News Release

10.30.2018
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Under Armour Reports Third Quarter Results; Updates Full Year 2018 Outlook

BALTIMORE, Oct. 30, 2018 /PRNewswire/ -- Under Armour, Inc. (NYSE: UA, UAA) today announced financial results for the third quarter ended September 30, 2018. The company reports its financial performance in accordance with accounting principles generally accepted in the United States of America ("GAAP"). This press release refers to "currency neutral" and "adjusted" amounts, which are non-GAAP financial measures described below under the "Non-GAAP Financial Information" paragraph. References to adjusted financial measures exclude the impact of the company's restructuring plans and the related tax effects, as well as adjustments to our one-time impacts of the 2017 U.S. tax reform legislation, which we refer to as the U.S. Tax Act. Reconciliations of non-GAAP amounts to the most directly comparable financial measure calculated in accordance with GAAP are presented in supplemental financial information furnished with this release. All per share amounts are reported on a diluted basis.

Under Armour, Inc. Logo. (PRNewsFoto/Under Armour, Inc.)

"Our third quarter results demonstrate that our multi-year transformation is on track," said Under Armour Chairman and CEO Kevin Plank. "As we work through this chapter, we are staying sharply focused on our brand by connecting even more deeply with our consumers while delivering industry-leading, innovative products and premium experiences. Coupled with increasingly greater business discipline and resulting efficiencies, we continue to gain confidence in our long-term path and ability to deliver for our consumers, customers and shareholders."

Third Quarter Review

  • Revenue was up 2 percent to $1.4 billion (up 3 percent currency neutral).
    • Wholesale revenue increased 4 percent to $914 million and direct-to-consumer revenue was flat at $465 million, representing 32 percent of total revenue.
    • North America revenue decreased 2 percent to $1.1 billion (down 1 percent currency neutral) and the international business increased 15 percent to $351 million (up 17 percent currency neutral), representing 24 percent of total revenue. Within the international business, revenue was up 15 percent in EMEA (up 16 percent currency neutral), up 15 percent in Asia-Pacific (up 16 percent currency neutral) and up 16 percent in Latin America (up 23 percent currency neutral).
    • Apparel revenue increased 4 percent to $978 million with growth in training, golf and team sports. Footwear revenue was flat at $285 million. Accessories revenue decreased 6 percent to $116 million driven by declines in outdoor and training.
  • Gross margin increased 10 basis points to 46.1 percent compared to the prior year including a $5 million impact related to restructuring efforts. Excluding restructuring efforts in both periods, adjusted gross margin increased 20 basis points to 46.5 percent compared to the prior year driven predominantly by product cost improvements and lower promotional activity offset by channel mix.
  • Selling, general & administrative expenses increased 5 percent to $528 million, or 36.6 percent of revenue driven by continued investments in the direct-to-consumer, footwear and international businesses.
  • Restructuring and impairment charges were $19 million.
  • Operating income was $119 million. Adjusted operating income was $143 million.
  • Net income was $75 million or $0.17 per diluted share. Adjusted net income was $112 million or $0.25 per diluted share.
  • Inventory decreased 1 percent to $1.2 billion.
  • Cash and cash equivalents decreased 35 percent to $169 million.

2018 Restructuring Plan

The company expects to incur approximately $200 to $220 million in pre-tax restructuring and related charges in connection with its previously announced 2018 restructuring plan. Through the third quarter of 2018, the company has recognized pre-tax costs of $154 million, inclusive of $24 million of pre-tax costs recognized in the third quarter.

