UPDATE 2-Under Armour Q1 profit beats Street, but sees weak 2008
(Recasts; adds analysts' comments, background; updates share movement)
BANGALORE, April 29 (Reuters) - Athletic-apparel maker Under Armour Inc (UA.N) posted a first-quarter profit that beat market estimates, but forecast 2008 to be less profitable than previously expected as it plans to clear excess inventory, sending its shares down as much as 12 percent.
Under Armour plans to move its seasonal excess inventory to its own retail outlets from its retailer customers and gross margins would be hurt as it will probably have to sell the goods at a discount to push sales, Stephens Inc analyst Paul Swinand said from Chicago.
Under Armour's inventory more than doubled to $167.9 million in the quarter, while revenue grew 27 percent, ThinkPanmure analyst Suzanne Price said in a note to clients.
The company, which will make its debut in the cross-training sneakers market this spring, also cut its 2008 income from operations outlook to $103.5 million to $104.5 million, down from its prior forecast of about $108.5 million to $110.5 million.
Under Armour expects 2008 gross margin to fall 30 basis points year-over-year to 50 percent. But, the company reiterated its net revenue outlook of about $765 million to $775 million.
Analysts on average expect 2008 earnings of about $1.28 a share, before special items, on revenue of $775.3 million, according to Reuters Estimates.
Standard & Poor's analyst Marie Driscoll, who has a "strong buy" on the retailer's stock, cut her price target on the stock to $56 from $60 and trimmed her 2008 and 2009 estimates on Under Armour citing gross margin pressure.
A FLY ON NIKE'S BACK?
Under Armour, which began operations in 1996 by making snug clothing which draws sweat away from the body, will launch its performance training footwear in early May.
"While there will be those who are loyal to the Under Armour brand and will be quick to try an Under Armour sneaker, growth in the new category may not live up to investors' expectations," ThinkPanmure's Price said.
She added that the most significant years of growth for Under Armour are behind.
The company's cross-trainers, touted as an attempt to compete better with industry goliath Nike (NKE.N), are the next step up from the cleated shoes Under Armour started making only in 2006.
Under Armour Performance Trainers -- the brand's first non-cleated footwear offering-- are designed to handle various training activities, from sprinting to pumping iron, within a specific sport.
Stephens Inc's Paul Swinand said, "The Street is underestimating how limited the program is" and added the product has not been widely distributed. Continued...
