October 31, 2017

Under Armour Reports Third Quarter Results

Revenue Down 5 Percent; Company Updates Full Year 2017 Outlook

BALTIMORE, Oct. 31, 2017 /PRNewswire/ -- Under Armour, Inc. (NYSE: UA, UAA) today announced financial results for the third quarter ended September 30, 2017. 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. 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.

"While our international business continues to deliver against our ambition of building a global brand, operational challenges and lower demand in North America resulted in third quarter revenue that was below our expectations," said Under Armour Chairman and CEO Kevin Plank. "Based on these issues in our largest market, we believe it is prudent to reduce our sales and earnings outlook for the remainder of 2017."

"Against this difficult backdrop, our management team is working aggressively to evolve our strategy and level of execution to proactively address these challenges. We understand that success in our next chapter requires managing with focused financial discipline and driving excellence into every area of our business while we amplify innovation, deliver fresh product and connect even more deeply with our consumers."

The summary below provides both GAAP and adjusted non-GAAP financial measures. In the third quarter of 2017, in connection with the company's restructuring plan, it recognized pre-tax costs totaling $89 million comprising of $22 million in cash related charges and $67 million in non-cash charges. Adjusted financial measures exclude the impact of the restructuring and other related charges and the related tax effects.

Third Quarter Review

  • Revenue was down 5 percent to $1.4 billion. During the third quarter, operational challenges due to the implementation of the company's enterprise resource planning system and related service levels along with lower North American demand negatively impacted revenue.
    • Revenue to wholesale customers declined 13 percent to $880 million and direct-to-consumer revenue was up 15 percent to $468 million.
    • North America challenges impacted results with revenue down 12 percent. Strong international momentum continued with revenue up 35 percent (up 34 percent currency neutral), representing 22 percent of total revenue. Within our international business, revenue in EMEA was up 22 percent (up 20 percent currency neutral), up 52 percent in Asia-Pacific (up 53 percent currency neutral) and up 33 percent in Latin America (up 27 percent currency neutral).
    • Apparel revenue decreased 8 percent to $939 million, as growth in golf and sportstyle was more than offset by declines in outdoor, women's training and youth. Footwear revenue was up 2 percent to $285 million, driven by strength in running and outdoor, offset by basketball and youth. Accessories revenue increased 1 percent to $123 million led by golf and men's training, tempered by a decline in outdoor.
  • Gross margin declined 160 basis points to 45.9 percent as benefits from changes in foreign currency rates and product costs were more than offset by pricing and other inventory management initiatives, and regional mix. Adjusted gross margin, which excludes a $4 million impact from restructuring efforts, was 46.2 percent, a decrease of 130 basis points compared to the prior year.
  • SG&A was in-line with the prior year.
  • Restructuring and impairment charges were $85 million.
  • Operating income was $62 million. Adjusted operating income was $151 million.
  • Effective tax rate was negative 5 percent due to higher mix of international pre-tax income and challenged results in the North American business, coupled with the impact of the restructuring and impairment charges. The adjusted effective tax rate was 29 percent.
  • Net income was $54 million in the third quarter. Adjusted net income was $100 million.
  • Diluted earnings per share was $0.12. Adjusted diluted earnings per share was $0.22.
  • Inventory increased 22 percent to $1.2 billion.
  • Cash and cash equivalents increased 43 percent to $258 million.

Updated Fiscal 2017 Outlook

Key points related to Under Armour's full year 2017 updated outlook include:

  • Net revenue is expected to be up at a low single-digit percentage rate reflecting lower North American demand and operational challenges due to the implementation of the company's enterprise resource planning system and related service levels.
  • Gross margin is expected to be down approximately 220 basis points compared to 46.4 percent in 2016 as benefits from product costs and channel mix are more than offset by increased efforts to manage inventory within a highly promotional environment, impacts from the restructuring plan and increasing regional mix. Adjusted gross margin is expected to be down approximately 190 basis points compared to 46.4 percent in 2016.
  • Operating income is expected to be approximately $0 to $10 million. Adjusted operating income is expected to reach $140 million to $150 million.
  • Interest and other expense net of approximately $35 million.
  • Excluding the effect of the restructuring plan, adjusted effective tax rate of approximately 23 percent.
  • Adjusted diluted earnings per share of $0.18 to $0.20.
  • Capital expenditures of approximately $300 million.

On August 1, the company announced a restructuring plan, which detailed expectations to incur total estimated pre-tax restructuring and related charges of approximately $110 million to $130 million. In the third quarter, the company recognized $60 million of pre-tax charges in connection with this restructuring plan. In addition to these charges, the company also recognized restructuring related goodwill impairment charges of $29 million for its Connected Fitness business. Inclusive of this impairment, the company now expects to incur total estimated pre-tax restructuring and related charges of approximately $140 million to $150 million.

