Form 8-K Under Armour, Inc. For: Feb 04
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.�20549
�________________________________________________________________________________�
FORM�8-K
�________________________________________________________________________________�
CURRENT REPORT
Pursuant to Section�13 or 15(d)�of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February�4, 2015
________________________________________________________________________________��
UNDER ARMOUR, INC.
�________________________________________________________________________________�
Maryland | � | 001-33202 | � | 52-1990078 |
(State or other jurisdiction of incorporation or organization) | � | (Commission File Number) | � | (I.R.S. Employer Identification No.) |
1020 Hull Street, Baltimore, Maryland | � | 21230 | ||
(Address of principal executive offices) | � | (Zip Code) | ||
Registrants telephone number, including area code: (410)�454-6428
(Former name or former address, if changed since last report)
�________________________________________________�
Check the appropriate box below if the Form�8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
� | Written communications pursuant to Rule�425 under the Securities Act (17 CFR 230.425) |
� | Soliciting material pursuant to Rule�14a-12 under the Exchange Act (17 CFR 240.14a-12) |
� | Pre-commencement communications pursuant to Rule�14d-2(b)�under the Exchange Act (17 CFR 240.14d-2(b)) |
� | Pre-commencement communications pursuant to Rule�13e-4(c)�under the Exchange Act (17 CFR 240.13e-4(c)) |
Item�2.02. Results of Operations and Financial Condition.
On February�4, 2015, Under Armour,�Inc. issued a press release announcing its financial results for the fourth quarter and year ended December�31, 2014.�A copy of Under Armours press release is attached hereto as�Exhibit�99.1 and is incorporated herein by reference.�Under Armour has scheduled a conference call for 5:00 p.m. ET on February�4, 2015 to discuss its financial results, and a portion of the script for that call is attached hereto as Exhibit 99.2 and is incorporated herein by reference.
Item�9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit 99.1: Under Armour,�Inc. press release announcing financial results for the fourth quarter and year ended December�31, 2014.
Exhibit 99.2: Portion of conference call script for February�4, 2015 conference call.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
� | UNDER ARMOUR, INC. | |||
Date: February 4, 2015 | � | By: | � | /s/ BRAD DICKERSON |
� | � | Brad Dickerson | ||
� | � | Chief Financial Officer | ||
Exhibit 99.1
Under Armour, Inc. | � |  |
1020 Hull Street | � | |
Baltimore, MD 21230 | � | |
� CONTACTS | � | |
Investors: | � | |
Tom Shaw, CFA | � | |
Under Armour, Inc. | � | |
Tel: 410.843.7676 | � | |
� Media: | � | |
Diane Pelkey | � | |
Under Armour, Inc. | � | |
Tel: 410.246.5927 | � | |
FOR IMMEDIATE RELEASE
UNDER ARMOUR REPORTS FULL YEAR NET REVENUES GROWTH OF 32%;
ANNOUNCES CREATION OF WORLD'S LARGEST DIGITAL HEALTH AND FITNESS COMMUNITY
" | Fourth Quarter Net Revenues Increased 31% to $895 Million; Full Year Net Revenues Increased 32% to $3.08 Billion |
" | Fourth Quarter Diluted EPS Increased 35% to $0.40; Full Year Diluted EPS Increased 27% to $0.95 |
" | Through the Acquisitions of Endomondo and MyFitnessPal, Combined with the Company's Existing MapMyFitness Community, Creates the World's Largest Digital Health and Fitness Community with Over 120 Million Unique Registered Users |
" | Updates 2015 Net Revenues Outlook to Approximately $3.76 Billion (+22%) |
" | Updates 2015 Operating Income Outlook to a Range of $397 Million to $407 Million (+12% to +15%), Inclusive of the Impact of the Acquisitions |
Baltimore, MD (February 4, 2015) - Under Armour, Inc. (NYSE: UA) today announced financial results for the fourth quarter ended December�31, 2014. Net revenues increased 31% in the fourth quarter of 2014 to $895 million compared with net revenues of $683 million in the prior year's period. Net income increased 37% in the fourth quarter of 2014 to $88 million compared with $64 million in the prior year's period. Diluted earnings per share for the fourth quarter of 2014 were $0.40 compared with $0.30 per share in the prior year's period.