Updated Fiscal 2018 Outlook

  • Revenue is expected to increase approximately 3 to 4 percent reflecting a low single-digit decline in North America and international growth of approximately 25 percent. From a product perspective, apparel is expected to grow at a mid-single-digit rate, footwear at a low single-digit rate, and accessories is now expected to decline at a mid-single-digit rate.
  • Gross margin is expected be flat to down slightly versus the prior year rate of 45.0 percent. Adjusted gross margin is expected to improve slightly compared to 2017 as benefits from product costs and lower planned promotional activity are offset primarily by inventory management actions.
  • Operating loss is now expected to be approximately $50 to $55 million versus the previously expected $60 million loss. On an adjusted basis, operating income is now expected to reach the $150 to $165 million range versus the previous $140 to $160 million range.
  • Interest and other expense net is now expected to be approximately $50 million, up slightly from the previous $45 million expectation due to foreign currency headwinds.
  • Due to a one-time tax benefit related to an intercompany asset sale, the full year adjusted effective tax rate is now expected to be 13 to 15 percent versus the previous expectation of 25 to 27 percent. This equates to approximately $0.02 of diluted earnings per share benefit in 2018.
  • Excluding the impact of the restructuring efforts, adjusted diluted earnings per share is now expected to be in the range of $0.19 to $0.22 versus the previous expectation of $0.16 to $0.19.
  • Capital expenditures are now planned at approximately $175 million versus the previous $200 million expectation.
  • Year-end inventory for 2018 is expected to be flat to down slightly.

Conference Call and Webcast

Under Armour will hold its third quarter 2018 conference call and webcast today at approximately 8:30 a.m. Eastern Time. The call will be webcast live at http://investor.underarmour.com and will be archived and available for replay approximately three hours after the live event.

U.S. Tax Act

The U.S. Tax Act was enacted into law on December 22, 2017. The legislation contained several key tax provisions that affect Under Armour and, as required, the company included reasonable estimates of the income tax effects of the changes in tax law and tax rate in the company's 2017 financial results. These changes included a one-time mandatory transition tax on accumulated foreign earnings and a re-measuring of deferred tax assets which impacted our fourth quarter and full year of 2017. During the third quarter of 2018, the company revised its reasonable estimate made in the company's 2017 financial results for the one-time mandatory transition tax on accumulated foreign earnings and the re-measuring of deferred tax assets due to the U.S. Tax Act. Since the U.S. Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and additional accounting interpretations were expected over the subsequent 12 months, the company considers the accounting of the transition tax, deferred tax re-measurements, and other items to be provisional. The company expects to finalize its one-time estimates related to the U.S. Tax Act within the one-year measurement period allowed by the SEC.

Non-GAAP Financial Information

This press release refers to "currency neutral" and "adjusted" results as well as "adjusted" forward looking estimates of the company's fiscal 2018 outlook. Currency neutral financial information is calculated to exclude the impact of changes in foreign currency. Management believes this information is useful to investors to facilitate a comparison of the company's results of operations period-over-period. Adjusted gross margin, adjusted operating income, adjusted net income, adjusted diluted earnings per share and adjusted effective tax rate exclude the impact of restructuring and other related charges and the impact of the U.S. Tax Act, as applicable. Management believes this information is useful to investors because it provides enhanced visibility into the company's actual and expected underlying results excluding the impact of its restructuring plans and recent significant changes in U.S. tax laws. These non-GAAP financial measures should not be considered in isolation and should be viewed in addition to, and not as an alternative for, the company's reported results prepared in accordance with GAAP. Additionally, the company's non-GAAP financial information may not be comparable to similarly titled measures reported by other companies.

About Under Armour, Inc.

Under Armour, Inc., headquartered in Baltimore, Maryland is a leading inventor, marketer and distributor of branded performance athletic apparel, footwear and accessories. Designed to make all athletes better, the brand's innovative products are sold worldwide to consumers with active lifestyles. The company's Connected Fitness™ platform powers the world's largest digitally connected health and fitness community. For further information, please visit www.uabiz.com.

