Under Armour, Inc. (UA - Analyst Report), the sports apparel and footwear retailer, posted impressive fourth-quarter 2014 results as the demand for its products increased and more users connected with its fitness applications. The company delivered earnings of 40 cents a share that came a penny ahead of the Zacks Consensus Estimate and surged 33.3% from the prior-year period.
Under Armour is aggressively expanding its reach in the fitness space. This is evident from its recent acquisitions of Endomondo and MyFitnessPal for $85 million and $475 million, respectively. These buyouts, along with its existing MapMyFitness and UA RECORD suite of applications, help it to form the largest digital health and fitness community, with more than 120 million unique registered users.
Aided by the strong performance of the Apparel, Footwear and Accessories categories, total revenue came in at $895.2 million, up 31.1% year over year and ahead of the Zacks Consensus Estimate of $848 million. The rate of top-line growth also accelerated from 29.7% achieved in the third quarter.
Under Armour’s largest product category, Apparel, once again witnessed strong sales. Apparel sales jumped 29.7% to $707.7 million, reflecting enhanced offerings across areas such as training, hunting and studio. Moreover, innovations across ColdGear Infrared, Storm and Charged Cotton also imparted strength to the category.
Footwear net revenue soared 55% to $85.8 million during the quarter on the back of newly introduced products in running and basketball. Net revenue in theAccessories category advanced 22.2% to $79 million, led by headwear and gloves, while Licensing and other revenues elevated 31.6% year over year to $22.7 million.
Under Armour, which competes with Nike, Inc. (NKE - Analyst Report), announced a 27% surge in direct-to-consumer net revenue during the quarter, representing 38% of the total revenue. Meanwhile, International net revenue increased 123%, making for about 9% of total net revenue.
Gross profit escalated 27.4% to $446.3 million. However, gross margin contracted 140 basis points (bps) to 49.9%, attributable to an unfavorable sales mix, strengthening of the U.S. dollar and increased freight costs.
Under Armor’s operating income surged 48.6% to $146.3 million, while operating margin expanded 190 bps to 16.3%.
Other Financial Details
Under Armour ended the quarter with cash and cash equivalents of $593.2 million, up 71% from the prior-year period, while total debt was $284.2 million compared with $152.9 million in the prior-year period. Shareholders' equity at the end of the quarter was $1,350.3 million.
Capital expenditures came in at approximately $59 million for the reported quarter. Management anticipates 2015 capital expenditures in the band of $280–$290 million.
Guidance
Management hinted that a strong U.S. dollar, the acquisitions of Endomondo and MyFitnessPal, and its existing operations are going to impact the outlook.
Under Armour now projects 2015 net revenue of approximately $3.76 billion, reflecting an increase of 22% over 2014, and operating income between $397 million and $407 million, that represents growth of 12%–15%. Earlier, management had projected operating income growth of 22%.
The company highlighted that costs related to the closing of the acquisitions of two new Connected Fitness businesses, operating costs involved in the operations and softening of foreign currencies against the U.S. dollar, will exert pressure on operating income.
Zacks Rank
Under Armour currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include Lululemon Athletica Inc. (LULU - Analyst Report) and Crocs, Inc. (CROX - Snapshot Report), both carrying a Zacks Rank #2 (Buy).
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