Under Armour Reports Third Quarter Results: Revenue Down 5 Percent — Company Updates Full Year 2017 Outlook

BALTIMORE — October 31, 2017 — Under Armour Inc. today announced financial results for the third quarter ended September 30, 2017. The company reports its financial performance in accordance with accounting principles generally accepted in the United States of America (GAAP). This press release refers to “currency neutral” and “adjusted” amounts, which are non-GAAP financial measures described below under the “Non-GAAP Financial Information” paragraph. Reconciliations of non-GAAP amounts to the most directly comparable financial measure calculated in accordance with GAAP are presented in supplemental financial information furnished with this release. All per share amounts are reported on a diluted basis.

“While our international business continues to deliver against our ambition of building a global brand, operational challenges and lower demand in North America resulted in third quarter revenue that was below our expectations,” said Under Armour Chairman and CEO Kevin Plank. “Based on these issues in our largest market, we believe it is prudent to reduce our sales and earnings outlook for the remainder of 2017.

“Against this difficult backdrop, our management team is working aggressively to evolve our strategy and level of execution to proactively address these challenges. We understand that success in our next chapter requires managing with focused financial discipline and driving excellence into every area of our business while we amplify innovation, deliver fresh product and connect even more deeply with our consumers.”

The summary below provides both GAAP and adjusted non-GAAP financial measures. In the third quarter of 2017, in connection with the company’s restructuring plan, it recognized pre-tax costs totaling $89 million comprising of $22 million in cash related charges and $67 million in non-cash charges. Adjusted financial measures exclude the impact of the restructuring and other related charges and the related tax effects.

Third Quarter Review

  • Revenue was down 5 percent to $1.4 billion. During the third quarter, operational challenges due to the implementation of the company’s enterprise resource planning system and related service levels along with lower North American demand negatively impacted revenue.
    • Revenue to wholesale customers declined 13 percent to $880 million and direct-to-consumer revenue was up 15 percent to $468 million.
    • North America challenges impacted results with revenue down 12 percent. Strong international momentum continued with revenue up 35 percent (up 34 percent currency neutral), representing 22 percent of total revenue. Within our international business, revenue in EMEA was up 22 percent (up 20 percent currency neutral), up 52 percent in Asia-Pacific (up 53 percent currency neutral) and up 33 percent in Latin America (up 27 percent currency neutral).
    • Apparel revenue decreased 8 percent to $939 million, as growth in golf and sportstyle was more than offset by declines in outdoor, women’s training and youth. Footwear revenue was up 2 percent to $285 million, driven by strength in running and outdoor, offset by basketball and youth. Accessories revenue increased 1 percent to $123 million led by golf and men’s training, tempered by a decline in outdoor.
  • Gross margin declined 160 basis points to 45.9 percent as benefits from changes in foreign currency rates and product costs were more than offset by pricing and other inventory management initiatives, and regional mix. Adjusted gross margin, which excludes a $4 million impact from restructuring efforts, was 46.2 percent, a decrease of 130 basis points compared to the prior year.
  • SG&A was in-line with the prior year.
  • Restructuring and impairment charges were $85 million.
  • Operating income was $62 million. Adjusted operating income was $151 million.
  • Effective tax rate was negative 5 percent due to higher mix of international pre-tax income and challenged results in the North American business, coupled with the impact of the restructuring and impairment charges. The adjusted effective tax rate was 29 percent.
  • Net income was $54 million in the third quarter. Adjusted net income was $100 million.
  • Diluted earnings per share was $0.12. Adjusted diluted earnings per share was $0.22.
  • Inventory increased 22 percent to $1.2 billion.
  • Cash and cash equivalents increased 43 percent to $258 million.

Updated Fiscal 2017 Outlook

Key points related to Under Armour’s full year 2017 updated outlook include:

  • Net revenue is expected to be up at a low single-digit percentage rate reflecting lower North American demand and operational challenges due to the implementation of the company’s enterprise resource planning system and related service levels.
  • Gross margin is expected to be down approximately 220 basis points compared to 46.4 percent in 2016 as benefits from product costs and channel mix are more than offset by increased efforts to manage inventory within a highly promotional environment, impacts from the restructuring plan and increasing regional mix. Adjusted gross margin is expected to be down approximately 190 basis points compared to 46.4 percent in 2016.
  • Operating income is expected to be approximately $0 to $10 million. Adjusted operating income is expected to reach $140 million to $150 million.
  • Interest and other expense net of approximately $35 million.
  • Excluding the effect of the restructuring plan, adjusted effective tax rate of approximately 23 percent.
  • Adjusted diluted earnings per share of $0.18 to $0.20.
  • Capital expenditures of approximately $300 million.

On August 1, the company announced a restructuring plan, which detailed expectations to incur total estimated pre-tax restructuring and related charges of approximately $110 million to $130 million. In the third quarter, the company recognized $60 million of pre-tax charges in connection with this restructuring plan. In addition to these charges, the company also recognized restructuring related goodwill impairment charges of $29 million for its Connected Fitness business. Inclusive of this impairment, the company now expects to incur total estimated pre-tax restructuring and related charges of approximately $140 million to $150 million.

Posted November 2, 2017

Source: Under Armour