Conference Call and Webcast

Under Armour will hold its third quarter 2017 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.

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 2017 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 operating income, adjusted gross margin, adjusted effective tax rate, adjusted net income and adjusted diluted earnings per share exclude the impact of restructuring and other related charges. 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 the restructuring plan. 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 innovator, 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 development and introduction of new products, the implementation of our marketing and branding strategies, and the future benefits and opportunities from acquisitions and other 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 effectively manage our growth and a more complex global business; our ability to successfully execute our restructuring plan and realize its expected benefits; our ability to effectively drive operational efficiency in our business; any disruptions, delays or deficiencies in the design or implementation of our new global operating and financial reporting information technology system; our ability to comply with existing trade and other regulations, and the potential impact of new trade and tax regulations on our profitability; our ability to successfully manage or realize expected results from acquisitions and other significant investments or capital expenditures; our ability to effectively develop and launch new, innovative and updated products; increased competition causing us to lose market share or reduce the prices of our products or to increase significantly our marketing efforts; our ability to accurately forecast consumer demand for our products and manage our inventory in response to changing demands; 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; 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 in such systems or technology; risks related to data security or privacy breaches; 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 Quarter Ended and Nine Months Ended September 30, 2017 and 2016

(Unaudited; in thousands, except per share amounts)

CONSOLIDATED STATEMENTS OF INCOME

 
   

Quarter Ended September 30,

Nine Months Ended September 30,

   

2017

% of Net

Revenues

2016

% of Net

Revenues

2017

% of Net

Revenues

2016

% of Net

Revenues

Net revenues

 

$

1,405,615

 

100.0

%

$

1,471,573

 

100.0

%

$

3,611,192

 

100.0

%

$

3,520,058

 

100.0

%

Cost of goods sold

 

760,265

 

54.1

%

772,949

 

52.5

%

1,962,172

 

54.3

%

1,863,151

 

52.9

%

 Gross Profit

 

645,350

 

45.9

%

698,624

 

47.5

%

1,649,020

 

45.7

%

1,656,907

 

47.1

%

Selling, general and administrative

expenses

 

498,172

 

35.4

%

499,314

 

34.0

%

1,495,992

 

41.4

%

1,403,336

 

39.9

%

 Restructuring and impairment charges

 

84,998

 

6.0

%

 

%

88,097

 

2.4

%

 

%

 Income from operations

 

62,180

 

4.4

%

199,310

 

13.5

%

64,931

 

1.8

%

253,571

 

7.2

%

 Interest expense, net

 

(9,575)

 

(0.7)

%

(8,189)

 

(0.5)

%

(25,237)

 

(0.7)

%

(18,476)

 

(0.6)

%

 Other expense, net

 

(1,069)

 

(0.1)

%

(772)

 

(0.1)

%

(1,383)

 

%

(1,025)

 

%

 Income before income taxes

 

51,536

 

3.7

%

190,349

 

12.9

%

38,311

 

1.1

%

234,070

 

6.6

%

Income tax expense (benefit)

 

(2,706)

 

(0.2)%

 

62,124

 

4.2

%

(1,349)

 

%

80,322

 

2.2

%

 Net income

 

54,242

 

3.9

%

128,225

 

8.7

%

39,660

 

1.1

%

153,748

 

4.4

%

     Adjustment payment to Class
C capital stockholders

 

 

%

 

%

 

%

59,000

 

1.7

%

Net income available to all stockholders

 

$

54,242

 

3.9

%

$

128,225

 

8.7

%

$

39,660

 

1.1

%

$

94,748

 

2.7

%

                   

Basic net income per share of

Class A and B common stock

 

$

0.12

   

$

0.29

   

$

0.09

   

$

0.22

   

Basic net income per share of

Class C common stock

 

$

0.12

   

$

0.29

   

$

0.09

   

$

0.49

   

Diluted net income per share of

Class A and B common stock

 

$

0.12

   

$

0.29

   

$

0.09

   

$

0.21

   

Diluted net income per share of

Class C common stock

 

$

0.12

   

$

0.29

   

$

0.09

   

$

0.48

   
                   

Weighted average common shares outstanding Class A and B common stock

Basic

 

219,491

   

218,074

   

219,125

   

217,535

   

Diluted

 

222,848

   

222,115

   

222,871

   

221,709

   
                   

Weighted average common shares outstanding Class C common stock

Basic

 

221,784

   

219,756

   

221,235

   

218,147

   

Diluted

 

225,591

   

223,738

   

225,390

   

222,301

   

 

Under Armour, Inc.

