Under Armour (UA), one of the key competitors in the development, marketing and distribution of branded performance apparel, footwear and accessories, reported third quarter 2011 earnings on Tuesday; here are some of the highlights from the press release and the conference call:
Net revenue in the quarter was $466 million, an increase of 42% compared to the third quarter of 2010 ($329 million), marking the third consecutive quarter of 40% plus revenue growth and $20 million ahead of analyst estimates. Through the first nine months of the year, UA has already surpasses $1 billion in sales, a feat first achieved in a full fiscal year in 2010 ($1.064 billion). In addition, the company increased their range for 2011 revenue expectations from $1.42-$1.44 billion (33-35% increase over 2010) to a range of $1.46-$1.47 billion, implying year over year revenue growth of 37-38%.
The increase in revenues was split between a couple of different segment, with the largest segment, apparel, seeing an increase of 31% (third consecutive quarter above 30%) and quarterly sales of $366 million. In the Direct-to-Consumer segment, sales shot up more than 70% compared to 2010; this segment now accounts for 22% of Under Armour’s overall sales, compared to 18% in Q3 2010. In Footwear (11% of net revenues) and Accessories (8.6% of net revenues), sales increased 97% and 211%, respectively; with growth rates pushing triple digits, it’s safe to say that they will continue to be a bigger part of Under Armour’s business looking forward.
As noted by the above figures, a big part of the increase has come from categories that were never part of the company’s original market entrance against the goliaths like Nike (NKE); and while compression is still vitally important, they have seen their share drop as the pie has gotten bigger and competition has stepped in. In regards to innovating and competing, here is how CEO Kevin Plank described the company’s expansion plans in new categories such as cotton, and how they can be used to drive sales growth:
“So we think there's a great opportunity here for us to build another wheelhouse product in Charged Cotton Storm. As we've said before, using cotton opens access to the Under Armour brand to a much broader range of athletes. Instead of competing to have 3 out of the 4 compression garments they may have in their closet, we're now competing for share of the 30 plus garments, many of which are cotton. Or to put it in a more quantifiable measure, we've gone from competing for share in a $3 billion category, just a year ago, to competing for share in a $12 billion category today.
And that's why the phrase, focus and finish, is at the heart of what how we see the business at this point in our growth. We know there are abundant opportunities for our brand outside of our core and outside of the U.S. but we will not pass up the opportunity to create these new building blocks in our core while the same time bringing the Under Armour brand to new consumers.”
Gross margins decreased 250 basis points in the quarter (48.4%), primarily due to lower margins in the apparel segment from product mix and higher input costs (140 basis points); this increase was partially offset by a 130 basis point decrease in SG&A (32.3% of sales), which was attributable to leverage of corporate services and a 50 basis point decrease (as a percentage of sales) in marketing expense.
Net income increased 32% in the quarter to $46 million ($35 million in the 2010). As noted above, the company increased their revenue guidance, which should flow through the income statement; operating income is now expected to be in the range of $159-162 million, an increase of 42-44% year over year, compared to earlier estimates of 38-42% growth in operating income.
Diluted earnings per share for the third quarter of 2011 was $0.88, an increase of 29.4% compared with $0.68 in Q3 2010; after adjusting for a $0.04 benefit from ongoing tax planning strategies in the quarter, comparable EPS increased 23.5% year over year, partially impacted by the 2.7% increase in diluted shares outstanding.
At the close, UA was up an even 5%, compared to a 2% decline for the S&P 500; the shares closed at a price of $80.15.
Net revenue in the quarter was $466 million, an increase of 42% compared to the third quarter of 2010 ($329 million), marking the third consecutive quarter of 40% plus revenue growth and $20 million ahead of analyst estimates. Through the first nine months of the year, UA has already surpasses $1 billion in sales, a feat first achieved in a full fiscal year in 2010 ($1.064 billion). In addition, the company increased their range for 2011 revenue expectations from $1.42-$1.44 billion (33-35% increase over 2010) to a range of $1.46-$1.47 billion, implying year over year revenue growth of 37-38%.
The increase in revenues was split between a couple of different segment, with the largest segment, apparel, seeing an increase of 31% (third consecutive quarter above 30%) and quarterly sales of $366 million. In the Direct-to-Consumer segment, sales shot up more than 70% compared to 2010; this segment now accounts for 22% of Under Armour’s overall sales, compared to 18% in Q3 2010. In Footwear (11% of net revenues) and Accessories (8.6% of net revenues), sales increased 97% and 211%, respectively; with growth rates pushing triple digits, it’s safe to say that they will continue to be a bigger part of Under Armour’s business looking forward.
As noted by the above figures, a big part of the increase has come from categories that were never part of the company’s original market entrance against the goliaths like Nike (NKE); and while compression is still vitally important, they have seen their share drop as the pie has gotten bigger and competition has stepped in. In regards to innovating and competing, here is how CEO Kevin Plank described the company’s expansion plans in new categories such as cotton, and how they can be used to drive sales growth:
“So we think there's a great opportunity here for us to build another wheelhouse product in Charged Cotton Storm. As we've said before, using cotton opens access to the Under Armour brand to a much broader range of athletes. Instead of competing to have 3 out of the 4 compression garments they may have in their closet, we're now competing for share of the 30 plus garments, many of which are cotton. Or to put it in a more quantifiable measure, we've gone from competing for share in a $3 billion category, just a year ago, to competing for share in a $12 billion category today.
And that's why the phrase, focus and finish, is at the heart of what how we see the business at this point in our growth. We know there are abundant opportunities for our brand outside of our core and outside of the U.S. but we will not pass up the opportunity to create these new building blocks in our core while the same time bringing the Under Armour brand to new consumers.”
Gross margins decreased 250 basis points in the quarter (48.4%), primarily due to lower margins in the apparel segment from product mix and higher input costs (140 basis points); this increase was partially offset by a 130 basis point decrease in SG&A (32.3% of sales), which was attributable to leverage of corporate services and a 50 basis point decrease (as a percentage of sales) in marketing expense.
Net income increased 32% in the quarter to $46 million ($35 million in the 2010). As noted above, the company increased their revenue guidance, which should flow through the income statement; operating income is now expected to be in the range of $159-162 million, an increase of 42-44% year over year, compared to earlier estimates of 38-42% growth in operating income.
Diluted earnings per share for the third quarter of 2011 was $0.88, an increase of 29.4% compared with $0.68 in Q3 2010; after adjusting for a $0.04 benefit from ongoing tax planning strategies in the quarter, comparable EPS increased 23.5% year over year, partially impacted by the 2.7% increase in diluted shares outstanding.
At the close, UA was up an even 5%, compared to a 2% decline for the S&P 500; the shares closed at a price of $80.15.
