Under Armour Earnings Preview

Athletic apparel company Under Armour (NYS: UA) reports earnings results on Thursday, and I couldn't be more excited. This is a company that I have been following for some time, and there is a lot to like about the company. I personally like the way that president and CEO Kevin Plank is compensated based on the performance of the company he founded.

Through the first three quarters of this year, the company exceeded its total revenue from 2010, the first year that it earned more than a billion dollars in revenue. Analysts are expecting a total of $1.47 billion in revenue this year, surpassing 2010 revenue by 38%. As for earnings, the consensus estimate is $0.61 per share for the fourth quarter and a total of $1.84 per share for the year.

What to look for
Beyond earnings and revenue numbers, people will probably look at the one thing that has vexed them this year: its inventory growth. Last quarter, inventory growth was 63% year-over-year, still in excess of revenue growth but down from 74% the previous quarter. Plank has stated that by the end of 2011 he wanted both inventory and revenue growth to be in line. While I personally do not think that this will happen, if it is down further, it is still a goal that could be achieved this year.

One reason I'm not sweating about inventory too much is that this is a growing company. Industry highflyer lululemon (NAS: LULU) has had a similar inventory bump to meet surging demand. With a growing company like this, while the balance of inventory and revenue growth should be closely monitored, running the two slightly askew isn't the end of the world. I expect both Lulu and Under Armour have room to burn off excess product without damaging their brand.

One area that Under Armour has been lagging behind chief competitor Nike (NYS: NKE) is footwear. In 2010, Plank recruited three former Nike veterans to help Under Armour attempt to compete with Nike and its 95% market share in basketball shoes. Since then, Under Armour's revenue from all footwear has increased 43%. If full-year revenue growth in footwear can match or exceed this benchmark, Under Armour may start to gnaw away at Nike's once impenetrable market share.

Only time will tell
Plank has taken a long view on his company, with ultimate goals of unseating Nike from its perch as number one. If he is able to eventually succeed, it would probably be one of the greatest stories in modern business. In the meantime, I hope that Under Armour can continue its massive growth as it becomes an even bigger player in the athletic apparel arena. Keep an eye on the developments with these companies by adding them to My Watchlist by clicking this link.

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At the time thisarticle was published Fool contributor Robert Eberhard owns plenty of Under Armour "gear," but holds no position in any company mentioned. The Motley Fool owns shares of lululemon athletica and Under Armour. Motley Fool newsletter services have recommended buying shares of Under Armour, lululemon athletica, and Nike; and creating a diagonal call position in Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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