Under Armour, Inc. reported that net revenues increased 29.2% in the 2007 fourth quarter to $174.8 million compared to net revenues of $135.3 million in the fourth quarter of 2006. Net income increased 42.4% to $16.9 million compared to $11.9 million in the same period of 2006. As previously reported, in the fourth quarter of 2006, the company received a $1.0 million benefit to net income, or two cents per diluted share, as a result of the impact of state tax credits. Diluted earnings per share for the fourth quarter of 2007 was 34 cents, compared to 24 cents per share in the prio year fourth quarter.
“Today's athlete continues to vote for the Under Armour Brand,” stated Kevin A. Plank, Chairman and CEO of Under Armour, Inc. “Our strong performance in the fourth quarter reflects the ongoing demand for our technical performance products by consumers. This momentum drives our top line results, allows us to maintain our status as the premium performance brand and helps deliver the operating leverage we achieved in our business during the quarter.”
Driven by strong growth across Men's, Women's, and Youth, apparel net revenues rose 29.5% in the fourth quarter of 2007. Apparel revenues benefited from continuing gains in the Compression and Training categories, while new offerings in the Mountain product category also drove healthy contributions to top line growth.
Income from operations for the quarter totaled $28.3 million, an increase of 59.2% from the $17.7 million reported in the comparable year ago period. Operating margins for the quarter rose 310 basis points to 16.2% compared to 13.1% in the prior year period. Gross margins for the quarter increased 140 basis points to 52.0% compared to 50.6% in the prior year. Selling, general and administrative expenses as a percentage of net revenues decreased 170 basis points to 35.8% in the fourth quarter of 2007 compared to 37.5% in the same period of the prior year. Marketing expense for the fourth quarter was 11.2% of net revenues compared to 12.6% in the prior year.
Full Year Operating Results
Apparel revenues grew 37.3% for the full year due to rapid growth across Men's, Women's, and Youth. The majority of the growth was fueled by increased penetration of existing product categories such as Compression, Training, and Golf. Footwear revenues for the year increased 52.1%.
Income from operations for 2007 totaled $86.3 million, an increase of 51.6% from the $56.9 million reported in 2006. Operating margins for the year rose 100 basis points to 14.2% compared to 13.2% in the prior year. Gross margins for 2007 increased 20 basis points to 50.3% compared to 50.1% one year ago. Selling, general, and administrative expenses as a percentage of net revenues decreased 80 basis points to 36.1% of net revenues in 2007 compared to 36.9% in the prior year. The company had previously stated its commitment to a marketing budget of 10% to 12% of net revenues for the full year. Marketing expense for the year was 11.7% of net revenues, an increase over the 11.2% reported for 2006 but within the company's targeted range for 2007.
Mr. Plank added, “2007 was a great year for Under Armour. Our ability to execute on our plan resulted in more than 40% growth in the top line. We drove nearly $140 million of growth in our apparel line by focusing on existing product categories and maximizing the productivity of our current distribution, reflecting the continued opportunity that exists in this business alone. Our success with our website as well as our first branded store in Annapolis, Maryland, demonstrates our ability to connect directly with our consumer and helps drive the authenticity of the Brand. We delivered excellent results for the year while making investments in people and key initiatives such as Footwear and International to drive the future growth and expansion of the Under Armour Brand.”
Balance Sheet
Reflecting the company's planned investment in inventory to achieve higher order fulfillment rates on core apparel programs, inventory totaled $166.1 million at December 31, 2007, compared to $81.0 million at the end of 2006. The inventory balance at year-end was in-line with the company's previously provided estimate of a 5% to 10% increase from the balance reported at September 30, 2007. Cash and cash equivalents were $40.6 million at December 31, 2007 compared to $70.7 million at the end of 2006 reflecting a planned investment in working capital and other infrastructure investments. The company had no borrowings outstanding under its $100 million revolving credit facility at December 31, 2007.
Outlook for 2008
The company has previously stated its long-term growth targets of 20% to 25% for the top and bottom lines. Based on the continued strength of the Brand and its ability to extend product scope and distribution, the company believes 2008 net revenues and income from operations will exceed the long- term targets.
For 2008, the company expects annual net revenues in the range of $765 million to $775 million, an increase of 26% to 28% over 2007. The company expects 2008 income from operations to be in the range of $108.5 million to $110.5 million, an increase of 26% to 28% over 2007. Further, the company expects an effective tax rate of 41.6% for the full year. The company anticipates fully diluted weighted average shares outstanding of approximately 50.5 million for 2008.
The company had previously indicated that marketing expenses in 2008 would increase from the historical 10% to 12% of net revenues to 12% to 13% of net revenues for the full year in support of certain key growth initiatives. Based on the timing of the brand campaign that will be used to support the company's Performance Training footwear launch in the second quarter, the company announced on January 17, 2008 that it would be shifting a substantial portion of its full year marketing spend to the first half of the year. The company continues to anticipate diluted earnings per share in the range of 3 cents to 5 cents for the first half of 2008.
Mr. Plank concluded, “2008 marks an important milestone in Under Armour's long-term strategy with the launch of our Performance Training footwear. We are confident in delivering the proper mix of the right product positioning, a great campaign, great retail partners who are excited about the launch, and most importantly, great product that will deliver against the demands of today's new prototype athlete. This launch, which kicks off this weekend with our 60-second commercial in the highly-anticipated Super Bowl XLII, will further authenticate the Under Armour performance story with athletes and introduce the Under Armour Brand to new consumers, helping drive our revenue growth in 2008 and beyond.”
