Footwear and International Boosts UA’s Q1

April 25, 2014
SGB Update

With ongoing robust growth is apparel and “meaningful acceleration” in both footwear and its overseas businesses, Under Armour, Inc. reported net revenues vaulted 36.0 percent in the first quarter, to $642 million.

Net income surged 73.3 percent to $13.5 million, or 6 cents a share, exceeding Wall Street's consensus estimate of 4 cents a share. The company again raised its outlook for the year.

UA’s top-line growth exceeded 20 percent for the 16th consecutive quarter. The quarter also marked the first time since the third quarter of 2011 when apparel, running footwear and international revenues all surpassed 30 percent growth.

“The strength was evident across genders, categories, geographies and both our wholesale and direct distribution channels,” said Kevin Plank, chairman and CEO, on a conference call with analysts.

Apparel revenues jumped 32.9 percent to $459.2 million, representing the 18th straight quarter of at least 20 percent growth. Strong growth was seen in training, golf, hunting and fishing. In women’s, its Studio collection “remains a stand-out,” said Brad Dickerson, CFO, on the call. Youth also registered “notable gains” in training and baseball in the period.

Among its programs, broad-based strength was seen in fleece, UA Tech and base layer with the aid new innovations such as ColdGear Infrared and ArmourVent.

Footwear climbed 41.2 percent to $114.0 million, helped by strong sell-through rates of its new SpeedForm Apollo running shoe. The category also benefited from offering a broader running assortment at key price points, including the Assert, Engage and Spine Evo styles. Its baseball-cleated business is taking market share despite a somewhat slower start to the season given adverse weather conditions.

Accessories surged 42.9 percent to $51.6 million, primarily driven by its headwear lines. Licensing and other revenues grew 81.8 percent to $16.8 million.

Direct-to-Consumer revenues grew 33 percent and represented 26 percent of sales. The first of seven new Factory House stores planned for the year opened in the quarter, bringing its net store count to 118, compared to 103 a year ago. Two locations were expanded with a total of 12 planned for the year. Its third Brand House opened in the SoHo district in lower Manhattan following the 2013 opening at Harbor East in Baltimore and Tysons Corner near D.C.

E-commerce continues to see “strong results,” driven primarily by traffic gains. E-commerce investments for the balance of 2014 will include an enhanced mobile experience, improved consumer marketing segmentation efforts and increased engagement in Connected Fitness, supported by its acquisition of MapMyFitness.

International revenues in the quarter grew 79 percent year-over-year, to $55 million, representing 9 percent of total revenues. Europe is starting to see the combined benefit of higher brand awareness and a more focused in-country strategy around three key markets: the UK, Germany and France. In Asia, UA is accelerating its franchise model China while driving growth through e-commerce and expanded distributor relationships. Growth in Latin America was primarily driven by the conversion of the Mexican distributor to an Under Armour subsidiary at the beginning of the year. North American sales in the quarter lifted 32.1 percent to $582.6 million.

Gross margins for the quarter expanded 100 basis points to 46.9 percent. A lower mix of excess inventory sold to its factory house outlet stores contributed approximately 40 basis points of the margin improvement. Lower airfreight expenses year-over-year contributed 30 basis points, and lower product input cost, primarily in its accessories business, 20 basis points.

SG&A expenses were reduced to 42.7 percent of sales from 43.1 percent with the aid of sales leverage.

On the call, Plank highlighted three largely untapped growth opportunities: run, golf and outdoor, or the hunt & fish category. He said run represents UA’s “biggest revenue opportunity,” given the size of the category across apparel and footwear as well as across geographies. While UA has had a strong foothold in running apparel, the success of SpeedForm Apollo has put the brand “on a trajectory to become a significant player in the global running marketplace.”

Plank adds, “While the number of pairs we sold were limited, we did a great job of executing the SpeedForm launch and set ourselves up to broaden and deepen the platform for the balance of 2014 and beyond.”

The success will better help UA to capitalize on future planned launches. He added that given that the company entered the footwear category after finding strength in apparel rather than the more common route of footwear first and then apparel, successful running platforms promise to “ignite our entire apparel business, be it running, training or other features of our core business.”

He also pointed to the growing strength of the internal running team, which includes the late-March hiring of Fritz Taylor, formerly of Mizuno, as VP run.

Plank said golf approached the $100 million mark for UA in 2013, with an increased focus on fit and style in both shirts and pants supporting recent growth. Golf was one of UA’s first steps outside of its core compression apparel with the idea for getting into the category coming from requests from football coaches for a looser-fitting shirt with drying properties. When UA branched into the category, most polos sold in golf pro shops were cotton, but “that map has absolutely flipped, and the overwhelming majority of golf polos are made now from performance materials.”

