July 26, 2018

Under Armour Reports Second Quarter 2018 Results

Revenue Up 8 Percent; Company Updates Full Year 2018 Outlook

BALTIMORE, July 26, 2018 /PRNewswire/ -- Under Armour, Inc. (NYSE: UA, UAA) today announced financial results for the second quarter ended June 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.)

"Through the first half of 2018, we are making progress toward our transformation of running a more operationally excellent company while amplifying the power of the Under Armour brand," said Under Armour Chairman and CEO Kevin Plank. "The ongoing improvements in our structure, systems and go-to-market process across our global business better position us to drive a more consistent, predictable path to deliver for our consumers, customers and shareholders over the long-term."

Second Quarter Review

  • Revenue was up 8 percent to $1.2 billion (up 7 percent currency neutral).
    • Revenue to wholesale customers increased 9 percent to $710 million and direct-to-consumer revenue was up 7 percent to $414 million. The direct-to-consumer business represented 35 percent of global revenue in the quarter.
    • North America revenue increased 2 percent to $843 million (up 1 percent currency neutral) and the international business continued to deliver strong growth with a 28 percent increase to $302 million (up 24 percent currency neutral), representing 26 percent of total revenue. Within the international business, revenue in EMEA was up 31 percent (up 25 percent currency neutral), up 34 percent in Asia-Pacific (up 28 percent currency neutral) and up 7 percent in Latin America (up 12 percent currency neutral).
    • Apparel revenue increased 10 percent to $747 million, driven by strength in training and running. Footwear revenue was up 15 percent to $271 million with strength in running and team sports. Accessories revenue decreased 14 percent to $106 million due to softer demand.
  • Gross margin decreased approximately 110 basis points to 44.8 percent due to inventory management initiatives and a $6 million impact related to restructuring efforts. Adjusted gross margin decreased 60 basis points to 45.3 percent driven predominantly by inventory management initiatives.
  • Selling, general and administrative expenses increased 10 percent to $553 million, or 47.0 percent of revenue driven by continued investments in our direct-to-consumer, footwear, and international businesses, along with a reserve related to a commercial dispute.
  • Restructuring and impairment charges were $79 million.
  • Operating loss was $105 million. Adjusted operating loss was $20 million.
  • Net loss was $96 million. Excluding the impact of the restructuring plan, adjusted net loss was $34 million.
  • Diluted loss per share was $0.21. Adjusted diluted loss per share was $0.08.
  • Inventory increased 11 percent to $1.3 billion.
  • Cash and cash equivalents increased 19 percent to $197 million.

2018 Restructuring Plan

On February 13, the company announced a 2018 restructuring plan, which detailed expectations to incur total estimated pre-tax restructuring and related charges of approximately $110 million to $130 million. After further review, the company has identified approximately $80 million of additional restructuring initiatives and now expects to incur approximately $190 million to $210 million of pre-tax restructuring and related charges in 2018. In the second quarter, we recognized pre-tax costs totaling $85 million consisting of $64 million in cash related charges and $21 million in non-cash charges. Based on the updated restructuring plan, in 2018 the company expects to incur:

  • Up to $155 million in cash related charges, consisting of up to $75 million in facility and lease terminations and up to $80 million in contract termination and other restructuring charges; and,
  • Up to $55 million in non-cash charges comprised of up to $20 million of inventory related charges and up to $35 million of asset related impairments.

Plank concluded, "As we work through our multi-year transformation, we continue to proactively attack underperforming areas of our business including our SG&A cost structure and inventory. All of this will help create a better and stronger Under Armour through even greater operational efficiencies. We are unwavering in building our global brand and confident we're on the right track."

Updated Fiscal 2018 Outlook

  • Net revenue is now expected to increase approximately 3 percent to 4 percent reflecting a low to mid-single-digit decline in North America and international growth of greater than 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 expected to decline at a low-single digit rate.
  • Gross margin is now expected to be flat to down slightly versus the prior year rate of 45.0 percent. Adjusted gross margin is now expected to improve slightly compared to 2017 as benefits from product costs and lower planned promotional activity are offset by increased inventory management actions.
  • Operating loss is now expected in the range of $50 million to $60 million. Excluding the impact of the restructuring plan, adjusted operating income is expected to be $130 million to $160 million.
  • Interest and other expense net is expected to be approximately $45 million.
  • Excluding the impact of the restructuring efforts, adjusted diluted earnings per share is expected to be in the range of $0.14 to $0.19.
  • Capital expenditures are now planned at approximately $200 million.