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Fourth quarter apparel net revenues increased 30% to $708 million compared with $546 million in the same period of the prior year, driven primarily by new offerings across training, hunting, and studio, including expanded platform innovations in ColdGear Infrared, Storm, and Charged Cotton. Fourth quarter footwear net revenues increased 55% to $86 million from $55 million in the prior year's period, led by expanded offerings in running and basketball. Fourth quarter accessories net revenues increased 22% to $79 million from $65 million in the prior year's period. Direct-to-Consumer net revenues, which represented 38% of total net revenues for the fourth quarter, grew 27% year-over-year. International net revenues, which represented 9% of total net revenues for the fourth quarter, grew 123% year-over-year.
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Gross margin for the fourth quarter of 2014 was 49.9% compared with 51.3% in the prior year's quarter, primarily driven by a higher mix of international revenues. Selling, general and administrative expenses as a percentage of net revenues were 33.6% in the fourth quarter of 2014 compared with 36.9% in the prior year's period, primarily reflecting higher incentive compensation expenses in the prior year's period. Fourth quarter operating income increased 49% to $146 million compared with $98 million in the prior year's period.
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Review of Full Year Operating Results
For the full year 2014, net revenues increased 32% to $3.08 billion compared with $2.33 billion in the prior year and compared with the Companys prior outlook of $3.03 billion. Diluted earnings per share for 2014 increased 27% to $0.95 compared with $0.75 per share in the prior year.
Apparel net revenues increased 30% to $2.29 billion compared with $1.76 billion in the prior year, driven primarily by category expansion in training, outdoor, golf, and studio. Footwear net revenues increased 44% to $431 million during 2014 compared to $299 million in 2013, reflecting expanded offerings in running and basketball. Accessories net revenues increased 27% to $275 million during 2014 compared to $216 million in 2013. Direct-to-Consumer net revenues, which represented 30% of total net revenues for both 2014 and 2013, grew 32% over the prior year. International net revenues, which represented 9% of total net revenues for 2014 compared to 6% of total net revenues in 2013, grew 96% year-over-year.
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Gross margin for 2014 was 49.0% compared with 48.7% in 2013, primarily driven by favorable year-over-year sales mix. Selling, general and administrative expenses as a percentage of net revenues were 37.5% for 2014 compared with 37.3% for 2013, primarily reflecting broad-based investments to support global growth initiatives. Operating income grew 34% to $354 million in 2014 compared with $265 million in the prior year and compared with the Companys prior outlook of $348 million.
Balance Sheet Highlights
Cash and cash equivalents increased 71% to $593 million at December�31, 2014 compared with $347 million at December 31, 2013. Total debt increased to $284 million at December 31, 2014 compared with $153 million at December 31, 2013. Inventory at December 31, 2014 increased 14% to $537 million compared with $469 million at December 31, 2013.
Kevin Plank, Chairman and CEO of Under Armour, Inc., stated, "We are incredibly proud of recording our 19th consecutive quarter of over 20% net revenue growth, including achieving over 30% growth in each quarter of 2014, demonstrating the unending opportunity we see across our five key growth drivers. 2014 marked the year we ignited a powerful new conversation with women, as our I Will What I Want campaign underscored our long-term commitment to both female athletes and athletic females. We built upon our global mission to Make All Athletes Better, as we nearly doubled our International revenues with acceleration in both Europe and China as well as new market strategies in South America, Southeast Asia, and the Middle East. Our Footwear business grew 44% as we solidified and took market share in our core on-field businesses, and debuted our award-winning SpeedForm platform. Building off of this momentum, next week we unveil our latest Brand Holiday campaign featuring the next Under Armour chapters in running and basketball - the SpeedForm Gemini, our pinnacle running shoe featuring our new responsive Charged Cushioning midsole, and the Curry One, the first signature basketball shoe for one of the most dynamic and popular young stars in the NBA, Stephen Curry."
