Q2 Earnings: 3 Answers From Under Armour
Jul 25th 2013 5:40PM
Updated Jul 25th 2013 5:44PM
Shares of Under Armour are currently up more than 12% today after the apparel specialist announced its second-quarter earnings results.
Coincidentally, just a few days ago I posed three questions for Under Armour going into the report, so here's what it had to say:
On making it to lucky 13
First, considering Q1 marked Under Armour's 12th consecutive quarter of achieving at least 20% top-line growth, I wondered whether Under Armour would be able to keep up the pace to hit lucky number 13.
Sure enough, Under Armour made it look easy as net revenue rose a respectable 23% in the second quarter to $455 million.
In fact, growth in each of Under Armour's business segments exceeded 20% last quarter, including a 21% increase in footwear to $82 million, 30% growth in accessories to $51 million, and apparel net revenue growth of 23% to $310 million, thanks largely to expansion of the company's Storm and Charged Cotton product lines. Meanwhile, higher-margin direct-to-consumer net revenue made up 30% of total sales last quarter after growing 29%.
As a result, net income increased a whopping 163% to $18 million, while diluted earnings per share nearly tripled to $0.16 from $0.06 per share in the same year-ago period.
On keeping inventory in check
Next, remembering Under Armour's growing pains in years' past have resulted in uncomfortably high inventory levels, I wanted to know whether Under Armour has managed not only to continue keeping its inventory in check but also maintain a healthy balance sheet.
Once again, Under Armour increased its cash and equivalents by an impressive 57% year over year to $224 million, while at the same time decreasing its debt to $55 million -- that's down from $60 million last quarter and $74 million in the same year-ago period.
Curiously enough, Under Armour boosted its inventory by 29% year over year to $491 million this time around. However, this increase is perfectly acceptable given Under Armour's sustained growth.
What's more, given their current visibility, management also raised the company's full-year guidance by telling investors they now expect sales in the range of $2.23 to $2.25 billion, representing growth of 22% to 23% over 2012, and 2013 operating income between $258 million to $260 million, good for growth of 24% to 25% over last year.
For those of you keeping track, remember Under Armour's previous guidance called for sales of $2.21 to $2.23 billion and operating income between $256 to $258 million.
On international growth
Finally, given the fact domestic sales comprised 93% of Under Armour's business last quarter, I wanted to know whether the rest of the world is beginning to embrace Under Armour as the company increasingly pushes its global ambitions.
Remember, as I noted last week, Under Armour's gigantic competitor in Nike boasted an incredible $3.26 billion in international sales just last quarter, which was good for nearly 55% of Nike's total revenue. In addition, Nike most recently grew its own sales by 9% from the year-ago period (excluding the negative impact of foreign currency changes), showing there's still plenty of potential for growth on a worldwide scale for athletic apparel companies.
If Under Armour, like Nike, can even partially translate the success of its brand overseas as it has here in the U.S., then, it'll mean big things for shareholders going forward.
Thankfully, Under Armour's international revenue grew 24.8% to $25.7 million last quarter. Even so, that still only represents around 6% of the company's total revenue, showing domestic growth continues to outpace Under Armour's international segment. Of course, this also shows Under Armour is nowhere near permeating the market here in the U.S., so I suppose it's an enviable problem for any company to have.
Down the road, then, shareholders should sleep well knowing Under Armour should be able to keep expanding for years to come.
All things considered, I certainly can't blame the market for pushing shares of Under Armour up so far today as the company appears to be firing on all cylinders with no end in sight to its incredible momentum.
Of course, we should also remember Under Armour's not the only American company making waves overseas. Profiting from our increasingly global economy can be as easy as investing in your own backyard. The Motley Fool's free report "3 American Companies Set to Dominate the World" shows you how. Click here to get your free copy before it's gone.
The article Q2 Earnings: 3 Answers From Under Armour originally appeared on Fool.com.Fool contributor Steve Symington owns shares of Under Armour. The Motley Fool recommends and owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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