Editors Note:

Sometimes size does matter when you are fighting for market share. The bigger you are the harder it is to change direction. You become stuck selling the same products with minimal innovation. In this environment the smaller more nimble competitor wins.


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UA - Under Armour - Company Description

Under Armour develops, markets and distributes branded performance apparel, footwear and accessories for men, women and youth in the U.S. and internationally.

Under Armour has posted double digit sales growth for 27 consecutive quarters. Competitor Nike saw sales rise 8% in Q4 and has only seen double digit revenue growth in 11 of the last 27 quarters.

When UA beat earnings last week they guided for the full year to revenue of $5.0 billion, a 26% increase compared to prior guidance of $4.95 billion. Gross margin is expected to remain at 48.1%. Analysts immediately raised earnings estimates from 65-85 cents to 67-87 cents. Footwear revenue rose +64% with basketball shoes especially strong in the Curry Two models. Premium products including $150 Speedform and Gemini 2 RE drove average sales prices higher.

Meanwhile, analyst channel checks included a high traffic Foot Locker location in NYC where several variations of the LeBron James shoes were discounted 50%, Kobe Bryant 40% and Kevin Durant 50%. On FL.com, 56 of the top 60 selling LBJ shoes, 50 of the top 58 KD shoes and 44 of the top 60 selling Kobe shoes are currently heavily discounted.

Under Armour foorwear sales rose +64% while Nike shoes are being discounted by 50%. What is wrong with this picture? Apparently, UA has been nimble in their designs and marketing and will continue to outperform their larger competitor.

Earnings July 21st.

UA just completed a 2:1 split on April 8th and has undergone a little over two weeks of post split depression. They beat earnings on the 20th and shares spiked $3 on the news to $47. They have traded sideways for the last three days and there is always the possibility they will decline but scorching double digit growth is hard to find.

If UA moves higher from here I would like to own it. If it moves lower we will look for a bottom to form and try a lower entry. With the market choppy to weak, I do not mind putting a higher entry trigger on the stock. If we are hit, that is great but should the market continue to decline we remain safely out of the position. There is a good chance the market is going to decline so we may never be triggered. If that is the case we will try to get a lower entry somewhere under $45.

With a UA trade at $48.05

Buy July $50 calls, currently $1.25, initial stop loss $45.50.



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