By  on April 30, 2008

Under Armour Inc. on Tuesday reported a 71.1 percent plunge in first-quarter earnings, beating Wall Street's expectations, but shares fell 10.3 percent.

The drop in earnings was attributed to marketing costs related to the launch Saturday of its new performance training footwear.

For the three months ended March 31, earnings tumbled to $2.9 million, or 6 cents a diluted share, from $9.9 million, or 20 cents, in the year-ago period. Analysts were expecting a profit of about 3 cents a share before special items.

Revenue increased 26.6 percent to $157.3 million from $124.3 million. Sales were boosted by a 25 percent increase in apparel, with growth in the men's, women's and youth businesses. The women's apparel business grew 36 percent in the quarter.

The company said in a call to Wall Street analysts that, despite a challenging environment, consumers are still willing to trade up for performance products.

Gross margins were 47.6 percent, down from 48.7 percent last year, due to inventory reserves of excess gloves.

Management expects the new performance training footwear to drive growth.

"We believe this...will change the athletic shoe industry forever," said Kevin Plank, president, chief executive officer and chairman.

Citigroup downgraded Under Armour to "hold" from "buy" as gross margins come under pressure from higher markdowns. Retail analyst Kate McShane said there is a greater "potential for earnings risk as guidance remains back-half loaded, despite continued higher spending." McShane also lowered full-year 2008 and 2009 earnings estimates to $1.20 and $1.50 a diluted share, respectively.

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