Forward Looking Statements

Some of the statements contained in this press release constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, our anticipated charges and restructuring costs and the timing of these measures, the impact of recent tax reform legislation on our results of operations, the development and introduction of new products, the implementation of our marketing and branding strategies, and the future benefits and opportunities from significant investments. In many cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "assumes," "anticipates," "believes," "estimates," "predicts," "outlook," "potential" or the negative of these terms or other comparable terminology. The forward-looking statements contained in this press release reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to: changes in general economic or market conditions that could affect overall consumer spending or our industry; changes to the financial health of our customers; our ability to successfully execute our long-term strategies; our ability to successfully execute any restructuring plans and realize expected benefits; our ability to effectively drive operational efficiency in our business; our ability to manage the increasingly complex operations of our global business; our ability to comply with existing trade and other regulations, and the potential impact of new trade, tariff and tax regulations on our profitability; our ability to effectively develop and launch new, innovative and updated products; our ability to accurately forecast consumer demand for our products and manage our inventory in response to changing demands; any disruptions, delays or deficiencies in the design, implementation or application of our new global operating and financial reporting information technology system; increased competition causing us to lose market share or reduce the prices of our products or to increase significantly our marketing efforts; fluctuations in the costs of our products; loss of key suppliers or manufacturers or failure of our suppliers or manufacturers to produce or deliver our products in a timely or cost-effective manner, including due to port disruptions; our ability to further expand our business globally and to drive brand awareness and consumer acceptance of our products in other countries; our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results; our ability to successfully manage or realize expected results from acquisitions and other significant investments or capital expenditures; risks related to foreign currency exchange rate fluctuations; our ability to effectively market and maintain a positive brand image; the availability, integration and effective operation of information systems and other technology, as well as any potential interruption of such systems or technology; risks related to data security or privacy breaches, including the 2018 data security issue related to our Connected Fitness business; our ability to raise additional capital required to grow our business on terms acceptable to us; our potential exposure to litigation and other proceedings; and our ability to attract key talent and retain the services of our senior management and key employees. The forward-looking statements contained in this press release reflect our views and assumptions only as of the date of this press release. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

 

Under Armour, Inc.

For the Three and Nine Months Ended September 30, 2018 and 2017

(Unaudited; in thousands, except per share amounts)


CONSOLIDATED STATEMENTS OF OPERATIONS




Three Months Ended September 30,


Nine Months Ended September 30,



2018


% of Net

Revenues


2017


% of Net

Revenues


2018


% of Net

Revenues


2017


% of Net

Revenues

Net revenues


$

1,442,976


100.0

%


$

1,408,991


100.0

%


$3,803,205


100.0

%


$

3,620,028


100.0

%

Cost of goods sold


777,769


53.9

%


760,265


54.0

%


2,087,961


54.9

%


1,962,172


54.2

%

Gross profit


665,207


46.1

%


648,726


46.0

%


1,715,244


45.1

%


1,657,856


45.8

%

Selling, general and administrative expenses


527,640


36.6

%


501,548


35.6

%


1,594,893


41.9

%


1,504,828


41.6

%

Restructuring and impairment charges


18,601


1.3

%


84,998


6.0

%


134,920


3.5

%


88,097


2.4

%

Income (loss) from operations


118,966


8.2

%


62,180


4.4

%


(14,569)


(0.4)

%


64,931


1.8

%

Interest expense, net


(9,151)


(0.6)

%


(9,575)


(0.7)

%


(26,266)


(0.7)

%


(25,237)


(0.7)

%

Other expense, net


(4,294)


(0.3)

%


(1,069)


(0.1)

%


(9,475)


(0.2)

%


(1,383)


%

Income (loss) before income taxes


105,521


7.3

%


51,536


3.7

%


(50,310)


(1.3)

%


38,311


1.1

%

Income tax expense (benefit)


30,874


2.1

%


(2,706)


(0.2)

%


691


%


(1,349)


%

Income from equity method investment


619


%



%


481


%



%

Net income (loss)


$

75,266


5.2

%


$

54,242


3.8

%


$

(50,520)


(1.3)

%


$

39,660


1.1

%


















Basic net income (loss) per share of Class A, B and C common stock


$

0.17




$

0.12




$

(0.11)




$

0.09



Diluted net income (loss) per share of Class A, B and C common stock


$

0.17




$

0.12




$

(0.11)




$

0.09



Weighted average common shares outstanding Class A, B and C common stock

Basic


447,070




441,275




444,931




440,360



Diluted


451,035




448,439




444,931




448,261



 

Under Armour, Inc.

