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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: Re-Charged growth! Date: 5/1/2011 2:02 PM
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Over the last two quarters, UA's sales growth rate has taken a quantum leap to ~36%, from its ~21% rate in the preceding four quarters. As a result, in January, they hiked the FY 11 sales growth outlook to 25-27%. Then hiked it again last week to 29-31%!

IOW, they seem to have under forecast the growth potential of both current and new products and strategies, such as the 50%+ growth of DTC, and the 'great consumer acceptance' of Charged Cotton. Even as core categories like training drove nearly half of the incremental revenue.

Accurately forecasting accelerated growth in existing products is tough enough. The more the skus – colors, materials, designs, sources – and the more the seasonality of different sports, the greater the risk of forecast error, no matter how sophisticated the tools used.

Add new products and distribution channels to the mix, and you're getting into dart-throwing territory, particularly when there isn't enough comparable history to be modeled on.

They knew they had this problem back in 2010, when they said they were 'chasing demand' and needed to increase safety stock levels, resulting in 45% inventory growth in the first half of 2011. Safety stock is like a slack variable in inventory planning – when your forecast accuracy and /or order fill rate is low, you increase safety stock until you can improve both.

Sure enough, inventory went up 48%!
“As we indicated on our last earnings call, we expect that inventory growth during the first and second quarters of 2011 to exceed the 45% growth experienced at year-end. Two notable factors contributed to our inventory growth during the quarter: the transition of our hats and bags business in-house, and as discussed in our last earnings call, an earlier planned build of our ColdGear apparel for our 2011 fall winter season. Excluding these 2 factors, inventory would have increased approximately 45% versus the prior year period, a position that reflects our efforts to better service anticipated demand.”
http://seekingalpha.com/article/265625-under-armour-s-ceo-di...

However, receivables also jumped 48%, well above the last two quarters' sales growth rate – which raises a yellow flag for me. (Receivables grew 20% end Sep 2010 and 29% end Dec 2010)

“Accounts receivable at quarter-end increased 48% year-over-year to $163 million, compared to $110 million at March 31, 2010. This increase was largely based on the timing of our wholesale apparel shipments, which were concentrated more toward the end of our first quarter.”

This will be high on my watch list for the next quarter. I'm not a big fan of credit-fueled sales growth.
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