Acquisitions of Endomondo and MyFitnessPal
Today Under Armour also announced the creation of the world's largest digital health and fitness community. Since the December 2013 acquisition of Austin-based MapMyFitness, the Company has focused on creating the largest Connected Fitness platform with 31 million registered users. In early January of 2015, the Company completed its acquisition of Endomondo for a purchase price of $85 million. Based in Copenhagen, Denmark, Endomondo has one of the largest global connected fitness communities with approximately 20 million registered users primarily concentrated in Europe, providing a strong strategic complement to the Company's existing digital platform. In addition, the Company today announced an agreement to acquire MyFitnessPal for a purchase price of $475 million. San Francisco-based MyFitnessPal is the leading resource for healthy living and nutrition with over 80 million registered users, expanding the current offerings for Under Armour's Connected Fitness platform to now include nutritional resources such as a calorie counter, nutrition and exercise tracker. The MyFitnessPal acquisition is expected to close in the first quarter of 2015. Combined with the Company's recent launch of the UA Record app and website, Under Armour will now be connected with over 120 million unique global consumers, representing the largest digital health and fitness community in the world. See related press release titled, "Under Armour Acquires Endomondo and MyFitnessPal to Establish the World's Largest Digital Health and Fitness Community," for more detail on the
acquisitions. The Company intends to fund the MyFitnessPal acquisition through an expanded term loan and revolving credit facility as well as cash on hand.
Updated 2015 Outlook
Based on current visibility, the Company expects 2015 net revenues of approximately $3.76 billion, representing growth of 22% over 2014 and 2015 operating income in the range of $397 million to $407 million, representing growth of 12% to 15% over 2014. The updated 2015 guidance reflects the net dilutive impact from the announced acquisitions, including one-time deal-related costs, as well as the impact of the strong dollar on foreign currency exchange rates.
Mr. Plank concluded, "We first entered the Connected Fitness space with our Armour39 biometric measurement technology at the NFL Combine in February 2011. We quickly understood that the power was in the community and an open platform and that these were far more valuable than the hardware tracking device, which informed our decision to purchase MapMyFitness in December 2013. Since the acquisition, we have grown the user base from 20 million registered users to 31 million registered users and gained further insight and validation into the power of the data generated by this community. Today, we have taken defining steps by announcing the acquisitions of two powerful digital businesses that help create the world's largest digital health and fitness community. By combining a community of 120 million unique registered users, we are developing a digital ecosystem that provides us with unparalleled data and insight into making every athlete better. Understanding the evolving needs of our athletes - how they interact, how they consume, and ultimately how they strive to live healthier lifestyles - will be key inputs to forging deeper relationships and becoming more relevant to how the consumer shops for our Brand. By combining three of the best teams in the world of Connected Fitness, we are now extremely well-positioned to create an unrivaled experience for our consumer and a multitude of new opportunities to drive our core business."
Conference Call and Webcast
The Company will provide additional commentary regarding its fourth quarter results as well as its updated 2015 outlook during its earnings conference call today, February 4th, at 5:00 p.m. ET. The call will be webcast live at http://investor.underarmour.com/events.cfm and will be archived and available for replay approximately three hours after the live event. Additional supporting materials related to the call will also be available at http://investor.underarmour.com. The Company's financial results are also available online at http://investor.underarmour.com/results.cfm.