For the Three and Nine Months Ended September 30, 2018 and 2017

(Unaudited; in thousands)


NET REVENUES BY PRODUCT CATEGORY




Three Months Ended September 30,

Nine Months Ended September 30,



2018


2017


% Change


2018


2017


% Change

Apparel


$

978,411


$

939,364


4.2

%


$

2,491,980


$

2,335,454


6.7

%

Footwear


284,856


285,052


(0.1)

%


828,001


791,637


4.6

%

Accessories


116,186


123,487


(5.9)

%


314,250


335,172


(6.2)

%

Total net sales


1,379,453


1,347,903


2.3

%


3,634,231


3,462,263


5.0

%

Licensing revenues


31,363


34,324


(8.6)

%


78,876


83,639


(5.7)

%

Connected Fitness


32,160


26,764


20.2

%


90,098


74,126


21.5

%

Total net revenues


$

1,442,976


$

1,408,991


2.4

%


$

3,803,205


$

3,620,028


5.1

%


NET REVENUES BY SEGMENT




Three Months Ended September 30,

Nine Months Ended September 30,



2018


2017


% Change


2018


2017


% Change

North America


$

1,059,535


$

1,077,088


(1.6)

%


$

2,770,463


$

2,778,165


(0.3)

%

EMEA


147,594


127,932


15.4

%


410,427


334,683


22.6

%

Asia-Pacific


149,388


130,320


14.6

%


390,647


309,712


26.1

%

Latin America


54,299


46,887


15.8

%


141,570


123,342


14.8

%

Connected Fitness


32,160


26,764


20.2

%


90,098


74,126


21.5

%

Total net revenues


$

1,442,976


$

1,408,991


2.4

%


$

3,803,205


$

3,620,028


5.1

%


INCOME (LOSS) FROM OPERATIONS




Three Months Ended September 30,

Nine Months Ended September 30,



2018


2017


% Change


2018


2017


% Change

North America


$

77,465


$

65,827


17.7

%


$

(59,221)


$

64,124


(192.4)

%

EMEA


15,548


16,977


(8.4)

%


1,766


13,990


(87.4)

%

Asia-Pacific


33,851


34,173


(0.9)

%


73,749


69,050


6.8

%

Latin America


(9,806)


(10,223)


4.1

%


(37,467)


(26,175)


(43.1)

%

Connected Fitness


1,908


(44,574)


104.3

%


6,604


(56,058)


111.8

%

Income (loss) from operations


$

118,966


$

62,180


91.3

%


$

(14,569)


$

64,931


(122.4)

%

 

 

Under Armour, Inc.

As of September 30, 2018, December 31, 2017 and September 30, 2017

(Unaudited; in thousands)


