Under Armour's Got Thick Skin

May 3 marks the launch date for this new product, right in time for spring football practices and potentially, around the same time U.S. consumers will be receiving their tax-rebate checks from the government. The company is estimating to sell about 1 million pairs of shoes in 2008 at prices ranging from $80 to $100. With current gross margins improving to 52%, I see this as a great opportunity for UA to come out and raise guidance again for 2008 following the first quarter.

Finally, the direct consumer business looks to be a great growth opportunity for the company, an excellent way for it to offset some of the higher marketing expenses by providing the potential for margins near 80%. The online and retail store division is currently only 8% of the company's total revenue.

Analysts were weary of their ability to control marketing costs during the launch of the new shoe, but the company stressed that a large portion of the costs are variable and they will place a great deal of focus and managing these if they get out of control. The company has planned to introduce three to four more test stores to continue to grow the direct consumer sales distribution, while adding five additional outlets in 2008.

One analyst on the call brought up concerns that this growth plan may be damaging the brand in local markets, but the company's management stressed that it actually increased brand awareness and found it to be a tremendous advantage for the growth of the company.

Also mentioned was that traffic in the Annapolis, Md., store was high during the holiday season, and this is evident in the ability to charge full price for nearly every product it selsl. Although the men's apparel business looks to be slowing to 20%-25% growth, the company stresses that all other segments will grow at a much more rapid pace, reflecting 26%-28% top- and bottom-line growth rate in 2008. I have done the math and found that the estimated revenue for the full year of $765 million to $775 million is a very conservative estimate, and I do not see the benefit of the additional $40 million in revenue from the new product launch in May.

The stock is up some 11.5% since its fourth-quarter report Thursday morning, but I believe there is still plenty of room for the company to raise estimates throughout the year and propel the stock price back to where it was in August. With the recent market rally there is probably plenty of time for the stock to pull back, but trading at only 30 times next year's net income estimate of $1.34 (28% growth), I see no reason why this stock won't rally to $50 and even back to its August 2007 highs.

Stay tuned, the consumer may be hurting, but the athlete looks to be undefeatable. I would be a buyer of Under Armour shares below $40.

« Previous Page

1 2

Next Page »