Outdistancing The Analysts

New Running Shoe Helps Under Armour Gain Despite Down Economy

April 29, 2009|By Andrea K. Walker | Andrea K. Walker,andrea.walker@baltsun.com

Consumers are cutting back on most discretionary spending, but plenty were willing to dish out a hundred bucks or more to buy Under Armour's new running shoe this year.

The Baltimore sports apparel company said Tuesday that its first-quarter earnings beat analyst expectations thanks mostly to strong sales of the shoe, which it introduced in January.

The results came as several analysts had downgraded their ratings on the company recently because they questioned whether consumers would continue to buy pricey goods during a recession. Shares rose almost 13 percent Tuesday to close at $24.50.

Net income rose 38 percent to $4 million, or 8 cents a share, for the quarter that ended March 31. That compared with $2.9 million, or 6 cents a share, for the corresponding period a year ago. Analysts on average had expected 3 cents a share.

Revenue rose 27 percent to $200 million, compared with $157.3 million a year ago.

Footwear revenue, which also included a training shoe the company launched last year, more than doubled to $40.3 million, compared with $16.6 million a year ago.

Apparel sales increased 2.4 percent to $132.2 million, rebounding from the fourth quarter when earnings plummeted after consumers held back on buying expensive athletic gear, causing retailers to cancel or return orders.

Consumers continued to pay full price for Under Armour gear last quarter. For instance, a new line of T-shirts that sell for $29.99 has been a top seller for the company.

David McCreight, Under Armour's president, said Tuesday during a conference call with analysts that the earnings show the ability of the company "to sell-through at full price amid broad and consistent discounting activity in our marketplace."

"Our pricing integrity and brand's position remains intact," McCreight added. "The willingness of our athletes to pay a premium for performance products is a great indicator of our brand strength."

One analyst said the company is benefiting as consumers are still willing to pay for high-end sportswear despite the weak economy.

"The high-priced premium category is working well right now," said Thomas D. Shaw, an analyst with Stifel Nicolaus. "Consumers are proving their willingness to spend on [certain] products."

But company officials also acknowledge that the economy and people's habits are still uncertain. There is no indication that apparel sales will increase much for the remainder of the year, company officials said. The company does hope to see further growth in the shoe category with new running shoe launches, including new colors and styles, for the back-to-school season.

Brad Dickerson, Under Armour's chief financial officer, said the company still is seeing some cancellations of orders by its retailers and that others are buying products closer to when they need them.

Under Armour is also limiting shipments to smaller and midsize retailers who are having credit problems.

"We're going to be conservative with the balance of the year," Wayne A. Marino, Under Armour chief operating officer, said in a telephone interview Tuesday. "We want to be careful because we think how we perform in 2009 is not just in one quarter." He noted, however, that people still play sports even in a down economy.

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