Conference Call and Webcast

Under Armour will hold its second 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 second quarter of 2018, the company revised its reasonable estimate made in the company's 2017 financial results for 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 are expected over the next 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 (loss), adjusted net loss, adjusted diluted loss 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 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 Six Months Ended June 30, 2018 and 2017

(Unaudited; in thousands, except per share amounts)


CONSOLIDATED STATEMENTS OF OPERATIONS




Three Months Ended June 30,


Six Months Ended June 30,



2018


% of Net
Revenues


2017


% of Net
Revenues


2018


% of Net
Revenues


2017


% of Net
Revenues

Net revenues


$

1,174,859



100.0%


$

1,091,192



100.0%


$

2,360,229



100.0%


$

2,211,036



100.0%

Cost of goods sold


648,275



55.2%


589,999



54.1%


1,310,192



55.5%


1,201,907



54.4%

Gross profit


526,584



44.8%


501,193



45.9%


1,050,037



44.5%


1,009,129



45.6%

Selling, general and administrative
expenses


552,619



47.0%


502,880



46.1%


1,067,253



45.2%


1,003,280



45.4%

Restructuring and impairment
charges


78,840



6.7%


3,098



0.3%


116,320



4.9%


3,098



0.1%

Income (loss) from operations


(104,875)



(8.9)%


(4,785)



(0.4)%


(133,536)



(5.7)%


2,751



0.1%

Interest expense, net


(8,552)



(0.7)%


(7,841)



(0.7)%


(17,116)



(0.7)%


(15,662)



(0.7)%

Other expense, net


(8,069)



(0.7)%


(2,884)



(0.3)%


(5,181)



(0.2)%


(313)



—%

Loss before income taxes


(121,496)



(10.3)%


(15,510)



(1.4)%


(155,833)



(6.6)%


(13,224)



(0.6)%

Income tax expense (benefit)


(26,090)



(2.2)%


(3,202)



(0.3)%


(30,183)



(1.3)%


1,357



0.1%

Loss from equity method investment


138



%




%


138



—%




—%

Net loss


(95,544)



(8.1)%


(12,308)



(1.1)%


(125,788)



(5.3)%


(14,581)



(0.7)%


















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


$

(0.21)





$

(0.03)





$

(0.28)





$

(0.03)




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


$

(0.21)





$

(0.03)





$

(0.28)





$

(0.03)




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

Basic


444,626





440,423





443,844





439,894




Diluted


444,626





440,423





443,844





439,894




 

Under Armour, Inc.

For the Three and Six Months Ended June 30, 2018 and 2017

(Unaudited; in thousands)


NET REVENUES BY PRODUCT CATEGORY




Quarter Ended June 30,


Six Months Ended June 30,



2018


2017


% Change


2018


2017

% Change

Apparel


$

747,294



$

680,653



9.8%


$

1,513,569



$

1,396,090


8.4%

Footwear


271,375



236,925



14.5%


543,145



506,583


7.2%

Accessories


105,906



122,588



(13.6)%


198,064



211,686


(6.4)%

Total net sales


1,124,575



1,040,166



8.1%


2,254,778



2,114,359


6.6%

Licensing revenues


21,172



25,110



(15.7)%


47,513



49,315


(3.7)%

Connected Fitness


29,112



25,916



12.3%


57,938



47,362


22.3%

Total net revenues


$

1,174,859



$

1,091,192



7.7%


$

2,360,229



$

2,211,036


6.7%


NET REVENUES BY SEGMENT




Quarter Ended June 30,


Six Months Ended June 30,



2018


2017


% Change


2018


2017

% Change

North America


$

843,383



$

829,805



1.6 %


$

1,710,928



$

1,701,076


0.6%

EMEA


135,901



103,896



30.8%


262,833



206,751


27.1%

Asia-Pacific


125,706



93,574



34.3%


241,259



179,392


34.5%

Latin America


40,757



38,001



7.3%


87,271



76,455


14.1%

Connected Fitness


29,112



25,916



12.3%


57,938



47,362


22.3%

Total net revenues


$

1,174,859



$

1,091,192



7.7%


$

2,360,229



$

2,211,036


6.7%


INCOME (LOSS) FROM OPERATIONS




Quarter Ended June 30,


Six Months Ended June 30,



2018


2017


% Change


2018


2017


% Change

North America


$

(93,192)



