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Sports apparel retailer, Under Armour Inc. (UA - Analyst Report) posted impressive second-quarter fiscal 2014 results and upgraded its fiscal 2014 guidance as the company’s quarterly earnings of 8 cents per share met the Zacks Consensus Estimate and came in line with the prior-year period.

 

 

Revenues

Aided by strong performance of the Apparel, Footwear and Accessories categories, total revenue came in at $609.7 million, up 34.1% year over year, surpassing the Zacks Consensus Estimate of $573.0 million.

Category Performance

Under Armour’s largest product category, Apparel, once again witnessed strong sales. Apparel sales jumped 35.4% to $420.0 million, reflecting growth in categories such as golf, training, outdoor, studio and running.

Footwear net revenue soared 34.2% to $109.5 million during the quarter due to the newly introduced products in running. Net revenue in the Accessories category advanced 17.5% to $59.9 million during the quarter led by headwear, while Licensing and other revenue elevated 73.1% year over year to $20.2 million.

Under Armour announced a 38% surge in direct-to-consumer net revenue during the quarter, representing 31% of the total revenue. Meanwhile, International net revenues soared 80%, making for about 8% of total net revenues.

Margin and Costs

Gross profit escalated 36.6% to $300.0 million, while gross profit margin expanded 90 basis points (bps) to 49.2%, attributable to enhancement in product margins coupled with efficient sales mix.

Selling, general and administrative expenses for the quarter grew 41.6% to $265.3 million, while as a percentage of net revenues it increased 230 bps to 43.5%, owing to investments made in product innovations and timing of marketing costs.

Following strong sales and efficient expense management, Under Armor’s operating income for the quarter improved 7.4% to $34.7 million, while the operating margin contracted 140 bps to 5.7%.

Financial Details

Under Armour ended the quarter with cash and cash equivalents of $300.4 million, up 34% from the prior year, while long-term debt inclusive of current maturities stood at $196.6 million compared to $55.5 million in the prior-year period. Shareholders' equity as of Jun 30, 2014 was $1,140.8 million.

Capital expenditures came in at approximately $29 million for the reported quarter, as compared to $22 million last year. Further, management continues to expect 2014 capital expenditures of roughly $150 million, driven by investments to augment the company’s global and direct-to-consumer operations, expand its overseas presence and improve capacity at its distribution centers.

Guidance

Management remains impressed with its quarterly performance and believes that it is well-positioned to achieve its targets for the remaining half of the year. It is particularly impressed with growth witnessed at its international and footwear segment, backed by overwhelming customer response to its Highlight ClutchFit and SpeedForm brands.

Taking cue from the strong quarter and an optimistic outlook, management raised its guidance for fiscal 2014, yet again. It now anticipates 2014 revenue in a range of $2.98 billion – $3.0 billion, reflecting growth of 28% to 29% over last year. Earlier, the company had projected 2014 net revenue in the band of $2.88 billion to $2.91 billion, up 24% to 25% from the prior year.

This Zacks Rank #2 (Buy) company also raised its operating income forecast for the year to come in the range of $343 million to $345 million, up 29% to 30% from 2013 levels, while it had previously guided operating income between $331 million and $334 million, representing 25% to 26% year-over-year growth.

Other Stocks to Consider

Other stocks worth considering in the Apparel, Footwear & Accessories industry include Perry Ellis International Inc. (PERY - Snapshot Report), Hanesbrands Inc. (HBI - Analyst Report) and Vince Holding Corp (VNCE - Snapshot Report), each carrying a Zacks Rank #1 (Strong Buy).
 

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