Plank said in both the hunt & fish categories, “we've been an authentic brand with our consumer from day one.” The brand has seen a “very strong six-month trend across the board” with strong increases across specialty outdoor accounts as well as bigger wholesale partners, aided by innovations like UA Scent Control and MagZip. He also noted that the success in hunt & fish has enabled the brand “to reach more athletes off the playing field and expand our presence in their closets with product that is more lifestyle based.” New categories like outerwear and boots will support growth in hunt & fish.
Plank said setting up for international expansion has been a focus for the last two years. Initiatives have included transitioning its distributor in Mexico to a wholly-owned subsidiary, launching its brand in Brazil and Chile, and signing sports marketing agreements with football teams such as Toluca in Mexico and Colo-Colo in Chile. He said the 79 percent international gain in the period “quarter is a positive sign that these new initiatives are off to a strong start and that the story of our brand continues to play well as we expand into new markets outside of North America.”

In Germany and France, brand awareness doubled year-over-year. In the UK, where it Tottenham Hostpur in the English premier league, it grew three times.

Finally, Plank touched on the opening of its first new store in New York City, its largest store. He said the Brand Houses are helping its wholesale partners understand the brand’s opportunity in footwear and with women. He further noted that later this year UA will introduce its first ‘holiday,’ or marketing blitz, focused exclusively on women. Said Plank, “We believe it will help call attention to how Under Armour is constantly evolving to meet the needs of both the female athlete and the athletic female.”

The company now expects 2014 net revenues in the range of $2.88 billion to $2.91 billion, representing growth of 24 percent to 25 percent over 2013, and 2014 operating income in the range of $331 million to $334 million, representing growth of 25 percent to 26 percent over 2013. On Jan. 30 when reporting fourth-quarter results, UA projected 2014 net revenues would expand 22 percent to 23 percent over 2013, and 2014 operating income increase 23 percent to 24 percent.

Under Armour officials did note that for the second quarter, it does not expect the three primary drivers of its positive performance during the first quarter to carry forward into the current period. This includes the normalization of its Factory House product mix, a more consistent comparison on its supply chain performance year-over-year and lapping of its bags relaunch, which carried higher margins commencing in the second quarter of last year.

For the fourth quarter of this year, UA is also taking a “more balanced approach,” assuming that the benefit of the cold weather and a stronger-than-expected DTC business that lifted Q413 sales ahead 35 percent doesn’t recur.

Said Dickerson, “If weather is cold again this fourth quarter, we're putting ourselves in position to be able to deliver. And we're also putting ourselves in position if DTC is in overdrive like it did last year, we're putting ourselves in a position to be able to deliver. We want to be careful in how we approach that relative to our guidance and expectations.”

Footwear and International Boosts UA’s Q1

April 24, 2014
SGB Update

With ongoing robust growth is apparel and “meaningful acceleration” in both footwear and its overseas businesses, Under Armour, Inc. reported net revenues vaulted 36.0 percent in the first quarter, to $642 million.

Net income surged 73.3 percent to $13.5 million, or 6 cents a share, exceeding Wall Street's consensus estimate of 4 cents a share. The company again raised its outlook for the year.

UA’s top-line growth exceeded 20 percent for the 16th consecutive quarter. The quarter also marked the first time since the third quarter of 2011 when apparel, running footwear and international revenues all surpassed 30 percent growth.

“The strength was evident across genders, categories, geographies and both our wholesale and direct distribution channels,” said Kevin Plank, chairman and CEO, on a conference call with analysts.

Apparel revenues jumped 32.9 percent to $459.2 million, representing the 18th straight quarter of at least 20 percent growth. Strong growth was seen in training, golf, hunting and fishing. In women’s, its Studio collection “remains a stand-out,” said Brad Dickerson, CFO, on the call. Youth also registered “notable gains” in training and baseball in the period.

Among its programs, broad-based strength was seen in fleece, UA Tech and base layer with the aid new innovations such as ColdGear Infrared and ArmourVent.

Footwear climbed 41.2 percent to $114.0 million, helped by strong sell-through rates of its new SpeedForm Apollo running shoe. The category also benefited from offering a broader running assortment at key price points, including the Assert, Engage and Spine Evo styles. Its baseball-cleated business is taking market share despite a somewhat slower start to the season given adverse weather conditions.

Accessories surged 42.9 percent to $51.6 million, primarily driven by its headwear lines. Licensing and other revenues grew 81.8 percent to $16.8 million.