$

(5,417)



1,620.4%


$

(136,688)



$

(2,150)



6,257.6%

EMEA


(10,155)



(4,616)



120.0%


(13,782)



(3,028)



355.2%

Asia-Pacific


18,657



15,249



22.3%


39,898



35,365



12.8%

Latin America


(21,791)



(8,093)



(169.3)%


(27,661)



(15,952)



(73.4)%

Connected Fitness


1,606



(1,908)



184.2%


4,696



(11,484)



140.9%

Income (loss) from operations


$

(104,875)



$

(4,785)



2,091.7%


$

(133,537)



$

2,751



(4,954.1)%

 

Under Armour, Inc.

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

(Unaudited; in thousands)


CONDENSED CONSOLIDATED BALANCE SHEETS




June 30, 2018


December 31,
2017


June 30, 2017

Assets







Current assets







Cash and cash equivalents


$

196,879



$

312,483



$

165,685


Accounts receivable, net


724,945



609,670



602,795


Inventories


1,299,332



1,158,548



1,168,786


Prepaid expenses and other current assets


340,359



256,978



229,204


Total current assets


2,561,515



2,337,679



2,166,470


Property and equipment, net


835,427



885,774



875,005


Goodwill


551,160



555,674



580,446


Intangible assets, net


45,880



46,995



59,866


Deferred income taxes


111,746



82,801



125,358


Other long term assets


135,424



97,444



87,099


Total assets


$

4,241,152



$

4,006,367



$

3,894,244


Liabilities and Stockholders' Equity







Revolving credit facility, current


$



$

125,000



$

150,000


Accounts payable


691,163



561,108



483,210


Accrued expenses


258,567



296,841



232,680


Customer refund liability


303,730






Current maturities of long term debt


27,000



27,000



27,000


Other current liabilities


57,939



50,426



43,649


Total current liabilities


1,338,399



1,060,375



936,539


Long term debt, net of current maturities


752,370



765,046



777,717


Other long term liabilities


226,471



162,304



156,217


Total liabilities


2,317,240



1,987,725



1,870,473


Total stockholders' equity


1,923,912



2,018,642



2,023,771


Total liabilities and stockholders' equity


$

4,241,152



$

4,006,367



$

3,894,244


 

Under Armour, Inc.

For the Six Months Ended June 30, 2018 and 2017

(Unaudited; in thousands)


CONSOLIDATED STATEMENT OF CASH FLOWS



Six Months Ended June 30,


2018


2017

Cash flows from operating activities




Net loss

$

(125,786)



$

(14,581)


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




Depreciation and amortization

91,271



83,367


Unrealized foreign currency exchange rate (gains) losses

13,151



(29,393)


Loss on disposal of property and equipment

191



715


Impairment charges

11,965




Amortization of bond premium

127



127


Stock-based compensation

20,673



24,776


Excess tax deficiency from stock-based compensation arrangements



1,062


Deferred income taxes

(35,969)



13,735


Changes in reserves and allowances

(238,005)



(8,581)


Changes in operating assets and liabilities:




Accounts receivable

116,896



33,787


Inventories

(158,430)



(227,190)


Prepaid expenses and other assets

(54,422)



(12,541)


Other non-current assets

768



451


Accounts payable

160,164



84,391


Accrued expenses and other liabilities

48,939



33,426


Customer refund liability

307,190




Income taxes payable and receivable

(12,716)



(46,320)


Net cash provided by (used in) operating activities

146,007



(62,769)


Cash flows from investing activities




Purchases of property and equipment

(95,607)



(167,273)


