You wouldn't know it from how the stock reacted, but
Under Armour (NYSE: UA) blew out da box on
Tuesday:
Under Armour tries an end run
How did Under Armour do it? In contrast to last
quarter, when Under Armour leaned on its apparel segment for
growth, this time footwear led the charge. Sales there spiked
150% year over year.
Meanwhile, a 62% surge in direct-to-consumer sales helped
mitigate the
lower marginsthat accompany footwear sales. As
Jos. A. Bank (Nasdaq: JOSB) and
iRobot (Nasdaq: IRBT) have taught us,
consumer-goods manufacturers often fish for higher profit
margins from this revenue model. And while I've nothing
against distributors like
Dick's Sporting Goods (NYSE: DKS) or
Cabela's Inc. (NYSE: CAB), if Under Armour
can boost its profits by making an end run around its
middlemen, then it should just do it. (Apologies to
Nike (NYSE: NKE), which just does the
same.)
No good deed ...
No sooner had Under Armour reported beating
expectations (with a stick) in Q3, than it upped the ante on
full-year guidance. Management's latest prediction of $830
million in sales and $0.85 to $0.87 per share in profits
eclipses Wall Street's expectations for the year.
So why, you might wonder, did investors dump the stock
yesterday? Strictly speaking, Under Armour did everything
right. It beat estimates. It raised guidance. What more does
Wall Street
want?
Judging from press reports, the knock against Under Armour
goes like this: Yes, Under Armour beat estimates in Q3. Yes,
these improved numbers allowed management to raise guidance
for the year. But guidance didn't get raised
enoughto account for
bothbetter performance in Q3,
andfurther great news in Q4. Crunching the numbers,
one Wall Street wizard declared that Under Armour is
promising only 11.6% sales growth in the current quarter -- a
slowdown from the 16.2% pace set so far this year.
Foolish takeaway
But here's a question for the naysayers. Have you
metUnder Armour? You know
this company beat estimatesin nine of the last 10
quarters, right? Isn't it possible that Under Armour
intentionally suggested light growth in Q4 so that it can
more easily
crushin Q4?
My advice: Before dissing Under Armour, take a moment.
Ponder the possibility.
Then take another moment to take the Motley Poll below and
fill up the comments section with your opinions.
This article was originally published as
You're Wrong to Kick Sand at Under Armouron
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