Under Armour shares up 11 percent to record high

August 01, 2007|By Andrea K. Walker | Andrea K. Walker,Sun reporter

Under Armour shares soared nearly 11 percent yesterday to reach an all-time high after the company raised its financial outlook for the year.

The stock rose as high as $64.75 during the day before it finally settled to close at $61.24.

The company said its improved forecast, which it announced during a scheduled release of second quarter earnings, came after a better-than-expected first half of the year as sales increased across the business in the women's, men's and youth categories.

"You can't point to any one real thing," Kevin A. Plank, Under Armour's chairman and chief executive officer, said in a telephone interview yesterday. "You have lot of things that came into play."

The large spike in the share price on the day it releases earnings is an anomaly for the Baltimore company, which makes sports products that wick sweat from the body to control temperature. Since it became public nearly two years ago, the stock has often dipped on earnings days. Wall Street has maintained tough standards on the company as it watches to see if it can maintain its rapid growth.

But yesterday Wall Street seemed pleased with the company, which increased its revenue outlook for the year to a range of $580 million to $590 million, a 35 percent to 37 percent increase over last year. It expects income from operations in the range of $79 million to $81 million, up 38 percent to 41 percent over last year.

Under Armour doesn't comment on its stock price. Plank has maintained that the company should be judged over the long term and not from quarter to quarter.

"We never comment on the stock price," Plank said. "We're very proud of the large scale of businesses we have put in position for us to grow as a company. ... The position we have had all along is that we're in this for the long haul."

The second quarter is normally a slow time of the year for Under Armour but was more robust this time because of sales of football cleats, a market the company entered for the first time last year. Sales of golf merchandise also were strong, the company said.

Consumers also spent on Under Armour's higher-priced merchandise helping to raise gross profit margins. Gross margins increased to 49 percent for the quarter. Many analysts had expected the margins to be lower because football cleats have lower margins.

Apparel revenue rose 53.4 percent for the quarter. Footwear revenue, benefiting from increased sales of football cleats, increased 28.9 percent to $20.1 million.

"The sales results were very, very strong, especially in the apparel category," said James Maher, research analyst with ThinkEquity Partners LLC in San Francisco. "That was supported by an increase in the average selling price of 8 percent."

Under Armour said second-quarter net income rose to $5.7 million, or 11 cents a share, compared with $2.4 million, or 5 cents a share during the corresponding period a year ago. Revenues increased 50.7 percent to $120.5 million, compared with $80 million in the second quarter of 2006.

Analysts said the increase in shares also could have been caused by short sellers, who make money when a stock declines, trying to cover themselves. The company has a high number of short sellers who believe Under Armour won't be able to maintain its growth and its shares will eventually fall. But Under Armour shares have defied those expectations.

Under Armour also announced yesterday that it would introduce a cross-trainer sneaker next year.

Analysts said this could be a tougher market to break into.

"I think there are more companies devoting more resources to that category," said Maher. "While it is an larger opportunity for Under Armour, the competition will be tougher, I believe."

andrea.walker@baltsun.com

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