Connected Fitness Presentation and Webcast
The Company today announced that it will host a Connected Fitness Presentation in New York City on Tuesday, February 10, 2015, beginning at 10:00 a.m ET. The presentation will be led by Kevin Plank, Chairman & CEO, Robin Thurston, SVP of Connected Fitness & Digital, and Brad Dickerson, CFO, followed by a question and answer session. The presentation will be webcast live at http://investor.underarmour.com/events.cfm and will be archived and available for replay approximately one hour after the live event.
About Under Armour, Inc.
Under Armour (NYSE: UA), the originator of performance footwear, apparel and accessories, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. Under Armour's wholly owned subsidiary, MapMyFitness, powers one of the world's largest Connected Fitness communities. The Under Armour global headquarters is in Baltimore, Maryland. For further information, please visit the Company's website at www.uabiz.com.
Forward Looking Statements
Some of the statements contained in this press release constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, and the future benefits and opportunities from acquisitions. In many cases, you can identify forward-looking statements by terms such as may, will, should, expects, plans, anticipates, believes, estimates, predicts, outlook, � potential or the negative of these terms or other comparable terminology.� The forward-looking statements contained in this press release reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to: changes in general economic or market conditions that could affect consumer spending and the financial health of our retail customers; our ability to effectively manage our growth and a more complex global business; our ability to successfully manage or realize expected results from acquisitions and other significant investments; our ability to effectively develop and launch new, innovative and updated products; our ability to accurately forecast consumer demand for our products and manage our inventory in response to changing demands; increased competition causing us to lose market share or reduce the prices of our products or to increase significantly our marketing efforts; fluctuations in the costs of our products; loss of key suppliers or manufacturers or failure of our suppliers or manufacturers to produce or deliver our products in a timely or cost-effective manner; our ability to further expand our business globally and to drive brand awareness and consumer acceptance of our products in other countries; our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results; our ability to effectively market and maintain a positive brand image; our ability to comply with trade and other regulations; the availability, integration and effective operation of management information systems and other technology, as well as any potential interruption in such systems or technology; our potential exposure to litigation and other proceedings; risks related to foreign currency exchange rate fluctuations; and our ability to attract and retain the services of our senior management and key employees. The forward-looking statements contained in this press release reflect our views and assumptions only as of the date of this press release. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
(Tables Follow)
Under Armour, Inc.
