Under Armour, Nike, Lululemon, Columbia: Is it Time to Buy Outdoor Apparel Companies?

Under Armour Inc (NYSE:UA) recently announced earnings that have sent the stock down 10% this week. The growth was robust, but came in below expectations. Under Armour also provided guidance that showed expected sales growth to be at the lower end of the long-term growth target of 20% to 25%. The company saw a 25% increase in earnings from the same period last year, and posted $0.54 per share, beating consensus of $0.44. Under Armour is still up almost 50% year to date and the company noted that the recent quarter was the twelfth consecutive time that apparel growth was 20% or more. The company still expects strong future growth, and we believe the industry has some bright spots.

SAC CAPITAL ADVISORS

The fund being hurt the most by Under Armour’s decline is Scopus Asset Management. Scopus had 3.2% of its 2Q 13F invested in the company. Other than this, the fund interest was limited, with the exception of Steven Cohen taking a new, very small, position in the company.

Top competitors, Nike, Inc. (NYSE:NKE) and Lululemon Athletica Inc. (NASDAQ:LULU) are also down over 6% on the Under Armour outlook. Nike is down 5% year to date, but did see positive fund interest in 2Q—Ken Fisher upped his 1Q stake 7000% and Jim Simons took an entirely new $139 million position. The company managed to beat last quarter earnings by 13%. Even with slowing demand in Europe and China, Nike is expected to grow EPS by 14% next year. However, caution should be used as excess inventories are rising overseas, and merchandising changes to meet Chinese consumers are putting pressure on margins. Yet, unlike Under Armour, which does not pay a dividend, Nike pays a yield of 1.7%—we also see potential for a dividend increase in Nike’s future.

Lululemon posted comparable sales up 15% last quarter, and EPS of $0.39, compared to $0.26 last year. Following the better than expected announcement, Oppenheimer upped its estimates. The firm also said competition concerns are overblown. Lululemon continues to impress on EPS, having beat expectations each of the last four quarters. However, given the company’s valuation concerns, now trading 60x earnings, its short interest continues to rise—with 16% of Lululemon’s shares shorted. Lululemon called Lone Pine Capital the top fund owner by shares with over 4 million, and Jim Simons upped his 1Q stake 300%.

Other notable and underserved Under Armour competitors are Columbia Sportswear (NASDAQ:COLM) and Quiksilver, Inc. (NYSE:ZQK). Columbia saw 3Q EPS of $1.88, compared to $1.98 for the same period last year, with the weak winter putting a strain on Columbia’s products. Unlike other key companies, Columbia relies more on colder weather. Columbia gave guidance of slow growth through the first half of 2013, not only due to a warm weather, but also a weak U.S. economy, continued European uncertainty and a slowing Asian market. However, Columbia does have the advantage of being able to sell its products through branded stores.

Quiksilver has seen signs of inventory build up, but has showed momentum in all its regions, expect for Europe. The company’s last quarter earnings of $0.09 were well above consensus of $0.05, and revenue was up 2% year over year. Credit Suisse also recently raised its price target to $4. For Columbia and Quiksilver, Chuck Royce owned the most shares of any of the funds we track. Other fund interest was virtually nonexistent for Columbia, but Quiksilver saw Jim Simons and Israel Englander upping their stakes.

From a valuation standpoint, both Lululemon and Under Armour trade a bit rich on a P/E basis, at 47x and 60x, respectively. Nike and Columbia trade in line with the industry average around 20x. However, Quiksilver trades at a P/E of 10x and a P/S of 0.3x, compared to the peer average P/S of 3.3x. The industry is expected to continue to see growth as consumers return to quality, but we feel that Lululemon and Under Armour are overvalued, and Nike has headwinds with China. We believe that Quiksilver has strong growth prospects that are being overlooked.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Click here to Read Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 74 percentage points in 2.5 years. Our beta is only 1.2 (download a FREE newsletter and see the details inside)

Lists

Best Selling Magazines in the World

Shortest People in History

The Most Celebrated Holidays in the World

Most Expensive Handbag Brands in the World

Top Selling Comic Book Issues of this Century

The Most Powerful Women in Politics

Best Paid DJs

Most Rebellious Female Artists

Best Paid TV Actresses of 2014

Best Paid Actors of 2014

Most Expensive Horses in the World

Tallest People Ever

Most Encouraging Feminist Celebrities

Best Paid Supermodels of 2014

Top 10 Suburbs for Retirement in 2015

10 Wealthiest Cities in America

Top 10 TED Talks for Entrepreneurs

Best TED Talks on Education

25 Most Dangerous Places to Live in America

Top 10 Ski Resorts in the United States – 2014 List

Top 10 Most Remote Places in the World

Most Visited Museums in the United States

Wealthiest Photographers in the World

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!