For the Quarter Ended and Nine Months Ended September 30, 2017 and 2016

(Unaudited; in thousands)

 

NET REVENUES BY PRODUCT CATEGORY

   
 

Quarter Ended September 30,

Nine Months Ended September 30,

 

2017

2016

% Change

2017

2016

% Change

Apparel

$

939,364

$

1,021,185

 

(8.0)

%

$

2,335,454

$

2,300,596

 

1.5

%

Footwear

285,052

278,891

 

2.2

%

791,637

785,843

 

0.7

%

Accessories

123,487

121,832

 

1.4

%

335,172

302,267

 

10.9

%

Total net sales

1,347,903

1,421,908

 

(5.2)

%

3,462,263

3,388,706

 

2.2

%

Licensing revenues

34,324

29,484

 

16.4

%

83,639

69,923

 

19.6

%

Connected Fitness

23,388

20,181

 

15.9

%

65,290

62,179

 

5.0

%

Intersegment eliminations

 

%

(750)

 

100.0

%

Total net revenues

$

1,405,615

$

1,471,573

 

(4.5)

%

$

3,611,192

$

3,520,058

 

2.6

%

 

NET REVENUES BY SEGMENT

   
 

Quarter Ended September 30,

Nine Months Ended September 30,

 

2017

2016

% Change

2017

2016

% Change

North America

$

1,077,088

$

1,225,188

 

(12.1)

%

$

2,778,165

$

2,932,915

 

(5.3)

%

EMEA

127,932

105,099

 

21.7

%

334,683

237,559

 

40.9

%

Asia-Pacific

130,320

85,810

 

51.9

%

309,712

188,985

 

63.9

%

Latin America

46,887

35,295

 

32.8

%

123,342

99,170

 

24.4

%

Connected Fitness

23,388

20,181

 

15.9

%

65,290

62,179

 

5.0

%

Intersegment eliminations

 

%

(750)

 

0.1

%

Total net revenues

$

1,405,615

$

1,471,573

 

(4.5)

%

$

3,611,192

$

3,520,058

 

2.6

%

 

OPERATING INCOME (LOSS) BY SEGMENT

   
 

Quarter Ended September 30,

Nine Months Ended September 30,

 

2017

2016

% Change

2017

2016

% Change

North America

$

65,827

$

182,840

 

(64.0)

%

$

64,124

$

251,084

 

(74.5)

%

EMEA

16,977

8,383

 

102.5

%

13,990

8,348

 

67.6

%

Asia-Pacific

34,173

27,151

 

25.9

%

69,050

54,399

 

26.9

%

Latin America

(10,223)

(10,550)

 

3.1

%

(26,176)

(27,751)

 

(5.7)

%

Connected Fitness

(44,574)

(8,514)

 

423.5

%

(56,058)

(32,509)

 

72.4

%

Income from operations

$

62,180

$

199,310

 

(68.8)

%

$

64,930

$

253,571

 

(74.4)

%

 

Under Armour, Inc.

As of September 30, 2017, December 31, 2016 and September 30, 2016

(Unaudited; in thousands)

 

CONDENSED CONSOLIDATED BALANCE SHEETS

     
 

September 30,
2017

December 31,
2016

September 30,
2016

Assets

     

Current assets

     

Cash and cash equivalents

$

258,002

$

250,470

$

179,954

Accounts receivable, net

733,292

622,685

713,731

Inventories

1,180,653

917,491

970,621

Prepaid expenses and other current assets

284,895

174,507

162,255

Total current assets

2,456,842

1,965,153

2,026,561

Property and equipment, net

868,250

804,211

751,286

Goodwill

559,318

563,591

576,903

Intangible assets, net

48,646

64,310

68,248

Deferred income taxes

97,147

136,862

155,592

Other long term assets

100,162

110,204

106,747

Total assets

$

4,130,365

$

3,644,331

$

3,685,337

Liabilities and Stockholders' Equity

   

Revolving credit facility, current

$

270,000

$

$

250,000

Accounts payable

482,897

409,679

254,222

Accrued expenses

266,074

208,750

238,284

Current maturities of long term debt

27,000

27,000

27,000

Other current liabilities

54,455

40,387

87,744

Total current liabilities

1,100,426

685,816

857,250

Long term debt, net of current maturities

771,382

790,388

796,768

Other long term liabilities

157,861

137,227

108,165

Total liabilities

2,029,669

1,613,431

1,762,183

Total stockholders' equity

2,100,696

2,030,900

1,923,154

Total liabilities and stockholders' equity

$

4,130,365

$

3,644,331

$

3,685,337

 

Under Armour, Inc.

