Under Armour Inc (UA): The Freight Train Continues

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Performance apparel specialist Under Armour Inc (NYSE:UA) reported strong first-quarter earnings Friday morning, but investors can’t seem to decide whether they like what they see.

After quickly rising 5% at the open, shares of Under Armour Inc (NYSE:UA) gradually fell back to even, then followed with another 2% rise later in the morning, then a dip into negative territory, and back to positive in the afternoon … and on, and on …

You know what? While I admittedly find these short-term fluctuations mildly amusing, I’d like to reach out and encourage you to tear your eyes away from your charts and focus on what really matters: What will Under Armour do over the long term?

The numbers
Before anything else, however, let’s look at the figures the Baltimore-based company gave us Friday morning.

On one hand, first-quarter revenue increased by an impressive 23% year over year to $472 million. On the other, and in spite of that higher revenue, Under Armour actually earned 47% less than it did during the same period last year.

Yikes! Should investors be worried?

In a word: Nope.

So what happened? In the press release, the company reminded us that the drop in net income largely reflected “the planned timing of marketing expenditures.” For those of you keeping track, this shouldn’t have come a surprise, considering Under Armour Inc (NYSE:UA) CFO Brad Dickerson gave investors a heads-up way back in January by saying:

“We are planning to be more targeted in some of our marketing expenses this year, which we anticipate will create some significant year-over-year timing shift. The first quarter in particular is expected to see nearly 350 basis points of deleverage.”

What’s more, Dickerson also went on to explain that the second and third quarters would probably also reflect inconsistent year-over-year earnings as a result of this shift, and the fourth quarter would be more consistent with 2012. In the end, he concluded that Under Armour still plans to hold total 2013 marketing expenses “relatively flat as a percentage of revenues compared to 2012.”

On another encouraging note, Under Armour Inc (NYSE:UA)’s year-over-year inventory levels remained steady at $324 million — a welcome relief from inventory concerns in prior years — and the company managed to increase its cash and equivalents by 139% to $256 million, while at the same time lowering its long-term debt by 21% to $60 million.

The train’s a-comin’!
As a longtime Under Armour shareholder, I’m happy the company has once again fulfilled its promise of profitably maintaining at least 20% top-line growth for the 12th consecutive quarter. In addition, this marks the 14th consecutive quarter of apparel revenues growth of more than 20% — an impressive feat, considering Under Armour was already dominating the category that made it a household name.

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