FR: This Clothing Retail Stock Just Beat Expectations

Article: This Clothing Retail Stock Just Beat Expectations

The next “Fool Revisited” piece this week is another earnings take, this time from former favorite stock Under Armour (NYSE: UAA). At the time, Under Armour was still on the steepest part of its ascent as a company, having only recently just posted over $1 billion in revenue the previous year, a number that has grown to nearly $5 billion in the 6+ years since. However, as we will explore over the course of this series, what goes up must (eventually) come down, and Under Armour has been no exception.

The piece was nothing remarkable; these earnings takes were pretty cut and try and a quick way for the site to get some traffic surrounding the “favored” stocks when news was happening, especially when that news would drive performance one way of another of a stock that was recommended by one of the Fool services, as Under Armour was at the time. People want to know what’s happening and whether it might be a good time to sell at the top and get out or if things look like they are going to continue on. In October 2011, it seemed like the latter for Under Armour, though there were some warning signs that a decline may have been inevitable.

In all my time of covering Under Armour, the biggest concern of the financial press was its inventory levels. Sure, they were selling A LOT of clothes (and later shoes and now subscriptions to Endomondo or MyFitness Pal), but they were also having things sit on the shelves for much longer than necessary. They never seemed to get to the point of not having a bunch of assets in inventory, which tends to be one of the worst uses of capital for a company to invest in unless it is flying off the shelf.

While it is okay for your inventory to grow, Under Armour always stated they never wanted its inventory growth to outpace its revenue growth, something that had gotten away from them in the early days of the company. Part of this was due to the company using third parties like Dick’s Sporting Goods to sell its stuff, but as it moved to the direct-to-consumer arena, you would have expected the numbers to get more in line. They didn’t, and that’s probably why Under Armour is down so dramatically from its once lofty heights.

As I continue to look back at my Under Armour articles in the near future, I’m going to try and fill in some of the gaps and find out what exactly went wrong over the past 6+ years for this once giant growth stock. I like the COMPANY enough that I think the STOCK might be a good investment again, but it definitely isn’t very high on my list currently.

Until next time…

Disclaimer: I do not own currently own shares in Under Armour, but I purchased shares on behalf of my mother within the last six months, which she no longer owns. I also have no plans to purchase shares within the next 60 days in any account in which I manage investment funds. You can read a little about my personal investment philosophy here.