For the Quarter Ended September 30, 2017

(Unaudited)

 

The table below presents the reconciliation of net revenue growth 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

 

Total Net Revenue

   

Net revenue decline - GAAP

 

(4.5)

%

Foreign exchange impact

 

(0.4)

%

Currency neutral net revenue decline - Non-GAAP

 

(4.9)

%

     

North America

   

Net revenue decline - GAAP

 

(12.1)

%

Foreign exchange impact

 

(0.2)

%

Currency neutral net revenue decline - Non-GAAP

 

(12.3)

%

     

EMEA

   

Net revenue growth - GAAP

 

21.7

%

Foreign exchange impact

 

(1.9)

%

Currency neutral net revenue growth - Non-GAAP

 

19.8

%

     

Asia-Pacific

   

Net revenue growth - GAAP

 

51.9

%

Foreign exchange impact

 

1.1

%

Currency neutral net revenue growth - Non-GAAP

 

53.0

%

     

Latin America

   

Net revenue growth - GAAP

 

32.8

%

Foreign exchange impact

 

(5.4)

%

Currency neutral net revenue growth - Non-GAAP

 

27.4

%

     

Total International

   

Net revenue growth - GAAP

 

34.9

%

Foreign exchange impact

 

(1.3)

%

Currency neutral net revenue growth - Non-GAAP

 

33.6

%

     

Connected Fitness

   

Net revenue growth - GAAP

 

15.9

%

Foreign exchange impact

 

%

Currency neutral net revenue growth - Non-GAAP

 

15.9

%

 

Under Armour, Inc.

For the Quarter Ended September 30, 2017

(Unaudited)

 

The tables below present the reconciliation of gross margin calculated in accordance with GAAP to adjusted gross margin, income from operations calculated in accordance with GAAP to adjusted operating income, diluted net income per share calculated in accordance with GAAP to adjusted diluted earnings per share and effective tax rate calculated in accordance with GAAP to adjusted effective tax rate.  Each of these adjusted amounts are non-GAAP financial measures. See "Non-GAAP Financial Information" above for further information regarding the Company's use of non-GAAP financial measures.

 

ADJUSTED GROSS MARGIN RECONCILIATION

 

Gross margin

   

45.9%

Add: Impact of restructuring

   

0.3%

Adjusted gross margin

   

46.2%

 

ADJUSTED OPERATING INCOME RECONCILIATION

 

Income from operations

 

$

62

Add: Impact of restructuring

   

89

Adjusted operating income

 

$

151

 

ADJUSTED NET INCOME RECONCILIATION

 

Net income

 

$

54

Add: Impact of restructuring

   

46

Adjusted net income

 

$

100

 

ADJUSTED DILUTED EARNINGS PER SHARE RECONCILIATION

 

Diluted net income per share

 

$

0.12

Add: Estimated impact of restructuring

   

0.10

Adjusted diluted earnings per share

 

$

0.22

 

ADJUSTED EFFECTIVE TAX RATE RECONCILIATION

     

Effective tax rate

   

(5.3)%

Add: Impact of restructuring

   

34.0%

Adjusted effective tax rate

   

28.7%

 

Under Armour, Inc.

Outlook For the Year Ended December 31, 2017

 
   

The tables below present the reconciliation of the Company's fiscal 2017 outlook for gross margin calculated in accordance with GAAP to adjusted gross margin and income from operations calculated in accordance with GAAP to adjusted operating income. Each of these adjusted amounts are non-GAAP financial measures. See "Non-GAAP Financial Information" above for further information regarding the Company's use of non-GAAP financial measures.

   

ADJUSTED GROSS MARGIN RECONCILIATION

       
       

Gross margin

 

44.2%

Add: Estimated impact of restructuring

 

0.3%

Adjusted gross margin

 

44.5%

 

ADJUSTED OPERATING INCOME RECONCILIATION

 
 

(in millions)

 

Income from operations

$

$

10

Add: Estimated impact of restructuring(1)

140

140

Adjusted operating income

$

140

$

150

         

(1) The estimated impact of restructuring plan presented above assumes the low end of the Company's estimated range of restructuring and related charges, which is $140-$150 million.

 

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 2017 outlook. As a result of the restructuring plan, the company's GAAP net income for fiscal year 2017 is expected to be insignificant, and therefore the GAAP effective tax rate is subject to a significant variability. Given this variability, the company cannot provide a meaningful outlook of the GAAP effective tax rate or diluted earnings per share without unreasonable effort. These non-GAAP measures exclude the impact of the restructuring plan.

 

Under Armour, Inc.

For the Quarter Ended September 30, 2017

 

BRAND HOUSE AND FACTORY HOUSE DOOR COUNT

     
   

As of September 30,

   

2017

 

2016

Factory House

 

160

 

146

Brand House

 

19

 

17

   North America total doors

 

179

 

163

         

Factory House

 

50

 

32

Brand House

 

51

 

31

   International total doors

 

101

 

63

         

Factory House

 

210

 

178

Brand House

 

70

 

48

   Total doors

 

280

 

226

 

 

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SOURCE Under Armour, Inc.

 

 

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