CONDENSED CONSOLIDATED BALANCE SHEETS




September 30,
2018


December 31,
2017


September 30,
2017

Assets







Current assets







Cash and cash equivalents


$

168,682


$

312,483


$

258,002

Accounts receivable, net


867,074


609,670


733,292

Inventories


1,173,115


1,158,548


1,180,653

Prepaid expenses and other current assets


378,159


256,978


284,895

Total current assets


2,587,030


2,337,679


2,456,842

Property and equipment, net


821,078


885,774


868,250

Goodwill


551,208


555,674


559,318

Intangible assets, net


43,792


46,995


48,646

Deferred income taxes


86,436


82,801


97,147

Other long term assets


137,625


97,444


100,162

Total assets


$

4,227,169


$

4,006,367


$

4,130,365

Liabilities and Stockholders' Equity







Revolving credit facility, current


$

75,000


$

125,000


$

270,000

Accounts payable


499,467


561,108


482,897

Accrued expenses


303,399


296,841


266,074

Customer refund liability


303,457



Current maturities of long term debt


25,000


27,000


27,000

Other current liabilities


93,416


50,426


54,455

Total current liabilities


1,299,739


1,060,375


1,100,426

Long term debt, net of current maturities


703,455


765,046


771,382

Other long term liabilities


218,054


162,304


157,861

Total liabilities


2,221,248


1,987,725


2,029,669

Total stockholders' equity


2,005,921


2,018,642


2,100,696

Total liabilities and stockholders' equity


$

4,227,169


$

4,006,367


$

4,130,365

 

Under Armour, Inc.

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited; in thousands)


CONSOLIDATED STATEMENTS OF CASH FLOWS



Nine Months Ended September 30,


2018


2017

Cash flows from operating activities




Net income (loss)

$

(50,520)


$

39,660

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities




Depreciation and amortization

$

135,029


$

128,488

Unrealized foreign currency exchange rate (gains) losses

9,350


(30,429)

Loss on disposal of property and equipment

3,378


1,518

Impairment charges

9,930


55,116

Amortization of bond premium

190


190

Stock-based compensation

32,445


34,409

Excess tax benefit (deficiency) from stock-based compensation arrangements

(3)


356

Deferred income taxes

(9,965)


42,705

Changes in reserves and allowances

(239,073)


43,793

Changes in operating assets and liabilities:




Accounts receivable

(23,846)


(138,267)

Inventories

(30,390)


(243,696)

Prepaid expenses and other assets

(97,519)


(23,195)

Other non-current assets

(1,596)


(12,554)

Accounts payable

(37,353)


86,481

Accrued expenses and other liabilities

113,297


75,526

Customer refund liability

304,685


Income taxes payable and receivable

778


(86,274)

Net cash provided by (used in) operating activities

118,817


(26,173)

Cash flows from investing activities




Purchases of property and equipment

$

(121,439)


$

(225,924)

Sale of property and equipment

11,285


Purchases of other assets

(4,861)


(1,648)

Purchase of equity method investment

(39,208)


Net cash used in investing activities

(154,223)


(227,572)

Cash flows from financing activities




Proceeds from long term debt and revolving credit facility

$

465,000


$

665,000

Payments on long term debt and revolving credit facility

(580,000)


(415,250)

Employee taxes paid for shares withheld for income taxes

(2,743)


(2,586)

Proceeds from exercise of stock options and other stock issuances

10,739


9,717

Payments of debt financing costs

(11)


Other financing fees

306


Net cash provided by (used in) financing activities

(106,709)


256,881

Effect of exchange rate changes on cash, cash equivalents and restricted cash

520


7,416

Net increase (decrease) in cash, cash equivalents and restricted cash

(141,595)


10,552

Cash, cash equivalents and restricted cash




Beginning of period

318,135


252,725

End of period

$

176,540


$

263,277

 

Under Armour, Inc.

For the Three months ended September 30, 2018

(Unaudited)


The table below presents the reconciliation of net revenue growth (decline) calculated in accordance with GAAP to currency neutral net revenue which is a non-GAAP measure. See "Non-GAAP Financial Information" above for further information regarding the Company's use of non-GAAP financial measures.


CURRENCY NEUTRAL NET REVENUE GROWTH (DECLINE) RECONCILIATION



Three Months Ended
September 30, 2018

Total Net Revenue



Net revenue growth - GAAP


2.4

%

Foreign exchange impact


0.5

%

Currency neutral net revenue growth - Non-GAAP


2.9

%




North America



Net revenue decline - GAAP


(1.6)

%

Foreign exchange impact


0.2

%

Currency neutral net revenue decline- Non-GAAP


(1.4)

