UA: Squeaky Clean

It’s rare that I come up with a goose egg when I try to find a bear case in a company’s results. But Under Armour represents just that. The company beat meaningfully on revenue – in both core apparel and in footwear – with revs growing +16% on a 7% decline in inventory which has bullish implications for 4Q gross margins.  My only concern headed into this quarter was not really a concern at all – it was that Gene McCarthy’s effort to build a footwear organization would results in higher SG&A spend. That’s exactly what UA did. But they completely funded it with better sales and margins. 

Uber-bears will point to the fact that annual guidance did not go up as much as 3Q beat. If they're going to hold their hat on that one, I wish them the best of luck. 'Wishing for luck' however, is not an investment process.

This has been one of two key Retail Focus long ideas for the past six months. Expectations on this hated name have come up in recent weeks, with short interest coming down to around 20% (still very high) and 2 analysts actually coming out positive over two weeks. (The 90%+ bears are going to have some explaining to do today).

Why does any true investor own this company? It is because they think, as we do, that sales will double over 3 years, which will be an intermediate stopping point (check out our S-curve analysis posted this past weekend). The 3Q result gives all the confidence I need to see that Kevin Plank, David McCreight, and now Gene McCarthy are building a world class organization to win.

UA: Squeaky Clean - UA S 10 09