Under Armour, Inc. reported revenues increased 30% in the second quarter to $156.7 million from $120.5 million. in the second quarter of 2007. Second quarter net income dropped 75.4% to $1.4 million, or 3 cents a share, from $5.7 million, or 11 cents, a year ago. Results were slightly ahead of previous expectations.
Based on the seasonality of net revenues and the timing of marketing and other investments, the company had previously indicated that earnings would be more heavily weighted to the back half of 2008 relative to 2007.
“Our 30% net revenue growth in the quarter illustrates our ability to make the right investments in the company to build significant growth platforms and execute our plan,” stated Kevin A. Plank, chairman and CEO of Under Armour. “The strength of our Brand, the commitment of our team, and our ability to introduce new and innovative products to today’s athlete keep us excited each and every day about the opportunities for our company.”
Plank continued, “On May 3rd, we entered the next chapter of our growth story with the launch of our Performance Training Footwear. We developed a product that met the specific needs of our athlete, successfully generated excitement in the marketplace and brought consumers to the Training category. The response to our Performance Trainer launch has been tremendous from both a consumer acceptance and retail sell-thru perspective. It is that success that gives us the confidence to enter the Running Footwear business in the first half of 2009. We are entering the category with great momentum from our Performance Trainer launch and are doing so with a strong point of view on what Under Armour will mean to runners.”
Apparel net revenues for the second quarter rose 10.3% to $96.2 million compared to $87.2 million in the same period of the prior year. As reported last quarter, the company implemented a new warehouse management system in its distribution center in April 2008. Due to the systems switch, some customers elected to take shipments at the end of March that were originally planned for the beginning of April. This impacted apparel growth in the second quarter, which is typically the lowest apparel revenue quarter for the year. For the first six months of 2008, apparel net revenues increased 18.1%, and the company remains comfortable with achieving over 20% growth in apparel for the full year. With the launch of Performance Training Footwear during the quarter, footwear revenues increased 128.8% to $46.0 million from $20.1 million in the second quarter of 2007.
Gross margin for the second quarter of 2008 was 45.3% compared to 49.0% in the prior year’s quarter. The decline in gross margin was primarily driven by the higher proportion of footwear sales in the quarter, which have lower gross margins than apparel. Footwear net revenues represented 29% of total net revenues in the second quarter of 2008 compared to 17% in the same period of the prior year. Selling, general and administrative expenses were 43.2% of net revenues in the second quarter of 2008 compared to 42.2% in the prior year. Marketing expense for the second quarter of 2008 was 14.4% of net revenues compared to 13.5% in the prior year’s period. The company still expects to invest in marketing at the high-end of the range of 12% to 13% of net revenues for the full year.
Balance Sheet Highlights
Inventory totaled $183.9 million at June 30, 2008, compared to $166.1 million at December 31, 2007 and $128.8 million at June 30, 2007. As the company had anticipated, the inventory growth rate in the second quarter of 2008 marked a deceleration from the inventory growth reported for the first quarter. Inventory in the second quarter of 2008 increased 42.8% year-over-year. Based on its inventory management strategy and supply chain initiatives, the company continues to expect inventory to grow in-line with net revenues by the end of the third quarter and inventory to grow at a rate below net revenues by the end of the year. Cash and cash equivalents were $13.3 million at June 30, 2008 compared to $40.6 million at December 31, 2007 and $25.7 million at June 30, 2007. The Company had $5.0 million in borrowings outstanding under its $100 million revolving credit facility at June 30, 2008.
Outlook for 2008
As previously stated, the company is targeting a 25% compounded annual growth rate in net revenues from 2007 to 2010. For 2008, the company continues to expect annual net revenues in the range of $765 million to $775 million, an increase of 26% to 28% over 2007. However, based on the results in the second quarter, the company is raising its 2008 income from operations outlook to $104.5 million to $105.5 million, an increase of 21% to 22% over 2007. The company had previously estimated 2008 income from operations to be in the range of $103.5 million to $104.5 million.
With second half footwear shipments predominantly in the fourth quarter and continued strong growth anticipated in the Direct-to-Consumer channel, which is also most pronounced in the fourth quarter, net revenues for the third and fourth quarters of 2008 are expected to be relatively similar. Coupled with the timing of planned investments in the second half, fourth quarter earnings are expected to be the highest of the year as compared to 2007 when earnings peaked in the third quarter.
Plank concluded, “Under Armour is a growth company, and we remain excited about the enormous opportunities ahead. We expanded the breadth of our leadership team with the addition of David McCreight as President, successfully launched into non-cleated footwear, announced our entry into the Running Footwear business, and are seeing growth in our Women’s and Youth apparel businesses outpace Men’s with all categories on-track to hit full year projections. We are building a platform business with multiple growth levers and are setting the stage for continued growth in 2009 and beyond.”
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEQuarter Quarter
Ended % of Net Ended % of Net
6/30/08 Revenues 6/30/07 RevenuesNet revenues $156,677 100.0% $120,531 100.0%
Cost of goods sold 85,773 54.7% 61,432 51.0%
Gross profit 70,904 45.3% 59,099 49.0%Operating expenses
Selling, general and
administrative expenses 67,630 43.2% 50,934 42.2%
Income from operations 3,274 2.1% 8,165 6.8%
Other income (expense), net (786) (0.5%) 1,500 1.2%
Income before income taxes 2,488 1.6% 9,665 8.0%
Provision for income taxes 1,113 0.7% 3,953 3.3%
Net income $1,375 0.9% $5,712 4.7%Net income available per common share
Basic $0.03 $0.12
Diluted $0.03 $0.11Weighted average common shares outstanding
Basic 48,528 47,975
Diluted 49,842 49,885Six Months Six Months
Ended % of Net Ended % of Net
6/30/08 Revenues 6/30/07 RevenuesNet revenues $314,019 100.0% $244,860 100.0%
Cost of goods sold 168,280 53.6% 125,180 51.1%
Gross profit 145,739 46.4% 119,680 48.9%Operating expenses
Selling, general and
administrative expenses 138,166 44.0% 95,478 39.0%
Income from operations 7,573 2.4% 24,202 9.9%
Other income (expense), net (276) (0.1%) 2,194 0.9%
Income before income taxes 7,297 2.3% 26,396 10.8%
Provision for income taxes 3,052 0.9% 10,743 4.4%
Net income $4,245 1.4% $15,653 6.4%Net income available per common share
Basic $0.09 $0.33
Diluted $0.09 $0.31Weighted average common shares outstanding
Basic 48,470 47,797
Diluted 49,895 49,851NET REVENUES BY PRODUCT CATEGORY
Six Six
Quarter Quarter Months Months
Ended Ended Ended Ended
6/30/08 6/30/07 % Change 6/30/08 6/30/07 % ChangeMen’s $65,028 $61,014 6.6% $147,149 $129,479 13.6%
Women’s 21,221 18,504 14.7% 54,782 43,194 26.8%
Youth 9,958 7,727 28.9% 23,464 18,218 28.8%
Total apparel 96,207 87,245 10.3% 225,395 190,891 18.1%
Footwear 45,966 20,089 128.8% 62,564 31,928 96.0%
Accessories 7,272 7,098 2.5% 13,368 12,372 8.1%
Total net sales 149,445 114,432 30.6% 301,327 235,191 28.1%
Licensing revenues 7,232 6,099 18.6% 12,692 9,669 31.3%
Total net
revenues $156,677 $120,531 30.0% $314,019 $244,860 28.2%
