Highlights From UA's Q3 Conference Call: Overall Revenues Grew 16%, Guides Above for FY09

October 27, 2009 1:52 PM EDT

Under Armour, Inc. (NYSE: UA) reports Q3 EPS of $0.52, 8 cents better than the analyst estimate of $0.44. Revenue for the quarter was $269.5 million, which compares to the estimate of $249.04 million. Shares ares down over 12% today.

Highlights From UA's Q3 Conference Call:

• Raises its FY09 EPS guidance to $0.85-$0.87, versus the consensus of $0.83.
  
• (CEO) Overall revenues were up 16% with apparel growing 7% and footwear up a 153%. And our year-to-date numbers are equally strong with total revenues up 16%, apparel up 8% and footwear up 69%.
  
• Overall, we grew Q3 revenues 16% to $270 million roughly the same revenue figured that we did four years ago in all of 2005.
  
• This quarter saw the introduction of the Armour White Mouthwear a revolutionary new technology that provides customized dental protection, but has also been proven to increase strength, endurance and reaction time. At $500 it's not for everyone, but we view it as a great example of what happens when we relentlessly seek to make athletes better.
  
• Apparel is largest piece of our business and it is strong at retail and well positioned to accelerate in 2010. Footwear contributed much of the growth this quarter and remains an area where we believe in the opportunity and will continue to invest.
  
• (president) Our direct-to-consumer business is robust with revenues up 47% for the first nine months of the year.
  
• We are planning our running footwear business conservatively in 2010, and to out such our revenue plans for 2010 do not assume growth in our overall footwear business.
  
• The investments in focus we have brought to the apparel product engine in 2009 will enable us to reaccelerate the apparel growth story in 2010, and allow us the flexibility to manage our footwear platform for growth in 2011.
  
• (CFO) Our net revenues for the third quarter of 2009 increased 16% to 269.5 million. Year-to-date net revenues are up 16% to 634.2 million.
  
• Apparel net revenues increased 7% during the quarter to 215.4 bringing our year-to-date growth rate in apparel to 8%.
  
• Footwear revenues were up a 153% to 33 million in the quarter and were mainly driven by shipments of running footwear for the back-to-school season. Year-to-date footwear is up 69%, direct-to-consumer contained its strong growth of 62% growth in the quarter and 47% growth year-to-date.
  
• During the quarter, direct-to-consumer represented approximately 15% of total net revenues.
  
• Q3 gross margin decreased to 130 basis points to 49.7%. There
  
• SG&A expenses grew 21% year-over-year to 87 million in Q3. SG&A as a percentage of net revenues increased to 32.2% compared with 31% in the prior year's period.
  
• Year-to-date SG&A increased 15% the percentage of net revenues SG&A decreased 37.9% compared with 38.5% in the prior year's period.
  
• Operating income during Q3 increased to 47.1 million compared with 46.5 million in the prior year.
  
• Year-to-date operating income grew 8% year-over-year to 58.3 million. Our effective income tax rate in the third quarter was 43.9% compared with 42.6% in Q3 of 2008.
  
• We continue to anticipate our annual 2009 effective tax rate to be approximately 100 basis points
  improved from our 2008 effective tax rate of 45.3%.
  
• Our resulting net income in the third quarter rose 2% to 26.2 million.
  
• Cash net of debt increased 72.5 million to 75.1 million at quarter-end.
  
• Inventory at quarter end decreased 6.6% year-over-year to 152.8 million.
  
• We still anticipate inventory growth to be below revenue growth at the end of the year.
  
• Our investment in capital expenditures in the third quarter was 5.2 million, bringing our year-to-date CapEx investments to 18.4 million. We continued to anticipate 2009 CapEx to be in the range of 30 to 35 million below the 41 million investment in 2008.
  
• We now estimate full year net revenues to be $830 to $835 million an increase of 14 to 15% year-over-year. This compares to our previous outlook of approximately 810 million. (Consensus is $815 million)
  
• For the full year, we continue to expect to invest in marketing in the range of 12 to 13% of net revenues.
  
• Based in our initial view, we currently anticipate 2010 net revenues and EPS to grow in the high single to low double digits. This growth has expected to be driven by a reacceleration in our wholesale apparel business as well as continued strength in direct-to-consumer and does not assume growth in our overall footwear business.
  
