Athletic apparel and footwear company Under Armour (UA) announced first quarter results that met or exceeded Wall Street expectations. However, current year guidance was more tepid than analysts had hoped for, causing the stock to stumble in early morning trading.
For the quarter ended March 31, net revenues increased 25 percent to $805 million from $642 million in the prior year period, marking 20 consecutive quarters of revenue growth above 20 percent. On a currency neutral basis, net revenues increased 27 percent in the period.
Apparel, which represented 69 percent of total revenues in the period, down from 71 percent in the prior year, saw sales rise by 21 percent to $555 million from $459 million last year, driven primarily by new product introductions in Baselayer and training.
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This was the 22nd consecutive quarter of at least 20 percent apparel sales growth for the category, but its weakest quarterly increase in years, no doubt affected by increased competition from Nike, Adidas, Lululemon, Champion, Gap’s Athleta and other big players, and from the many newer entrants into the women’s space like Victoria’s Secret Sport, the new Calea by Carrie Underwood at Dick’s Sporting Goods, and popular U.K. brand Sweaty Betty. Even fast-fashion players like H&M are getting into activewear in a bigger way.
Footwear revenues, which grew to 20 percent of the total in the quarter, up from 18 percent in the prior year period, increased 41 percent to $161 million from $114 million in the prior year, highlighted by expanded SpeedForm running offerings as well as the introduction of the Curry One basketball shoe named for NBA star Stephen Curry.
Accessories revenues increased 23 percent to $63 million from $52 million in the prior year’s period, with particular strength in bags. Accessories represents 8 percent of the total business.
Direct-to-Consumer, which represented 25 percent of the business in the first quarter, grew 21 percent.
International net revenues, which represented 12 percent of revenues in the quarter, up from 9 percent in the prior year, surged by 74 percent, helped by growth in the U.K., Germany, the Middle East and China, as well as the successful launch of e-commerce businesses in the Netherlands and the Philippines. The company is on track to open a total of 100 stores in 2015, most of which will be in China.
Chairman and CEO Kevin Plank said in a statement, “While the 25 percent growth achieved in the first quarter was a great start to the year, we are even more excited with the foundation we are establishing for future growth. Within our Connected Fitness platform, we closed our two acquisitions of Endomondo and MyFitnessPal to create the world’s largest digital health and fitness community. We have already added over 10 million unique registered users to our platform since our initial February announcement, bringing the total Connected Fitness community to over 130 million unique registered users.”
Gross margin for the first quarter of 2015 was unchanged at 46.9%, primarily reflecting favorable product margins in apparel and footwear offset by the impacts of higher air freight and foreign exchange rates.
SG&A expenses 43.5% of net revenues, up 50 basis points from the prior year period, primarily reflecting costs associated with the two acquisitions, including $6.3 million of one-time deal-related costs. First quarter operating income increased 3 percent to $28 million compared with $27 million in the prior year’s period.
Net income fell 13 percent to $12 million in the quarter, or $0.05 per share, from $14 million, or $0.06 per share, in the prior year, including costs related to the previously announced acquisitions of Endomondo and MyFitnessPal during the first quarter.
Cash and cash equivalents increased 29 percent to $232 million at March 31, 2015 compared with $180 million on March 31, 2014. Inventory at March 31, 2015 increased 22 percent to $578 million compared with $472 million in March 31, 2014. Total debt increased to $677 million at March 31, 2015 compared with $152 million at March 31, 2014, primarily reflecting borrowing to fund the two Connected Fitness acquisitions.
Since the first quarter of last year, the company has opened eight new Brand House locations, including, in the first quarter of 2015, a 30,000-square-foot store on the Magnificent Mile in Chicago, bringing its full-price Brand House store count to 19. The company also operates 134 Factory House outlet stores.
The company raised its current year revenue forecast to approximately $3.78 Billion, a 23 percent year-over-year increase, and upped its operating income outlook to just over $400 million, up 13-15 percent from the prior year, inclusive of the Connected Fitness acquisitions.
Following its 2014 expansion into the all-important Brazilian market, which helped contribute to the 74 percent international growth for the quarter, the company is seeking to accelerate its positioning there with the signing of one of the most popular and successful clubs in the country, the São Paulo Futebol Clube.
And speaking about one of the company’s sponsored athletes, Plank noted, “We are incredibly proud that Under Armour athlete Jordan Spieth captured the Green Jacket in record-setting fashion at The Masters last week. At just 21, Jordan is already firmly entrenched on the global sports stage and we look to support Jordan throughout his career winning major championships as he adds to his legacy.”
