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Author: TMFCogitarius Big gold star, 5000 posts Old School Fool Home Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 332  
Subject: Operating metrics deteriorating Date: 9/8/2012 1:34 PM
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Over the last six quarters or so, UA’s operating metrics have been steadily deteriorating, from top line to bottom line.

Sales: peaked at $466MM in Q2 ‘11, serially declined to $370MM in Q2 ‘12

Sales growth: similarly peaked at 42% in Q2 ‘11, steadily declined to 27% in Q2 ‘12

Gross margin: peaked at 51.6% in Q4 ‘11, down to 45.9% in Q2 ‘12, below the 46.4% in Q1 ‘11

SG&A: Since the sharp drop to 32.2% in Q3 ‘11, is back up more than 10 points to 42.7% in Q2 ‘12

Operating margin: Down to a poor 3.2% from a high of 16.1% in Q3 ‘11

Net margin: Down to an anemic 2.9% from a 9.9% high in Q3 ‘11

For a growth company, SG&A investment has to be justified by growth that is accelerating, not decelerating. After all, the whole point is to is to generate incremental operating leverage, which drives margin improvement.

Taking Q1 ‘11 as a baseline, Gross margin is down 0.5 points, SG&A is up 3.1 points, Operating margin is down 3.5 points, net profit is down 1 point.
IOW, most of the damage to profitability is being caused by SG&A out of control just as sales growth is slowing.

If this negative trend isn’t quickly reversed, the stock’s trajectory will be.
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