Under Armour Inc. reported sales were down 3 percent in the fourth quarter but both sales and earnings easily topped Wall Street targets. The company forecasted sales for the current year to climb in the high-single-digit percentage rate, reflecting a high-single-digit growth rate in North America and a high-teens growth rate in its international business.”Improving brand strength and consistent operational execution delivered better than expected results in the fourth quarter,” said Under Armour President and CEO Patrik Frisk. “Our global team was exceptionally resilient and disciplined amid a highly challenging year which included the COVID-19 pandemic and for Under Armour, a comprehensive restructuring effort including further operating model refinements.”

Frisk concluded, “As we continue to navigate uncertainty around the pandemic, we remain focused on execution and the efforts necessary to stabilize our business further and improve our ability to deliver sustainable shareholder value over the long-term.”

Fourth Quarter 2020 Review

  • Revenue was down 3 percent to $1.4 billion. Wall Street’s consensus estimate had been $1.27 billion.
  • Gross margin increased 210 basis points to 49.4 percent compared to the prior year. Excluding the restructuring efforts, adjusted gross margin increased 300 basis points to 50.3 percent, driven primarily by benefits from channel mix, supply chain initiatives and regional mix.
  • Selling, general & administrative expenses decreased 4 percent to $586 million, or 41.7 percent of revenue.
  • Restructuring and impairment charges were $52 million consisting of $50 million of restructuring and related impairment charges and $2 million of long-lived asset impairments.
  • Operating income was $56 million. Adjusted operating income was $120 million.
  • Interest expense, net was $15 million, driven by convertible senior notes that the company issued earlier in the year. Excluding the non-cash amortization of debt discount, adjusted interest expense, net was $10 million.
  • Other income (expense), net was $179 million, driven by a $182 million gain due to selling the company’s MyFitnessPal platform. Excluding the gain on sale, adjusted other expense net was $3 million.
  • Net income was $184 million against a loss of $15.3 million a year ago. Adjusted net income was $55 million.
  • Diluted earnings per share was 40 cents a share against a loss of 3 cents. Adjusted diluted earnings per share was 12 cents against adjusted earnings of 10 cents a year ago. Wall Street’s adjusted estimate had called for a loss of 7 cents.
  • Inventory was relatively flat at $896 million.
  • Cash and Liquidity

Full Year 2020 Review

  • Revenue was down 15 percent to $4.5 billion.
  • Gross margin increased 140 basis points to 48.3 percent. Excluding restructuring efforts, adjusted gross margin increased 170 basis points to 48.6 percent, driven predominantly by channel mix and supply chain initiatives offset by pricing related to discounting within the direct-to-consumer channel.
  • Selling, general & administrative expenses decreased 3 percent to $2.2 billion, or 48.5 percent of revenue.
  • Restructuring and impairment charges were $602 million consisting of $461 million in restructuring and related impairment charges and $141 million from impairments of long-lived assets and goodwill.
  • Operating loss was $613 million. Adjusted operating income was $537 thousand.
  • Net loss was $549 million. Adjusted net loss was $120 million.
  • Diluted loss per share was $1.21. Adjusted diluted loss per share was 26 cents.

2020 Restructuring Plan
The company previously announced a $550 million to $600 million restructuring plan designed to rebalance its cost base to improve profitability and cash flow. The company recognized $473 million of pre-tax charges for the full year, including $62 million in the fourth quarter. Of the $473 million recognized, there were $125 million in cash related charges and $348 million in non-cash related charges. As previously disclosed, the company anticipates recognizing additional charges related to this plan in the first half of 2021.

Initial 2021 Outlook
Based on current visibility, including ongoing impacts related to COVID-19, key points related to Under Armour’s full-year 2021 outlook include:

  • Revenue is expected to be up at a high-single-digit percentage rate, reflecting a high single-digit growth rate in North America and a high-teens growth rate in the international business.
  • Gross margin is expected to be up slightly versus the prior year adjusted gross margin rate of 48.6 with benefits from pricing and supply chain efficiency, being largely offset by the sale of MyFitnessPal, which was a high gross margin business.
  • Operating income is expected to reach $5 million to $25 million. Excluding the impact of continued restructuring efforts, adjusted operating income is expected to reach $130 million to $150 million.
  • Diluted loss per share is expected to be about 18 to 20 cents per share and adjusted diluted earnings per share is expected to be in the range of 12 to 14 cents.
  • However, due to ongoing uncertainty related to COVID-19 and its potential effect on global markets, there could be other material impacts on the company’s full-year business results in 2021.

COVID-19 Update
As Under Armour continues to monitor the potential global impacts of COVID-19, the company remains focused on protecting its teammates’ and consumers’ health and safety while working with its suppliers, partners, and customers to minimize potential disruptions. In compliance with public health authorities and guidance from government entities, Under Armour will continue to modify its business practices to help moderate the spread of COVID-19. These adaptations may include reduced capacity and temporary closing of retail locations, distribution centers and offices; observing travel restrictions; employing social distancing and safety measures; and obeying quarantine requirements.

The following provides additional information on Under Armour’s state of operations as of January 31, 2021:

  • The majority of the company’s supply chain and distribution network was operational; and
  • The majority of global locations (direct-to-consumer and mono-branded partner stores) where Under Armour is sold were open; however, not all are operating at full capacity due to various restrictions.

By region:

  • Globally, while traffic trends within the company’s owned retail locations remain challenged, conversion trends remain strong. Additionally, the company experienced significant eCommerce growth around the world during the fourth quarter and full-year 2020; and
  • As uncertainty related to COVID-19 persists, Under Armour expects ongoing disruption to its business operations, potentially materially impacting results.

Completed Sale of MyFitnessPal Platform
As previously announced on December 18, 2020, Under Armour completed the sale of the MyFitnessPal business to Francisco Partners for $345 million, inclusive of the achievement of potential earn-out payments.

Fiscal Year End Change
Under Armour’s Board of Directors has authorized a change in its fiscal year-end from December 31 to March 31, effective for the fiscal year beginning April 1, 2022. Given Under Armour’s largest quarters are currently realized in the July 1 through December 31 period, the company believes that this change will provide greater alignment with our business cycle and financial reporting. There will be no change to fiscal 2021, which is expected to be reported in February of 2022. Following a three month transition period, January 1 – March 31, 2022, Under Armour’s fiscal 2023 will run from April 1, 2022, through March 31, 2023. Consequently, there will be no fiscal 2022.

Photo courtesy Under Armour