Under Armour profit up 69% but stock falls


February 02, 2007|By Andrea K. Walker | Andrea K. Walker,Sun reporter

Sports apparel company Under Armour Inc. said yesterday that 2007 sales growth is likely to slow compared with last year's increase, but it expects demand for its moisture-wicking apparel to remain sound as it introduces new products and expands an already aggressive marketing campaign.

Baltimore-based Under Armour reported fourth-quarter earnings yesterday that were 69 percent higher than a year earlier but came in slightly lower than expected. Wall Street punished the company's stock, sending it down 7.15 percent, or $3.63, to close at $46.17.

Net income climbed to $11.9 million, or 24 cents per share for the quarter, compared with $7 million, or 8 cents a share, for the corresponding period a year ago. Wall Street had predicted 25 cents a share.

Under Armour's founder and chief executive said in a phone interview yesterday that the company performed well despite the drop in its shares.

"The most important thing is that we're proud of the year that we had," said Kevin A. Plank, chairman and CEO. "At the same time we're a growth company. The growth initiatives that we are spending on now are things that will pay dividends in 2007 and frankly beyond."

Net income for 2006 almost doubled to $39 million.

The company expects annual net revenue of $560 million to $580 million this year, up 30 percent to 35 percent from 2006. While higher than previously predicted, the growth would be lower than the 53 percent increase last year to $430.7 million.

The stock slump marks the fourth time in the year since Under Armour went public in November 2005 that its shares have fallen after an earnings announcement - a lesson for the company that Wall Street can be tough even when a business performs well.

The stock typically has rebounded the day after the earnings announcements.

Its shares tumbled 21 percent after it released its first earnings in December 2005. Shareholders were concerned over a decline in fourth-quarter income and lower-than-expected sales.

Under Armour's positive performance was overshadowed in the second quarter of last year by investors' focus on slightly lower profit margins.

The share price dropped again after reporting third-quarter revenue but rebounded that day to close down 39 cents. That time analysts said they were disappointed over earnings and the premium investors were paying for the stock.

Under Armour shares are trading at more than 50 times earnings, a level that suggests shareholders expect a sizable upside in growth.

"I believe that, given the results and the guidance that was provided, the stock reaction is appropriate," said Eric Tracy, an analyst with BB&B Capital Markets in Vienna, Va., whose company has provided investment banking services to Under Armour.

Plank said the company expects to expand into several new categories in the next two years. It is field-testing non-cleat shoes that it expects to market in 2008.


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