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Under Armour Shares Fall after Disappointing Earnings

CHICAGO, IL - 01 APRIL, 2016: Under Armour on Michigan Avenue in Chicago. Under Armour, Inc. is an American sports clothing and accessories company.

Shares for Under Armour tumbled last week after the company posted its third-quarter results. On the onset, the figures were impressive. It was the 26th straight quarter the company posted 20% growth in revenue. Net income growth exceeded estimates, and the company posted double-digit operating income.

But there were a few glaring concerns in the company’s earnings presentation. It posted a decline in gross margin percent as well as slower apparel sales growth in North America. Guidance for net operating income in the next several years was also reduced.

Not surprisingly, analysts on Wall Street started downgrading Under Armour, which triggered a major sell-off of the stock. The stock has tumbled over 17% since releasing its earnings.

Here’s a brief rundown of the results:

  • Net income rose 27.6% from $100.47 million to $128.23 million.
  • Revenue climbed 22.3% from $1.204 billion to $1.472 billion.
  • Operating income increased 16.4% from $171 million to $199 million.
  • Earnings per share jumped 26.1% rom $0.23 to $0.29.

Apparel sales, which accounted for 69% of all sales, rose 18% to $1.02 billion. Footwear sales were up, too, soaring 42% to $278.9 million. Footwear accounted for 18.9% of the quarter’s total sales, up from 16.3% the previous year. Compared to last year, footwear’s share of sales has increased from 18.3% to 22.3%.

International sales saw the biggest boost, with revenue jumping 73.7% to $226.2 million. International sales accounted for 15.4% of revenue in the last quarter and 14.9% of the year’s revenue.

The majority of the brand’s operating income growth stemmed from international sales. International operating income is up 471%, while North American operating income has declined almost 8%. Last quarter, operating income was flat in North America, but up 34% internationally.

Like other apparel brands, Under Armour is facing increased competition in North America. Competing brand PINK, a subset of Victoria’s Secret, has seen sales double over the last five years. But management is also focused on the long-term, which is why management said it will not be cutting spending on marketing or R&D to boost results in the short-term.

Revenue and operating income for the company’s Connected Fitness segment continued to climb, with revenue rising 39.8% to $20.2 million. Under Armour also managed to halve its operating loss of $16.6 million last year to $8.5 million.

While management recognizes that its apparel sales are softening in North America, they believe there is great opportunity for growt h in their footwear business. Management says it will continue to invest in footwear and focus on infrastructure and talent to help improve profitability.

The company is also planning to roll out e-commerce platforms in key international markets, including Chile, New Zealand, Mexico and Australia. It did the same in 2015 when it launched in 14 new markets.

Management also added that it will continue to invest in its Connected Fitness business, as it continues to see sustained growth and demand in the segment.

With Under Armour focused on the long-term, the stock may still be a good option if you’re in it for the long haul.

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