For the Quarter and Year Ended December�31, 2014 and 2013
(Unaudited; in thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF INCOME
� | Quarter Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||
� | 2014 | % of Net Revenues | 2013 | % of Net Revenues | 2014 | % of Net Revenues | 2013 | % of Net Revenues | ||||||||||||||||||||
Net revenues | $ | 895,201 | 100.0 | �% | $ | 682,756 | 100.0 | �% | $ | 3,084,370 | 100.0 | �% | $ | 2,332,051 | 100.0 | �% | ||||||||||||
Cost of goods sold | 448,937 | 50.1 | �% | 332,403 | 48.7 | �% | 1,572,164 | 51.0 | �% | 1,195,381 | 51.3 | �% | ||||||||||||||||
Gross profit | 446,264 | 49.9 | �% | 350,353 | 51.3 | �% | 1,512,206 | 49.0 | �% | 1,136,670 | 48.7 | �% | ||||||||||||||||
Selling, general and administrative expenses | 299,965 | 33.6 | �% | 251,886 | 36.9 | �% | 1,158,251 | 37.5 | �% | 871,572 | 37.3 | �% | ||||||||||||||||
Income from operations | 146,299 | 16.3 | �% | 98,467 | 14.4 | �% | 353,955 | 11.5 | �% | 265,098 | 11.4 | �% | ||||||||||||||||
Interest expense, net | (1,727 | ) | (0.2 | )% | (806 | ) | (0.1 | )% | (5,335 | ) | (0.2 | )% | (2,933 | ) | (0.1 | )% | ||||||||||||
Other expense, net | (2,428 | ) | (0.2 | )% | (502 | ) | (0.1 | )% | (6,410 | ) | (0.2 | )% | (1,172 | ) | (0.1 | )% | ||||||||||||
Income before income taxes | 142,144 | 15.9 | �% | 97,159 | 14.2 | �% | 342,210 | 11.1 | �% | 260,993 | 11.2 | �% | ||||||||||||||||
Provision for income taxes | 54,435 | 6.1 | �% | 32,993 | 4.8 | �% | 134,168 | 4.4 | �% | 98,663 | 4.2 | �% | ||||||||||||||||
Net income | $ | 87,709 | 9.8 | �% | $ | 64,166 | 9.4 | �% | $ | 208,042 | 6.7 | �% | $ | 162,330 | 7.0 | �% | ||||||||||||
Net income available per common share | ||||||||||||||||||||||||||||
Basic | $ | 0.41 | $ | 0.30 | $ | 0.98 | $ | 0.77 | ||||||||||||||||||||
Diluted | $ | 0.40 | $ | 0.30 | $ | 0.95 | $ | 0.75 | ||||||||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||||||||||
Basic | 213,795 | 211,392 | 213,227 | 210,696 | ||||||||||||||||||||||||
Diluted | 219,745 | 216,652 | 219,380 | 215,958 | ||||||||||||||||||||||||
NET REVENUES BY PRODUCT CATEGORY
� | Quarter Ended December 31, | Year Ended December 31, | ||||||||||||||||||||
� | 2014 | 2013 | %�Change | 2014 | 2013 | %�Change | ||||||||||||||||
Apparel | $ | 707,686 | $ | 545,505 | 29.7 | % | $ | 2,291,520 | $ | 1,762,150 | 30.0 | % | ||||||||||
Footwear | 85,810 | 55,367 | 55.0 | % | 430,987 | 298,825 | 44.2 | % | ||||||||||||||
Accessories | 78,991 | 64,618 | 22.2 | % | 275,425 | 216,098 | 27.5 | % | ||||||||||||||
Total net sales | 872,487 | 665,490 | 31.1 | % | 2,997,932 | 2,277,073 | 31.7 | % | ||||||||||||||
Licensing and other revenues | 22,714 | 17,266 | 31.6 | % | 86,438 | 54,978 | 57.2 | % | ||||||||||||||
Total net revenues | $ | 895,201 | $ | 682,756 | 31.1 | % | $ | 3,084,370 | $ | 2,332,051 | 32.3 | % | ||||||||||
NET REVENUES BY SEGMENT
� | Quarter Ended December 31, | Year Ended December 31, | ||||||||||||||||||||
� | 2014 | 2013 | %�Change | 2014 | 2013 | %�Change | ||||||||||||||||
North America | $ | 808,234 | $ | 645,118 | 25.3 | % | $ | 2,796,390 | $ | 2,193,739 | 27.5 | % | ||||||||||
Other foreign countries and businesses | 86,967 | 37,638 | 131.1 | % | 287,980 | 138,312 | 108.2 | % | ||||||||||||||
Total net revenues | $ | 895,201 | $ | 682,756 | 31.1 | % | $ | 3,084,370 | $ | 2,332,051 | 32.3 | % | ||||||||||
Under Armour, Inc.
