Beefed-up marketing for cross-trainer shoe eats into Under Armour profits

Shares of sportswear apparel company Under Armour Inc. closed down more than 10 percent Tuesday as first-quarter profits shrank 71 percent.

Baltimore-based Under Armour (NYSE: UA) reported first-quarter net income of $2.9 million, or 6 cents per share, compared with $9.9 million, or 20 cents per share, during the same period in 2007. Executives attributed the smaller profit to a 9 percent rise in selling, general and administrative expenses.

Under Armour beefed up marketing in the first quarter in anticipation of the launch of its cross-training sneaker line May 3. The company spent 17.8 percent of net revenue on marketing in the first quarter -- a substantial portion its marketing budget for the entire year -- compared with 11.1 percent during the same period a year ago. The marketing included a 60-second commercial during this year's Super Bowl that reportedly cost in excess of $5 million.

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On a conference call with analysts Tuesday morning, Under Armour CEO Kevin A. Plank continued to stress the importance of the cross-trainer shoe launch to the company's future success.

"Based on the early feedback, we believe that the launch looks promising," Plank said. "This is more than a campaign; more than a new product line. We believe this launch will change the athletic shoe industry forever."

Under Armour's revenue jumped nearly 27 percent in the quarter to $157 million, compared with $124 million during the same period a year ago, beating Wall Street estimates.

Analysts polled by Thomson Financial predicted earnings of 3 cents a share on revenue of $153.65 million.

Shares of Under Armour closed at $34.62 Thursday, down from Monday's closing price of $38.58.

Plank called the company's future in footwear its "largest growth engine" and teased expanding into additional footwear categories down the line. He did not offer specifics. The company also plans to open nine outlet stores throughout the U.S. in 2008, up from its previous projection of five.

Sales in Under Armour's women's apparel line grew 36 percent in the first quarter. Men's apparel revenue was up 20 percent.

A weakening economy will not slow down the company's anticipated growth for the year, Plank said. Continued sales strength, Plank said, shows the company is weathering the storm.

"We're cognizant of the present challenges in the current U.S. retail environment," he said. "That's a reality."

Under Armour is still expecting revenue for 2008 of between $765 million and $775 million, up 26 percent to 28 percent from 2007.