Under Armour 1Q earnings beat expectations, but stock drops

Concerns about short selling triggered a market circuit breaker on shares of Under Armour Inc. Tuesday in heavy trading that saw the sportswear company’s shares drop 11 percent.

Despite a strong earnings report, shares of the Baltimore-based company lost $8.83, or 11.25 percent, to close at $69.64 on the New York Stock Exchange. Trading volume was four times heavier than average during the day, as $328.57 million worth of shares changed hands.

The Security and Exchange Commission enacted the alternative uptick rule (Rule 201) in February 2010 to restrict short sellers from driving the price of a stock down further after it drops more than 10 percent in one day. Under the rule, long sellers are bumped to the front when selling their shares.

A spokeswoman for the New York Stock Exchange confirmed that Rule 201 was implemented at 9:39 a.m.

According to the SEC, short selling, “involves the selling of a security that an investor does not own or has borrowed. When shorting a stock, the investor expects that he or she can buy back the stock at a later date for a lower price than it was sold for.”

As of Tuesday, short selling interest accounted for 10 percent of Under Armour’s outstanding stock. These are shares that were sold short and have not been repurchased to close out the position.

Before the markets opened, the company reported net revenue of $312.7 million for the first three months of 2011, compared with $229.4 million to the corresponding period last year. As a result, profit increased to $12.1 million for the quarter compared with $7.2 million in the first quarter of 2010.

Under Armour’s launch of its first line of cotton T-shirts helped bolster revenue, which jumped 36 percent in the first quarter. Apparel revenue for the quarter was $230.5 million compared with $172.6 million in the first three months of 2010.

The company said that diluted earnings per share for the first quarter were 23 cents, compared to 14 cents per share in the first quarter of 2010. Analysts on average had expected earnings of 19 cents per share, according to Thomson Reuters.

“We are truly at the beginning of a new era at our company,” Under Armour CEO Kevin Plank said in a conference call with analysts.

Plank told analysts that Under Armour was in a “strong execution mode” and pointed to highlights including a sponsorship deal with the English Premier League’s Tottenham Hotspur team and the unveiling of E39, an electronic evaluation tool that measures horsepower, heart rate, G-forces and body temperature, which is integrated into the company’s baseline compression shirt.

Plank said the company also planned to expand the use of cotton into the line, which until this year used solely synthetic fibers.

This fall will see the introduction of “Storm Cotton,” which Plank said will be a heavyweight, waterproof cotton-blend sweatshirt.

“It’s important to point out that Charged Cotton is not a one-item introduction, as much as a platform for Under Armour,” Plank said.

The company also boosted its full-year earnings guidance for 2011. The company said earnings would be in the $149 million and $153 million range. Under Armour, though, did report that inventory had surged 68 percent in the quarter to $248.6 million.

The Associated Press contributed to this article.

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