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Under Armour’s 3Q profit up, but supply chain issues persist

Under Armour Inc.’s third quarter brought an increase in profit, the company said Thursday, but supply chain management issues continued to beleaguer the Baltimore-based performance athletic apparel firm.

under armourNet income increased to $57.3 million in the third quarter, a gain of nearly 25 percent compared with $46 million in the third quarter of 2011.

Revenue has increased by at least 20 percent for the past 10 quarters. It totaled $575.2 million for the period ended Sept. 30, an increase of more than 23 percent from the $466 million in the prior year’s period.

CEO Kevin Plank said Thursday he thinks the company’s ability to deliver innovative design and high-performing products is responsible for its sustained growth.

“When we innovate and add value for the consumer, we win,” he said, citing newly launched products that generated high sales.

Earnings per diluted share were 54 cents, slightly beating the average analyst estimate of 52 cents.

In the corresponding period last year, earnings per diluted share were 44 cents.

Third-quarter profit margins in 2012 were only slightly better year-over-year —48.7 percent compared with 48.4 percent in 2011.

Christopher Svezia, an analyst with Susquehanna Bank, said the quarter was decent overall, but didn’t quite keep up with the standards Under Armour has set.

“To be able to execute 20 percent growth consistently is a plus,” Svezia said. “But relative to the expectations out there, they’re probably not hitting the mark as much as some people would like to see.”

Under Armour’s shares closed down $3.69 at $52.93 yesterday, a loss of about 6.5 percent.

Kinks in the supply chain raised more than a few eyebrows this quarter, and Svezia said he was surprised that those issues are still nagging at a company that has otherwise performed at a high, more mature level.

Chief Financial Officer Brad Dickerson said supply challenges are to be expected as demand grows. The problems were compounded this year, he said, because inventory decreased 2 percent year-over-year as part of Under Armour’s effort to manage expenses more efficiently.

Backups along the distribution chain were partly caused by issues at a few new factories, Dickerson said. Those problems, which he said are expected to continue to some extent into the fourth quarter, became more pressing with less inventory on hand.

“Our job is to put ourselves in a position to have cash on the balance sheet,” Dickerson said. “We want to manage inventory efficiently as best we can without the pendulum swinging too far. That will benefit our cash.”

Svezia applauded Under Armour for reducing excess inventory, but said the reductions were probably too drastic. If the company has to make financial sacrifices while sorting out distribution details, he said, it’s probably worth it.

“When you’re Under Armour, it’s all about the top line — the revenue, the sales,” Svezia said. “The last thing you want to do is ship to your retail late. So you’re going to end up spending a little bit in air freight and putting a Band-Aid on the supply piece to make sure you get product to retail in a timely fashion.”

As the firm grows, Plank said, executives must adapt to new demand and tweak the supply chain as needed. Under Armour may have “outgrown” some of its distributors, he added.

“We’re not declaring victory,” Plank said. “We don’t have everything solved yet, but we sure are getting a lot better.”