Going Into Earnings, 3 Questions for Under Armour

Hold onto your hats, folks! Performance apparel specialist Under Armour is all set to announce second-quarter earnings on July 25 before the market opens.

With Under Armour stock trading at a whopping 53 times last year's earnings, the report should provide shareholders with plenty of new information to help them make an informed decision as to whether Under Armour is worth their investing dollars.

To start, here are three questions I have for the performance apparel specialist going into earnings:

1. Did you make it to lucky 13?
Remember, last quarter marked Under Armour's 12th consecutive quarter of achieving at least 20% top-line growth, and management told us three months ago that they were confident they would be able to maintain that long-term 20% target growth rate.

In fact, with their first quarter report, Under Armour management raised both their revenue and earnings guidance slightly when they told investors to expect 2013 net revenue growth in the range of 21% to 22% over last year, and full-year operating income growth of between 23% and 24%.

Assuming all went to plan, then, the second quarter of 2013 should mark the 13th consecutive three-month period of growing sales at least 20%.

2. Are you still keeping your inventory in check?
Next, remember that shares of Under Armour have gotten smacked more than once in the recent past after the company's inventory growth outpaced sales increases by an uncomfortably large margin.

Luckily, however, over the last few quarters, Under Armour seems to have made its inventory woes a thing of the past, with inventory remaining steady in Q1 at around $324 million. What's more, shareholders also applauded in Q1, when Under Armour spruced up its balance sheet by increasing cash and equivalents by 139%, to $256 million, simultaneously reducing its long-term debt by a fifth, to $60 million.

These moves are exactly what picky shareholders love to see as young, fast-growing companies like Under Armour work out the growth kinks in their lofty long-term pursuit of world domination.

3. Does the rest of the world love Under Armour, too?
Finally, a key part of Under Armour's long-term growth story lies in how well its brand can translate to international markets. Remember, domestic sales still made up more than 93% of Under Armour's total $471 million in revenue last quarter.

That said, this isn't particularly surprising, considering that Under Armour is still growing like a weed in the U.S., thanks to a combination of their focus on opening new Under Armour Outlet stores, pushing hard into the women's apparel market, introducing new footwear offerings, and developing an innovative (and occassionally entertaining) Charged Cotton clothing line, all of which should help the company take up more space in consumers' closets than ever.

By comparison, however, note international sales made up more than $3 billion of Nike's nearly $5.6 billion in total revenue last quarter. And even though Nike's market capitalization shows the industry stalwart is nearly nine times the size of Under Armour, Nike still managed to grow its own sales by 7% year over year last quarter, or 9% when you exclude the negative impact from foreign currency changes. I don't care who you ask... that's not too shabby for an enormous $56 billion athletic apparel company.

But in the end, as impressive as Nike's continued feats of growth are, that also underscores the enormity of Under Armour's international expansion potential.

Thankfully, though, investors should be able to rest assured that this opportunity certainly isn't lost on the smaller company. Last quarter, Under Armour's founding CEO Kevin Plank told shareholders they're only just beginning to establish their roots overseas, and that we should see international growth accelerate over the next few years.

Foolish takeaway
In the end, while Under Armour stock may look expensive right now, it's hard to argue with the company's substantial growth prospects over the long term. In fact, that's why I bought more shares of Under Armour for my personal portfolio in April, and why I plan to continue adding to that position down the road.

But in the meantime, these three questions should give you a great place to start in deciding whether Under Armour stock is good enough for your own brokerage account.

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The article Going Into Earnings, 3 Questions for Under Armour originally appeared on Fool.com.

Fool contributor Steve Symington owns shares of Under Armour. The Motley Fool recommends Nike and Under Armour. The Motley Fool owns shares of Nike and Under Armour. 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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