Buy This Apparel Stock on the Dip

This week is a big one for the apparel industry, as several clothing manufacturers and retailers are scheduled to report earnings today and over the next few days: Cabela’s Inc. (CAB), Skechers USA (SKX) and V.F. Corp. (VFC), to name a few. But there’s one apparel maker that grabbed my attention today. If you’re looking for a sold retail play to own, this is it:

Shares of Under Armour Inc. (UA) fell after it posted third-quarter operating results this morning. However, this appears to be an overreaction to one detail in a generally solid report.

At a glance, the results were quite strong. Compared with a year ago, footwear sales jumped 61% to $196 million. Over the same period, total sales jumped 28% to $1.20 billion. This is the first quarter that Under Armour’s revenues have topped $1 billion. Analysts were looking for $1.18 billion in revenue so Under Armour posted a 1.7% sales surprise. Meanwhile, earnings climbed 12.8% to $100.48 million, or $0.45 per share. This beat the consensus EPS estimate by a penny, or by 2.3%.

Why did the stock pull back? Some are saying that it’s because Under Armour’s gross margin slipped to 48.8%, down from 49.6% a year ago. Apparently currency headwinds were the primary culprit.

Personally, I think some investors are simply looking for an excuse to take profits. The fact remains that Under Armour is looking great for the long haul.

Looking ahead to FY 2015, management lifted its sales and earnings outlook. It now expects to bring in $3.91 billion in revenue (up from $3.84 billion previously), representing 27% annual sales growth. Under Armour also now expects to bring in $408 million in operating income (up from a range of $405 million to $408 million); this works out to 15% annual growth.

I consider UA an A-rated Strong Buy, and I expect it to bounce back from the near-term selloff.


Louis Navellier

Louis Navellier

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