As of December�31, 2014 and 2013
(Unaudited; in thousands)
CONDENSED CONSOLIDATED BALANCE SHEETS
�
As of 12/31/14 | As of 12/31/13 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 593,175 | $ | 347,489 | ||||
Accounts receivable, net | 279,835 | 209,952 | ||||||
Inventories | 536,714 | 469,006 | ||||||
Prepaid expenses and other current assets | 87,177 | 63,987 | ||||||
Deferred income taxes | 52,498 | 38,377 | ||||||
Total current assets | 1,549,399 | 1,128,811 | ||||||
Property and equipment, net | 305,564 | 223,952 | ||||||
Goodwill | 123,256 | 122,244 | ||||||
Intangible assets, net | 26,230 | 24,097 | ||||||
Deferred income taxes | 33,570 | 31,094 | ||||||
Other long term assets | 57,064 | 47,543 | ||||||
Total assets | $ | 2,095,083 | $ | 1,577,741 | ||||
Liabilities and Stockholders Equity | ||||||||
Revolving credit facility | $ | $ | 100,000 | |||||
Accounts payable | 210,432 | 165,456 | ||||||
Accrued expenses | 147,681 | 133,729 | ||||||
Current maturities of long term debt | 28,951 | 4,972 | ||||||
Other current liabilities | 34,563 | 22,473 | ||||||
Total current liabilities | 421,627 | 426,630 | ||||||
Long term debt, net of current maturities | 255,250 | 47,951 | ||||||
Other long term liabilities | 67,906 | 49,806 | ||||||
Total liabilities | 744,783 | 524,387 | ||||||
Total stockholders equity | 1,350,300 | 1,053,354 | ||||||
Total liabilities and stockholders equity | $ | 2,095,083 | $ | 1,577,741 | ||||
Under Armour, Inc.
For the Year Ended December�31, 2014 and 2013
(Unaudited; in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
�
Year Ended December 31, | ||||||||
2014 | 2013 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 208,042 | $ | 162,330 | ||||
Adjustments to reconcile net income to net cash used in operating activities | ||||||||
Depreciation and amortization | 72,093 | 50,549 | ||||||
Unrealized foreign currency exchange rate losses (gains) | 11,739 | 1,905 | ||||||
Loss on disposal of property and equipment | 261 | 332 | ||||||
Stock-based compensation | 50,812 | 43,184 | ||||||
Deferred income taxes | (17,584 | ) | (18,832 | ) | ||||
Changes in reserves and allowances | 31,350 | 13,945 | ||||||
Changes in operating assets and liabilities, net of effects of acquisitions: | ||||||||
Accounts receivable | (101,057 | ) | (35,960 | ) | ||||
Inventories | (84,658 | ) | (156,900 | ) | ||||
Prepaid expenses and other assets | (33,345 | ) | (19,049 | ) | ||||
Accounts payable | 49,137 | 14,642 | ||||||
Accrued expenses and other liabilities | 28,856 | 56,481 | ||||||
Income taxes payable and receivable | 3,387 | 7,443 | ||||||
Net cash provided by operating activities | 219,033 | 120,070 | ||||||
Cash flows from investing activities | ||||||||
Purchases of property and equipment | (140,528 | ) | (87,830 | ) | ||||
Purchase of business | (10,924 | ) | (148,097 | ) | ||||
Purchases of other assets | (860 | ) | (475 | ) | ||||
Change in loans receivable | (1,700 | ) | ||||||
Net cash used in investing activities | (152,312 | ) | (238,102 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from revolving credit facility | 100,000 | |||||||
Payments on revolving credit facility | (100,000 | ) | ||||||
Proceeds from term loan | 250,000 | |||||||
Payments on term loan | (13,750 | ) | ||||||
Payments on long term debt | (4,972 | ) | (5,471 | ) | ||||
Excess tax benefits from stock-based compensation arrangements | 36,965 | 17,167 | ||||||
Proceeds from exercise of stock options and other stock issuances | 15,776 | 15,099 | ||||||
Payments of debt financing costs | (1,713 | ) | ||||||
Net cash provided by financing activities | 182,306 | 126,795 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (3,341 | ) | (3,115 | ) | ||||
Net increase in cash and cash equivalents | 245,686 | 5,648 | ||||||
Cash and cash equivalents | ||||||||
Beginning of period | 347,489 | 341,841 | ||||||
End of period | $ | 593,175 | $ | 347,489 | ||||
Non-cash investing and financing activities | ||||||||
Increase in accrual for property and equipment | $ | 4,922 | $ | 3,786 | ||||
Exhibit 99.2
Under Armour: Fourth Quarter 2014 Earnings Call, February 4, 2015 (Brad Dickerson)
Thanks, Kevin. I would now like to spend some time discussing our fourth quarter and full year 2014 financial results followed by our updated outlook for 2015.
