As projected, Under Armour reported earnings fell 50.9% in the fourth quarter, to $8.32 million, or 17 cents a share, from $16.9 million, or 34 cents, a year ago. Revenues rose 2.5% to $179.3 million from $174.8 million. Declines of 2.6% in its core men's apparel segment was offset by gains in women's apparel and footwear.
On January 14, the company announced preliminary financial results for the fourth quarter of 2008 of $179 million to $180 million for net revenues and diluted earnings per share in the range of 16 to 18 cent a share.
Fourth quarter apparel net revenues were impacted by a slowdown in the U.S. wholesale business primarily due to lower levels of at-once orders and increased cancellations and returns on a year-over-year basis. Net revenues in the direct-to-consumer channel grew 47.4% during the fourth quarter, helping to offset the impact of the wholesale channel.
Breaking out its segments, menï¿½s apparel declined 2.6% to $103 million from $105.7 million, womenï¿½s apparel gained 7.4% to $35.7 million from $33.2 million, and youth apparel was relatively flat, slipping 0.1% to $13.76 million from $13.77 million. Total apparel was down 0.2% to $152.4 million from $152.7 million.
Footwear revenues jumped 35.7% to $9.2 million from $6.8 million and accessories grew 2.6% to $9.3 million from $9 million.
The company also noted that fourth quarter direct-to-consumer revenues climbed 47.4%.
Kevin Plank, chairman and CEO of Under Armour., stated, “In a retail environment marked by heavy promotional levels, we have preserved our brand and pricing integrity and continue to be one of the top performing brands in our distribution. As a thought leader in the performance category, our job remains to drive consumer excitement through product innovation and great story-telling. As a company, our challenge is to continue to drive these efforts while planning our business more prudently and managing costs effectively.”
For the fourth quarter, operating income totaled $22.9 million compared with $28.3 million in the prior year's period. Gross margin for the fourth quarter of 2008 was 50.7% compared with 52.0% in the prior year's quarter due to several factors including the higher proportion of lower gross margin footwear sales. Selling, general and administrative expenses were $68.1 million in the fourth quarter of 2008 compared with $62.6 million in the prior year. The increase was primarily driven by costs incurred as a result of the continued expansion of the direct-to-consumer channel. Marketing expense for the fourth quarter of 2008 was 11.0% of net revenues versus 11.2% in the prior year's period.
Review of Full Year Operating Results
Net revenues for the year increased 19.6% to $725.2 million from $606.6 million in 2007. Diluted earnings per share for the full year was $0.77 on weighted average common shares outstanding of 49.9 million compared with $1.05 per share on weighted average common shares outstanding of 50.0 million in 2007.
Operating income for the year totaled $76.9 million compared with $86.3 million in 2007. Gross margin for 2008 was 48.9% compared with 50.3% in the prior year primarily due to the higher proportion of footwear net revenues in 2008. Driven by the company's successful launch into Performance Training Footwear, footwear net revenues increased 107.6% to $84.8 million in 2008 compared with $40.9 million in 2007.
Selling, general and administrative expenses were $278.0 million for 2008 compared with $218.8 million in the prior year. Marketing expenses increased $23.7 million in 2008 and was 13.1% of net revenues compared with 11.7% in 2007. The company had previously anticipated marketing expenses to be at the high-end of the range of 12% to 13% of net revenues for 2008.
Primarily due to the negative impact of foreign currency exchange rates, net other expense for 2008 was $7.0 million compared with net other income of $2.8 million in 2007. The company has expanded its hedging strategy to reduce exposure to foreign currency exchange risk in 2009. The effective income tax rate increased from 41.0% in 2007 to 45.3% in 2008. The resulting net income for the year totaled $38.2 million compared with $52.6 million in 2007.
Plank concluded, “2008 was a year marked by several important milestones for our company. We made key additions to our management team, including the hiring of David McCreight as president and the appointment of Wayne Marino as COO. We continued our investments in infrastructure, people, and processes to build our operational platform for growth. For our launch into non-cleated footwear, we reinvented the category of Performance Training and proved our ability to bring athletes someplace new and generate excitement at retail.”
“This Saturday, we enter the next major chapter of our growth story with the launch of Under Armour Running Footwear. Our investments in this category began years ago. Being a growth company requires a vision of what the brand can achieve and a willingness to invest in that strategy. Our team is focused on prioritizing investments in the areas that can generate the greatest long-term value for our shareholders.”
Balance Sheet Highlights
Cash and cash equivalents were $102.0 million at December 31, 2008 compared with $40.6 million at December 31, 2007. The company had $25.0 million in borrowings outstanding under its $100 million revolving credit facility at December 31, 2008. Inventory at year-end, which included approximately $15 million of running footwear to support the product launch on January 31, 2009, increased 9.7% to $182.2 million compared with $166.1 million at December 31, 2007.
New Revolving Credit Facility
The company announced today that it has entered into a new three-year revolving credit facility with PNC Bank as the lead arranger. The new facility provides for an initial commitment of $180 million and replaces the existing $100 million facility.
Brad Dickerson, chief financial officer, stated, “Although our cash position is strong, our new credit facility strengthens our banking syndicate and increases our access to capital. Our ability to arrange this facility in the current environment is a testament to the strength of our brand and our balance sheet.”
Quarter % of Quarter % of
Ended Net Ended Net
12/31/08 Revenues 12/31/07 Revenues
Net revenues $179,279 100.0% $174,838 100.0%
Cost of goods sold 88,337 49.3% 83,991 48.0%
Gross profit 90,942 50.7% 90,847 52.0%
Selling, general and
expenses 68,069 37.9% 62,593 35.8%
operations 22,873 12.8% 28,254 16.2%
(expense), net (5,013) (2.8%) (90) (0.1%)
Income before income
taxes 17,860 10.0% 28,164 16.1%
Provision for income taxes 9,539 5.4% 11,289 6.4%
Net income $8,321 4.6% $16,875 9.7%
Net income available per
Basic $0.17 $0.35
Diluted $0.17 $0.34
Weighted average common shares
Basic 48,691 48,307
Diluted 49,834 50,049