Under Armour, Inc. recorded a 26.6% jump in first quarter net revenues to $157.3 million from $124.3 for the year-ago quarter. However, first quarter net income declined 70.7% to $2.9 million compared to $9.9 million in the same period of 2007 due to lowered margins and increased expenses. The company noted that marketing expense for the first quarter of 2008 was 17.8% of net revenues compared to 11.1% in the prior year's period.
Apparel net revenues rose 24.6% to $129.2 million in the first quarter of 2008 with strong growth across Men's, Women's, and Youth. Footwear revenues increased 40.2% to $16.6 million primarily due to a limited amount of Performance Training Footwear shipped during the quarter.
“The Under Armour Brand continues to resonate with athletes,” stated Kevin Plank, chairman and CEO of Under Armour, Inc. “Our apparel business grew 25% with Women's growing at an even faster rate at 36%, illustrating the strength of our Brand. By communicating an authentic message and developing innovative products to meet the needs of today's new prototype athlete, we continue to drive consumers to our Brand. We believe our message of performance enables us to reach both male and female athletes, to expand beyond team sports to individual sports, and to get the consumer to think of us not just as a great athletic apparel brand but a great athletic brand.”
Gross margin for the first quarter of 2008 was 47.6% compared to 48.7% in the prior year primarily due to an inventory reserve taken on excess gloves. Selling, general and administrative expenses were 44.9% of net revenues in the first quarter of 2008 compared to 35.8% in the prior year. The company had previously stated that it would be shifting a substantial portion of its full year marketing spend to the first half of the year. Marketing expense for the first quarter of 2008 was 17.8% of net revenues compared to 11.1% in the prior year's period. The company still expects to invest in its marketing budget at the high-end of the range of 12% to 13% of net revenues for the full year.
Balance Sheet Highlights
Inventory totaled $167.9 million at March 31, 2008, compared to $166.1 million at December 31, 2007 and $80.1 million at March 31, 2007. Inventory at quarter-end included $13.6 million of Performance Training footwear in preparation for the upcoming launch. Based on its inventory management strategy and supply chain initiatives, the company expects the inventory growth rate to decelerate beginning in the second quarter, with inventory growing in-line with net revenues by the end of the third quarter. Cash and cash equivalents were $17.6 million at March 31, 2008 compared to $40.6 million at December 31, 2007 and $57.2 million at March 31, 2007. The company had no borrowings outstanding under its $100 million revolving credit facility at March 31, 2008.
Outlook for 2008
The company's long-term growth targets are 20% to 25% for the top and bottom lines. Based on the continued strength of the brand and the company's performance in the first quarter, the company is reiterating its 2008 net revenues outlook. 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.
The company had previously estimated a full year gross margin improvement of 40 to 50 basis points in 2008. However, based on the most recent estimates, full year gross margins for 2008 are expected to decrease 30 basis points year-over-year to 50.0%. As a result, the company is revising its 2008 income from operations outlook to $103.5 million to $104.5 million, an increase of 20% to 21% over 2007. The company had previously estimated 2008 income from operations to be in the range of $108.5 million to $110.5 million.
“At Under Armour, we have a culture of growth balanced with a culture of profitability,” stated Wayne Marino, Chief Operating Officer. “As we map out the future growth of this Brand, we will continue to make the appropriate level of investment in our team and our infrastructure while continuously striving towards greater operational execution.”
Performance Trainer Launch
Mr. Plank concluded, “On May 3rd, we enter the next chapter of our growth story with the launch of our Performance Training footwear. Whether it's creating the category as we did with compression or reinventing the category as we are doing with Performance Training, our proven ability to bring athletes someplace new and generate excitement for both our retail partners and our consumer is at the core of what we do. We have invested much to get us to the point of launching our footwear this Saturday, and we must continue to invest if we are to realize the opportunities for growth in new categories and new regions. We continue to have confidence in the power of our Brand and our ability to execute against those opportunities.”
Under Armour, Inc.
Quarter Ended March 31, 2008 and 2007
(Unaudited; in thousands, except per share amounts)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Ended % of Net Ended % of Net
3/31/08 Revenues 3/31/07 Revenues
Net revenues $157,342 100.0 % $124,329 100.0 %
Cost of goods sold 82,507 52.4 % 63,748 51.3 %
Gross profit 74,835 47.6 % 60,581 48.7 %
Selling, general and
administrative expenses 70,536 44.9 % 44,544 35.8 %
Income from operations 4,299 2.7 % 16,037 12.9 %
Other income, net 510 0.3 % 694 0.6 %
Income before income taxes 4,809 3.0 % 16,731 13.5 %
Provision for income taxes 1,939 1.2 % 6,790 5.5 %
Net income $2,870 1.8 % $9,941 8.0 %
Net income available per common share
Basic $0.06 $0.21
Diluted $0.06 $0.20
Weighted average common shares outstanding
Basic 48,412 47,619
Diluted 49,949 49,818
NET REVENUES BY PRODUCT CATEGORY
3/31/08 3/31/07 % Change
Men's $82,121 $68,465 19.9%
Women's 33,561 24,690 35.9%
Youth 13,506 10,491 28.7%
Apparel 129,188 103,646 24.6%
Footwear 16,598 11,839 40.2%
Accessories 6,096 5,274 15.6%
Total net sales 151,882 120,759 25.8%
Licensing revenues 5,460 3,570 52.9%
Total net revenues $157,342 $124,329 26.6%