NIKE, Inc. (NKE), Under Armour Inc (UA): Popular Brands Deal With a Fickle Chinese Consumer

Under Armour Inc (NYSE:UA)’s merchandise is also selling at full price, a sign that the brand is increasing in popularity and, at least in the short term, may be less affected by counterfeit merchandise. Competing with counterfeit goods is a common problem affecting brand retailers in China.

The company’s first quarter net revenues increased 23% to $472 million versus $384 million in the same period last year. Net income decreased 47%, however, to $8 million versus $15 million last year, and diluted EPS decreased to $0.07 from $0.14 in the prior year period.

The drop in income reflects Under Armour Inc (NYSE:UA)’s investments in its biggest global marketing campaign using the slogan “I will,” the opening of the first Under Armour Inc (NYSE:UA) Brand House retail store, and an expanded footwear line. The outlook for 2013 anticipates net revenues of $2.21 billion to $2.23 billion, representing growth of 21% to 22% over 2012. Only 6.5% of Under Armour Inc (NYSE:UA)’s quarterly net revenues originate overseas, but that figure should increase as the company expands to other countries like China.

Conclusion

As the second largest economy in the world, China plays a key role in the profitability and growth of these companies, especially for NIKE, Inc. (NYSE:NKE) where a quarter of its earnings originate in China. These companies are currently facing unfavorable economic conditions while they cater to the changing tastes of Chinese consumers, who are becoming more selective in their purchases. Investors should pay attention to how these companies manage their product lines in China, especially Nike’s issue with excess inventory and its possible loss of market share to competitors.

The article Popular Brands Deal With a Fickle Chinese Consumer originally appeared on Fool.com and is written by Eileen Rojas.

Eileen Rojas has no position in any stocks mentioned. The Motley Fool recommends Nike and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Eileen is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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