Reuters

(Reuters)

Under Armour Warns of Slowing Apparel Sales Growth

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Under Armor Inc warned that its sales growth would slow next year as the scorching increase in sales of its sports apparel eases off due to cooling demand for its popular outdoor clothing designed to retain body heat.

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Under Armor shares fell as much as 6.4 percent on Thursday after the company also said gross margins would fall in the current quarter due, in part, to the stronger dollar.

Demand for Under Armor's ColdGear Infrared clothing line, which uses a ceramic coating to retain body heat, spiked a year ago due to the unusually cold winter in North America.

Since then the company has cashed in on the popularity by expanding the clothing line to cater to golf and other outdoor activities, leading to overall apparel sales increasing at least 30 percent in the last three quarters.

But, apparel sales, which make up three-quarters of total revenue, rose only 25.6 percent in the third quarter ended Sept. 30.

"As UA's apparel revenue base grows larger, it may become more challenging for the company to consistently maintain its 20 percent-plus sales growth rate," Credit Suisse analyst Christian Buss wrote in a note.

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The company, known for giving conservative guidance, raised its full-year sales forecast for the third time and now expects an increase of 30 percent in fiscal 2014, higher than the 27 percent last year and also topping Wall Street's expectation.

But it said that growth rate is expected to slow to 22 percent in fiscal 2015.

Still, Under Armor's total sales rose 30 percent to $937.9 million in the third quarter as a 50 percent rise in footwear sales made up for the slowing sales of apparel such as training t-shirts, warm-up jackets and swimwear.

Net income rose 22 percent to $89.1 million, or 41 cents per share.

The results beat the average analyst estimate of a profit of 40 cents per share on revenue of $925.8 million, according to Thomson Reuters I/B/E/S.

Under Armor, which also sells a HeatGear apparel range designed to draw moisture away from the body and keep the wearer cool and dry, forecast fiscal 2014 sales of $3.03 billion.

That is higher than its previous forecast of $2.98 billion to $3.00 billion and the average analyst estimate of $3.02 billion.

The Baltimore, Maryland-based company said it expects gross margins to fall 100 basis points in the current quarter due to the rising dollar and a higher contribution from its low-margin international business.

The company's international business accounted for about 9 percent of third-quarter sales, up from 6.1 percent a year earlier.

Under Armor's shares were down 0.8 percent at $65.54 in afternoon trading, bouncing back from a low of $61.85. The stock's 50 percent rise this year is higher than all its peers, except Skechers USA Inc. (Reporting by Ramkumar Iyer in Bangalore; Editing by Don Sebastian and Savio D'Souza)