%




EMEA



Net revenue growth - GAAP


15.4

%

Foreign exchange impact


0.1

%

Currency neutral net revenue growth - Non-GAAP


15.5

%




Asia-Pacific



Net revenue growth - GAAP


14.6

%

Foreign exchange impact


0.9

%

Currency neutral net revenue growth - Non-GAAP


15.5

%




Latin America



Net revenue growth - GAAP


15.8

%

Foreign exchange impact


7.6

%

Currency neutral net revenue growth - Non-GAAP


23.4

%




Total International



Net revenue growth - GAAP


15.1

%

Foreign exchange impact


1.6

%

Currency neutral net revenue growth - Non-GAAP


16.7

%

 

Under Armour, Inc.

For the Three months ended September 30, 2018

(Unaudited; in millions)


The tables below present the reconciliation of the Company's consolidated statement of operations presented in accordance with GAAP to certain adjusted non-GAAP financial measures discussed in this press release. See "Non-GAAP Financial Information" above for further information regarding the Company's use of non-GAAP financial measures.


ADJUSTED GROSS MARGIN RECONCILIATION




Three Months Ended
September 30, 2018

Gross margin


46.1 %

Add: Impact of restructuring


0.4 %

Adjusted gross margin


46.5 %


ADJUSTED OPERATING INCOME RECONCILIATION




Three Months Ended
September 30, 2018

Income from operations


$

119

Add: Impact of restructuring


24

Adjusted operating income


$

143


ADJUSTED NET INCOME RECONCILIATION




Three Months Ended
September 30, 2018

Net income


$

75

Add: Impact US tax reform


2

Add: Impact of restructuring


35

Adjusted net income


$

112


ADJUSTED DILUTED EARNINGS PER SHARE RECONCILIATION




Three Months Ended
September 30, 2018

Diluted net income per share


$

0.17

Add: Impact US tax reform


Add: Impact of restructuring


0.08

Adjusted diluted income per share


$

0.25


ADJUSTED EFFECTIVE TAX RATE RECONCILIATION




Three Months Ended
September 30, 2018

Effective tax rate


29.3 %

Less: Impact of US tax reform


(1.6) %

Less: Impact of restructuring


(13.7) %

Adjusted effective tax rate


14.0 %

 

Under Armour, Inc.

Outlook For the Year Ending December 31, 2018


The tables below present the reconciliation of the Company's fiscal 2018 outlook for income from operations calculated in accordance with GAAP to adjusted operating income. This adjusted amount is a non-GAAP financial measure. See "Non-GAAP Financial Information" above for further information regarding the Company's use of non-GAAP financial measures.


ADJUSTED OPERATING INCOME RECONCILIATION


(in millions)


Year Ending December 31, 2018


Loss from operations


$

(50)


$

(55)


Add: Estimated impact of restructuring


200


220


Adjusted operating income


$

150


$

165



The company is not able to provide a reconciliation of the non-GAAP adjusted effective tax rate or adjusted diluted earnings per share to the GAAP effective tax rate or diluted earnings per share for its 2018 outlook. As a result of the 2018 restructuring plan, the company's GAAP net income for fiscal year 2018 is expected to be a net loss, and therefore the GAAP effective tax rate is subject to significant variability. Given this variability, the company cannot provide a meaningful outlook of the GAAP effective tax rate or diluted loss per share without unreasonable effort. These non-GAAP measures exclude the impact of the 2018 restructuring plan.



Under Armour, Inc.

As of September 30, 2018 and 2017


BRAND HOUSE AND FACTORY HOUSE DOOR COUNT




September 30,



2018


2017

Factory House


162


160

Brand House


15


19

   North America total doors


177


179






Factory House


68


50

Brand House


65


51

   International total doors


133


101






Factory House


230


210

Brand House


80


70

   Total doors


310


280

 

 

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SOURCE Under Armour, Inc.

Under Armour Contacts: Lance Allega , VP, Investor Relations , (410) 246-6810 ; Kelley McCormick , SVP, Corporate Communications , (410) 454-6624