Under Armour Takes New Look At Footwear

Running Shoe Was Well Received But Needs To Evolve, Company Says

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

Sports apparel company Under Armour is rethinking the pricing and technology of its running shoe as it looks to revamp its footwear strategy and improve sales.

Executives at the Baltimore-based company revealed plans for footwear during a conference call Tuesday with analysts to discuss second-quarter earnings. The call came a week after the company announced a shake-up in leadership at its footwear division with the hiring of Gene McCarthy, the head of Timberland.

The company said that the push for change was not a sign that the running shoe launch wasn't successful.

"We took a fairly aggressive approach to the running footwear market in Year One and now that we are here, we have a better understanding of the things that we did right and certainly some opportunities to improve," Kevin Plank, Under Armour's founder, chairman and CEO, said during the call with analysts.

The shoe was well received by people who bought it, said David McCreight, Under Armour's president. The shoe also allowed the Under Armour brand to expand into specialty stores where it hadn't been selling. But he said the shoe needed to evolve.

"The opportunities for Under Armour footwear are vast, and we will continue to refine our strategy," McCreight said. "We have learned over the past six months not only what we have, but also what we need."

Footwear sales for the quarter ended June 30 fell to $37.5 million from $46 million the year before. The company had anticipated a decline because it launched a cross-trainer in the second quarter of last year. Shoes usually sell more when they're first launched.

Brad Dickerson, Under Armour's chief financial officer, also said the company had to discount more shoes than expected.

The running shoe market could be a test of the company's future in footwear, a category Under Armour is looking at for long-term growth, analysts said. Other footwear categories the company has entered, such as football cleats and cross-trainers, weren't as competitive.

Runners are loyal consumers who don't switch brands easily, said Matt Powell, an analyst with SportsONESource, which tracks footwear spending. There are also many varieties of running shoe brands on the market. It can take three to five years for a company to really penetrate the market, Powell said.

Powell said that Under Armour has successful launches of shoes, but needs to be able to keep the momentum going beyond the initial introduction.

"It hasn't been a huge boon for them, nor has it really changed the industry," Powell said of the Under Armour running shoe.

Many of the changes in the running shoe would not be seen until late next year or early 2011, Dickerson said. The company could lower prices or create a more technologically enhanced shoe that would justify higher prices, Dickerson said.

Omar Saad, an analyst with Credit Suisse Holdings, said in a report that the footwear sales were "disappointing," but that he expected bigger shipments in the third quarter for back-to-school.

The company also said Tuesday that its earnings increased 4.7 percent, beating analyst expectations that had predicted earnings would drop 2 cents a share. Net income was $1.43 million, or 3 cents per share, compared to $1.37 million, or 3 cents per share a year ago.

Revenue increased 5.1 percent to $164.6 million.

Earnings were helped by a 16.5 percent increase in apparel sales. The company said it discounted more in the second quarter than in the past, through both its outlet store and retail partners, but that it had a small impact on sales.

While the company remains cautious on sales throughout the rest of the year because of weak consumer spending, it raised its earnings outlook for the year above analysts' expectations. The company expects 2009 earnings of 80 cents to 82 cents per share, on revenue of $810 million. Analysts polled by Thomson Reuters, on average, predict a profit of 79 cents per share on revenue of $804.9 million.

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