UA: Full Speed Ahead

07/24/12 10:57AM EDT

Under Armour (UA) reported better-than-expected Q2 earnings this morning. That’s good for them because we expressed concern over a full blown sell off like Chipotle (CMG) or Nike (NKE) experienced when they reported. Instead, as of writing, the stock is up over 11%.

The company has solid growth and beat the Street consensus on multiple metrics including revenue, operating margin and an overall improved balance sheet. But the real story here is footwear. 

UA: Full Speed Ahead - UA Footweartime

Under Armour has tried twice before with footwear and has essentially fallen flat. After all, who needs another Reebok/Nike/Puma/etc., right? This time around, with the introduction of their Spine Technology, used in the Spine line of running shoes, revenue is off to a solid start.

Footwear revenue came in +44% vs. +26% though only 12% of sales. This is where they have the biggest opportunity given they’ve fallen short on the execution and design side in the past. Now they’re crushing it and they just released their best product yet which is just starting to drive sales. Consumers are definitely getting excited about UA sneakers.

Keep in mind footwear is at a lower margin than apparel so as market penetration grows, it will pressure margins but at the same time, UA will offset this as they grow out their direct-to-consumer business vs. wholesale which carries an even higher margin.

Another note to keep in mind is that UA will bring the Spine technology over to their professional athletic apparel. Football and basketball shoes will get the Spine treatment soon enough; there’s always room for endorsements from all star athletes, too. 

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