• (Q&A) I was wondering if you could give us a little more color on the drivers of the apparel reacceleration next year from a product perspective. And then also talk about that demand you're seeing in the current quarter for colder weather apparel and whether it - whether your sales or inventory constrained it all here in the second half? (A)So let me just start with - like some of the things
  that we're seeing in apparel. And obviously we're - we're really encouraged by some of the indicators that are out there and particularly in the performance in the quarter. The first thing I think that's driving is more than any is probably just our brand equity. And I think we continue to see the brand move beyond being a sort of a narrow team sports brand into being much more openly accepted by athletes really a ball background. And we continue to build it with the consumer with, great product of course
  delivered in a very authentic way. And so not compromising our message, not buying our way into categories, but really allowing the brand to be pulled into categories by athletes has really been driving. And I guess we mentioned we really saw strength across the board and so apparels obviously are the
  highlight, but with men's apparel, women's apparel and youth apparel are growing as well as the footwear international direct-to-consumer accessories and licensing it's rare or not often I think that you get every category, up in a given quarters. So while apparel of course is the largest aspect of our business were I think really excited by all the different places we are seeing growth. But the equity I think that we found particularly where you find a lot of people talking about today's environment, we've always had a relationship with that core athlete and that core athlete is someone that hasn't - has never really leaves our brand. And in good times or bad footballs will be played in the fall, baseball in this spring and volleyball and soccer and so on. So we haven't seen them necessarily go away. But if we had any message, around our business and I think you'll see as continue to innovate I mentioned, our fitted options that will have to our core compression business and continue to expand the idea of base layer as we are not necessarily calling it compression anymore, but the next to skin product lines. And then of course as you know innovating with the clinical products like, as we spoke about Armour White, as well some of the other premium products that we have out to. So I think our remaining focus on innovation is driving us and then just you know I think we're doing a really good job in apparel right now so, that's going to real positive, in terms of the quarter in inventory you know we - we obviously you know the cold weather helps and it always makes business makes all of us a lot smarter and so we're seeing you know I think some of the effects of that, but you know I think we'll - we'll chase what we can and find the places where we see opportunities in the business but the most part we're we feel pretty good. (A)Yeah, Kevin just - just on see on the outlook Kevin said for the fourth quarter Michelle we do have some ability to chase little bit of product, but based on our inventory management there will be limited how much upside we have in the fourth quarter we will be able to chase little bit like Kevin
  said but there will be some limited.
  
• Just a couple of quick ones. The - the first one I apologize if I missed it. If - if you could give us the number of outlet stores at the end of the third quarter and how many you expected year end and then the growth in - in factory stores you expect for next year and then the second question is just on the - the 2010 guidance. Can you help us think about footwear for 2010, you are saying footwear revenues I guess growth and footwear is included in your - your sort of initial 2010 take, but could footwear - footwear revenues actually be down or what's happening between running and cross training and new category launches like basketball in 2010 should we not - not expect that. Sort of you if you could just give us a broad view on what footwear should like in 2010 and then also the 2010 international assumption in that would be great as well? (A)We ended the quarter with approximately 33 factory health stores and we are looking to add a few more for the balance of the beginning of Q4 and we see continued opportunity to - to expand this and we'll get into more details on the direct-to-consumer expansion but we're very satisfied with the direction we're taking with direct-to-consumer, we think that's a great way to connect with the hardcore Under Armour athletes, and we are seeing it's a nice way to partner with our retail partner. So we are as you have seen all the year we have seen steady or steady margin progress and we will continue to see that in 2010. As it relates to footwear and general guidance we're - we're not planning on growth and footwear, we've accomplished a great deal, we're seeing real progress in many categories. As I mentioned earlier, we've launched and immediately became a leading force in cleated footwear in baseball, softball and footwear- a football, we're seeing great progress in the side business and we accomplished our goals with running this year getting out making a technically sound products gaining acceptance from our retail partners and gaining acceptance more importantly from our athletes. Now we are going to continue with our new team to build that business and model, but not planning growth in 2010. (A)Probably this is our Brad on the international question, see its international growing at faster pace in overall business in 2010 somewhat in 2009, but other peat parts of our business, we also see the - doing that also, so I think it's the percentage of revenues in general year-over-year, I think you will see international will be relatively the same percentage of revenues year-over-year on 2010. But again, we will give you more detail on 2010 in the coming months.
  
• So footwear your 2011 could be the big breakout year for you guys? (A)Well, I think we've given you what we are seeing right now, so we'd really probably rather come back, the three months in time where 2010 looks like. We've got two new bodies in the chair in foot wear that are doing a great job and continuing to evaluate to see our opportunities are there. But, if there is a story right now about 2010, the good news is that, we do have five leveraged upon and the good news is that our apparel business is accelerating or reaccelerating to think about to where you want to look at it and give to see opportunity to make a prudent decision long term, it's in the best interest of the brand. So, I think there is opportunity there, but again we don't feel any pressure to try to push something if the timing is arrived. And interaction to your question of that categories probably we'd like to categories run right now, or we're going to become great and excellent in those categories. And we're going to focus and refocus again on the places where we are doing business today and the categories that we're in today and so, we see that there is additional places i.e. bathed up all which we're going to test, we're looking at them right now. We've got eight divisions on programs or bewaring to get wearing our shoes this year. We've got 20 lead high schools. We've got in our brand and joining from the MBA so we at present and we more importantly have feedback from all levels of competition. And we evaluating in making those decisions to go at it, first and foremost when the products ready and when we are ready to support it and tell a big story. Until have you go home.

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