Under Armour: Thrown for a Loss
Under Armour (UA) announced on Feb. 1 that fourth quarter earnings rose an explosive 69% year over year -- but disappointed Wall Street fans sold the stock. That's certainly a change -- few months ago investors were cheering on the sportswear maker like their favorite underdog football team. Morgan Stanley analyst Brian McGough even warned in a research note Nov. 28 that the market was pricing in that Under Armour overtakes Adidas, Reebok, and Puma as the No. 2 U.S. brand behind Nike (NKE).
How did the Baltimore-based outfit -- whose TV commercials feature the catchphrase "protect this house" -- get to play with the big boys? CEO Kevin A. Plank started his company eleven years ago by inventing sweat-resistant undershirts for football players. First he impressed sports stars like Jerry Rice and Roger Clemens. Then his company began posting stunning growth in sales during recent years (see BusinessWeek, 5/25/06, "Under Armour: A brawny tee house? No sweat"). Plank went toe-to-toe with Nike, which in 2003 was promoting its own Pro Compression apparel line by hauling in football superstars like Michael Vick, Terrell Owens, and Marshall Faulk.
Wall Street has taken notice of the company's rapid growth and Under Armour's stock price has rocketed by 86.4% since the company went public in 2005.
But the stock plunged 7.2% on Feb. 1 to $47.17 per share near the close of trading, after news that Under Armour earned $11.9 million during the three months ended Dec. 31, or 24 cents per share. The mean analyst estimate had been for 25 cents a share, according to the San Francisco research firm StarMine, which aggregates data from Thomson Financial.
To be sure, Under Armor is still growing in popularity with customers. Net revenues increased 55% year over year in the fourth quarter to $135.3 million, Under Armour's highest revenue in history.
While athletic underwear has clearly been exciting for CEO Plank, he's been taking steps to move his company onward to new products and recently started selling baseball and softball cleats. But cleats are Nike's home turf.
"While the firm has plenty of room to expand into new categories like footwear, battling a host of entrenched competitors should prove challenging," Morningstar analyst Brady Lemos said in a research note Dec. 19. "UA's historical performance is indeed impressive, and the firm has a promising future, but we doubt UA can profitably defend its market niche over the long term."
The game, of course, isn't over yet. Under Armor expects both revenue and income during 2007 to improve by 30% to 35% compared to 2006.
John Carey, a senior correspondent for BusinessWeek in Washington, contributed to this report