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Under Armour FY & 4Q - not well received

Under Armour released results two days back, pre-market. The market thought the results were absolutely awful, relative to their expectations, the stock was absolutely pounded. A drop of over one-fifth in a day means that the market was expecting a lot more than the company delivered. In part the lofty valuation has been as a result of the company having grown so quickly, so anything less than a meet would have been viewed negatively by the market. As a result of the company missing by a long way, relative to the lofty expectations, the result was a turndown of 25 percent plus for the voting shares (code UAA) and 23 percent (and a bit) for the non voting shares, (code UA).

Revenues grew 11.7 percent year-on-year on the comparable quarter, earnings per share and net income were lower than the prior year. Again, and I don't like to repeat this, a bit tough when the stock trades on a 30 plus multiple to justify that valuation. For the full year sales increased nearly 22 percent to 4.828 billion Dollars. Two huge bright spots were that international revenues grew 55.2 percent (still a small part of total sales at 16.5 percent), footwear revenue grew by 36 percent.

As I saw from a search, this sales disappointment breaks a 26 quarter streak where sales had grown by over 20 percent year on year. i.e. six and a half years. Now you can understand why the stock fell so heavily. Added to the slowing revenue growth was the fact that the CFO, Lawrence 'Chip' Molloy, who has only been there for a year, is leaving for personal reasons. A solid chap, a navy pilot for 10 years, his bio said. David Bergman, a company veteran, will step into the role as the new CFO. To add insult to injury, the company has cut their forecast pretty heavily.

There is an old story that describes the interaction between Mark Parker, the CEO of Nike and the late Steve Jobs, the founder and former CEO of Apple. It goes something like this, when Parker asked for advice, Jobs said the following: "Nike makes some of the best products in the world. Products that you lust after. But you also make a lot of crap. Just get rid of the crappy stuff and focus on the good stuff." I think Under Armour do this, their shoes and apparel certainly are not cheap, nor are they inferior in quality. Whilst CEO Kevin Plank is not exactly everyones cup of tea, he is hard charging and is a victim (on paper) of his own success. I am sure that Kevin Plank cares about the share price, as he well knows, there is little to nothing that he can do about it.

Having recently finished Phil Knight's book Shoe Dog, I remember that it took them 17 years before they were settled, Under Armour has just turned 20 recently. There have been some recent stumbles, some of them associated with the bankruptcy of a large distributor of their shoes and apparel. The stock now looks cheap, and perhaps for a reason, the folks trumpeting from the roof tops have all turned into doubting Thomas', price targets have been slashed and burned, now they are all scared. That may be the moment to own them, I am sure however we will get our opportunity to bolt on more over the coming year or so, you are going to have to be very patient with the recovery. Look out for a selective moment to own them, if you have them already, it is definitely a hold. Hang tough!


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