outstanding of 49.9 million in the prior year. Based on the seasonality of net revenues and the timing of marketing and other investments, the company had previously indicated that earnings would be more heavily weighted to the back half of 2008 relative to 2007.
Plank concluded, “Under Armour is a growth company, and our growth is driven by our demonstrated ability to successfully leverage our positioning as a premium performance brand. The strength of our team and our business model will allow us to grow and invest in the future. We will continue to plan our investments prudently and focus our resources on driving value for the company and our shareholders.”
Balance Sheet Highlights
Inventory totaled $163.6 million at September 30, 2008 compared with $151.8 million at September 30, 2007, an increase of 7.8% over the prior year and a decrease from the inventory balance reported at the end of the second quarter. Based on its current sales forecast, inventory management strategy and supply chain initiatives, the company continues to expect inventory to grow at a rate below net revenues by the end of the year. Cash, net of debt, was $2.6 million at September 30, 2008 compared with net debt of $0.1 million at September 30, 2007. The company had $15.0 million in borrowings outstanding under its $100 million revolving credit facility at September 30, 2008.
“Inventory control has been a major focus for the organization,” stated Wayne Marino, chief operating officer. “We set specific, measurable goals for inventory and aligned the leadership of the company against those goals. Discipline and process improvement have led to the team’s successful delivery on those expectations. By year end, we still anticipate inventory growth to remain below the rate of revenue growth, and for 2009, we are striving for improved inventory efficiency. Our focus remains on building the infrastructure of the company to support the vision of the Brand.”
Outlook for 2008
While the company has delivered strong results for the first nine months of the year, the company is revising its 2008 outlook based on the current economic environment. The company is revising its 2008 net revenues outlook to $750 million to $765 million, an increase of 24% to 26% over 2007. Additionally, the company is revising its 2008 income from operations outlook to $97.5 million to $104.5 million, an increase of 13% to 21% over 2007. The company had previously anticipated 2008 net revenues in the range of $765 million to $775 million and 2008 income from operations in the range of $104.5 million to $105.5 million.
Under Armour, Inc.
Quarter and Nine Months Ended September 30, 2008 and 2007
(Unaudited; in thousands, except per share amounts)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Ended % of Net Ended % of Net
9/30/08 Revenues 9/30/07 Revenues
Net revenues $231,946 100.0% $186,863 100.0%
Cost of goods sold 113,679 49.0% 92,346 49.4%
Gross profit 118,267 51.0% 94,517 50.6%
Selling, general and
administrative expenses 71,788 31.0% 60,708 32.5%
Income from operations 46,479 20.0% 33,809 18.1%
Other income (expense), net (1,736) (0.7%) 674 0.4%
Income before income taxes 44,743 19.3% 34,483 18.5%
Provision for income taxes 19,080 8.2% 14,453 7.8%
Net income $25,663 11.1% $20,030 10.7%
Net income available per common
Basic $0.53 $0.42
Diluted $0.51 $0.40
Weighted average common shares
Basic 48,647 48,183
Diluted 49,934 50,085