Direct-to-Consumer revenues grew 33 percent and represented 26 percent of sales. The first of seven new Factory House stores planned for the year opened in the quarter, bringing its net store count to 118, compared to 103 a year ago. Two locations were expanded with a total of 12 planned for the year. Its third Brand House opened in the SoHo district in lower Manhattan following the 2013 opening at Harbor East in Baltimore and Tysons Corner near D.C.

E-commerce continues to see “strong results,” driven primarily by traffic gains. E-commerce investments for the balance of 2014 will include an enhanced mobile experience, improved consumer marketing segmentation efforts and increased engagement in Connected Fitness, supported by its acquisition of MapMyFitness.

International revenues in the quarter grew 79 percent year-over-year, to $55 million, representing 9 percent of total revenues. Europe is starting to see the combined benefit of higher brand awareness and a more focused in-country strategy around three key markets: the UK, Germany and France. In Asia, UA is accelerating its franchise model China while driving growth through e-commerce and expanded distributor relationships. Growth in Latin America was primarily driven by the conversion of the Mexican distributor to an Under Armour subsidiary at the beginning of the year. North American sales in the quarter lifted 32.1 percent to $582.6 million.

Gross margins for the quarter expanded 100 basis points to 46.9 percent. A lower mix of excess inventory sold to its factory house outlet stores contributed approximately 40 basis points of the margin improvement. Lower airfreight expenses year-over-year contributed 30 basis points, and lower product input cost, primarily in its accessories business, 20 basis points.

SG&A expenses were reduced to 42.7 percent of sales from 43.1 percent with the aid of sales leverage.

On the call, Plank highlighted three largely untapped growth opportunities: run, golf and outdoor, or the hunt & fish category. He said run represents UA’s “biggest revenue opportunity,” given the size of the category across apparel and footwear as well as across geographies. While UA has had a strong foothold in running apparel, the success of SpeedForm Apollo has put the brand “on a trajectory to become a significant player in the global running marketplace.”

Plank adds, “While the number of pairs we sold were limited, we did a great job of executing the SpeedForm launch and set ourselves up to broaden and deepen the platform for the balance of 2014 and beyond.”

The success will better help UA to capitalize on future planned launches. He added that given that the company entered the footwear category after finding strength in apparel rather than the more common route of footwear first and then apparel, successful running platforms promise to “ignite our entire apparel business, be it running, training or other features of our core business.”

He also pointed to the growing strength of the internal running team, which includes the late-March hiring of Fritz Taylor, formerly of Mizuno, as VP run.

Plank said golf approached the $100 million mark for UA in 2013, with an increased focus on fit and style in both shirts and pants supporting recent growth. Golf was one of UA’s first steps outside of its core compression apparel with the idea for getting into the category coming from requests from football coaches for a looser-fitting shirt with drying properties. When UA branched into the category, most polos sold in golf pro shops were cotton, but “that map has absolutely flipped, and the overwhelming majority of golf polos are made now from performance materials.”

Plank said in both the hunt & fish categories, “we've been an authentic brand with our consumer from day one.” The brand has seen a “very strong six-month trend across the board” with strong increases across specialty outdoor accounts as well as bigger wholesale partners, aided by innovations like UA Scent Control and MagZip. He also noted that the success in hunt & fish has enabled the brand “to reach more athletes off the playing field and expand our presence in their closets with product that is more lifestyle based.” New categories like outerwear and boots will support growth in hunt & fish.
Plank said setting up for international expansion has been a focus for the last two years. Initiatives have included transitioning its distributor in Mexico to a wholly-owned subsidiary, launching its brand in Brazil and Chile, and signing sports marketing agreements with football teams such as Toluca in Mexico and Colo-Colo in Chile. He said the 79 percent international gain in the period “quarter is a positive sign that these new initiatives are off to a strong start and that the story of our brand continues to play well as we expand into new markets outside of North America.”

In Germany and France, brand awareness doubled year-over-year. In the UK, where it Tottenham Hostpur in the English premier league, it grew three times.

Finally, Plank touched on the opening of its first new store in New York City, its largest store. He said the Brand Houses are helping its wholesale partners understand the brand’s opportunity in footwear and with women. He further noted that later this year UA will introduce its first ‘holiday,’ or marketing blitz, focused exclusively on women. Said Plank, “We believe it will help call attention to how Under Armour is constantly evolving to meet the needs of both the female athlete and the athletic female.”

The company now expects 2014 net revenues in the range of $2.88 billion to $2.91 billion, representing growth of 24 percent to 25 percent over 2013, and 2014 operating income in the range of $331 million to $334 million, representing growth of 25 percent to 26 percent over 2013. On Jan. 30 when reporting fourth-quarter results, UA projected 2014 net revenues would expand 22 percent to 23 percent over 2013, and 2014 operating income increase 23 percent to 24 percent.

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