Sale of property and equipment

11,285




Purchases of other assets

(2,536)




Purchase of equity method investment

(39,207)




Net cash used in investing activities

(126,065)



(167,273)


Cash flows from financing activities




Proceeds from long term debt and revolving credit facility

210,000



380,000


Payments on long term debt and revolving credit facility

(348,500)



(243,500)


Employee taxes paid for shares withheld for income taxes

(1,759)



(2,474)


Proceeds from exercise of stock options and other stock issuances

8,913



6,638


Payments of debt financing costs

(11)




Other financing fees

87




Net cash provided by (used in) financing activities

(131,270)



140,664


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

(2,487)



4,593


Net decrease in cash, cash equivalents and restricted cash

(113,815)



(84,785)


Cash, cash equivalents and restricted cash




Beginning of period

318,135



250,470


End of period

$

204,320



$

165,685


 

Under Armour, Inc.

For the Three months ended June 30, 2018

(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




Three months
ended June 30,

Total Net Revenue



Net revenue growth - GAAP


7.7%

Foreign exchange impact


(1.2)%

Currency neutral net revenue growth - Non-GAAP


6.5%




North America



Net revenue growth - GAAP


1.6%

Foreign exchange impact


(0.3)%

Currency neutral net revenue growth - Non-GAAP


1.3%




EMEA



Net revenue growth - GAAP


30.8%

Foreign exchange impact


(5.6)%

Currency neutral net revenue growth - Non-GAAP


25.2%




Asia-Pacific



Net revenue growth - GAAP


34.3%

Foreign exchange impact


(6.5)%

Currency neutral net revenue growth - Non-GAAP


27.8%




Latin America



Net revenue growth - GAAP


7.3%

Foreign exchange impact


5.1%

Currency neutral net revenue growth - Non-GAAP


12.4%




Total International



Net revenue growth - GAAP


28.4%

Foreign exchange impact


(4.2)%

Currency neutral net revenue growth - Non-GAAP


24.2%

 

Under Armour, Inc.

For the Three months ended June 30, 2018

(Unaudited)


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




Quarter Ended June 30, 2018

Gross margin


44.8%

Add: Impact of restructuring


0.5%

Adjusted gross margin


45.3%


ADJUSTED OPERATING LOSS RECONCILIATION




Quarter Ended June 30, 2018

Loss from operations


$

(105)

Add: Impact of restructuring


85

Adjusted operating loss


$

(20)


ADJUSTED NET LOSS RECONCILIATION




Quarter Ended June 30, 2018

Net loss


$

(96)

Add: Impact of restructuring


62

Adjusted net loss


$

(34)


ADJUSTED DILUTED LOSS PER SHARE RECONCILIATION




Quarter Ended June 30, 2018

Diluted net loss per share


$

(0.21)

Add: Estimated impact of restructuring


0.13

Adjusted diluted loss per share


$

(0.08)


ADJUSTED EFFECTIVE TAX RATE RECONCILIATION




Quarter Ended June 30, 2018

Effective tax rate


21.5%

Less: Impact of US tax reform


(3.1)%

Less: Impact of restructuring


(10.0)%

Adjusted effective tax rate


8.4%

 

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




Year Ending December 31, 2018

(in millions)


Low End


High End

Loss from operations


$

(60)



$

(50)


Add: Estimated impact of restructuring (1)


190



190


Adjusted operating income


$

130



$

140



(1) The estimated impact of restructuring plan presented above assumes the low end of the Company's estimated range of 2018 restructuring and related charges.


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.

For the Three months ended June 30, 2018 and 2017


BRAND HOUSE AND FACTORY HOUSE DOOR COUNT



As of June 30,



2018


2017

Factory House


161


160

Brand House


15


19

  North America total doors


176


179






Factory House


61


45

Brand House


65


44

  International total doors


126


89






Factory House


222


205

Brand House


80


63

  Total doors


302


268

 

Cision View original content with multimedia:http://www.prnewswire.com/news-releases/under-armour-reports-second-quarter-2018-results-300686887.html

SOURCE Under Armour, Inc.

News Provided by Acquire Media


Close window | Back to top

Copyright 2018 Under Armour, Inc.