Our net revenues for the fourth quarter of 2014 increased 31% to $895 million. For the full year, net revenues increased 32% to $3.08 billion, which compared to our most recent full year guidance of $3.03 billion. As Kevin outlined, this $3 billion milestone was comprised of strong results across all of our growth drivers with Apparel up 30%, Direct-to-Consumer up 32%, Footwear up 44%, and International up 96%.
Focusing on the fourth quarter, we grew the Apparel category 30% to $708 million compared to $546 million in the prior year's quarter. Similar to the third quarter, our platform innovations of Storm, ColdGear Infrared, and Charged Cotton were key volume drivers across the category, while new innovation like this year's MagZip showcased our ongoing ability to bring value to the consumer. Areas of particular strength within Apparel include Training, Golf, Outdoor, and Studio.
Fourth quarter Footwear net revenues increased 55% to $86 million from $55 million in the prior year, representing approximately 10% of net revenues for the period. We continued to see success in running footwear across a broader price spectrum, including the $100 SpeedForm Apollo, driving market shares gains within our core sporting goods distribution. Basketball also continued to gain momentum, most notably around the $125 ClutchFit Drive. These categories, along with our ongoing strength in areas such as cleated and slides, positioned Under Armour as the number two overall footwear brand in some of our top wholesale accounts in 2014.
Our Accessories net revenues during the fourth quarter increased 22% to $79 million from $65 million last year. Growth during the quarter was primarily driven by headwear offerings and gloves.
Our global Direct-to-Consumer net revenues increased 27% for the quarter, representing approximately 38% of net revenues. Within North America our Factory House square footage grew 17% year-over-year. This growth reflects a total of 125 Factory House stores at the end of the year, up 7% from the end of 2013, as well as the upsizing of 14 existing locations during the year. On the full-price side, we remained at five Brand House stores in North America.
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In our E-Commerce channel, where we continue to see a migration of traffic from desktop to mobile devices, we were encouraged by the conversion improvements from our new responsive site launched at the end of September. We also followed up our third quarter launches of local E-Commerce sites in the UK, Germany, and France with the fourth quarter debut of our site in Singapore, which is our first site in Southeast Asia.
International net revenues increased 123% to $82 million in the fourth quarter and represented 9% of total net revenues.
" | In the EMEA region, we saw continued strength in our three key markets in Europe - the UK, Germany, and France - and commenced our new distributor agreement covering the Middle East. |
" | In Asia-Pacific, we remain focused on accelerating growth with both wholesale accounts and distributors, including partner store openings throughout Greater China and Southeast Asia. |
" | Finally in Latin America, our business benefited from the early 2014 conversion of our Mexico distributor to an Under Armour subsidiary and our market expansions into Brasil and Chile. This included our first South American Brand House store which opened in Santiago, Chile during the fourth quarter. |
Moving on to margins, fourth quarter gross margins contracted 140 basis points to 49.9% compared with 51.3% in the prior year's quarter. Three primary factors contributed to this performance during the quarter.
" | First, as discussed on our prior call, our sales mix adversely impacted gross margins by approximately 90 basis points for the period, primarily reflecting a higher mix of International net revenues, including the introduction of new, lower-margin distributor businesses during the fourth quarter. |
" | Second, the strengthening of the U.S. dollar negatively impacted gross margins by approximately 20 basis points for the period. |
" | Finally, higher freight costs to better meet customer demand negatively impacted gross margins by approximately 20 basis points in the period. |
Selling, general and administrative expenses as a percentage of net revenues leveraged 330 basis points to 33.6% in the fourth quarter of 2014 from 36.9% in the prior year's period. As a reminder, we incurred higher incentive compensation expenses in last year's fourth quarter, which was the primary contributor of leverage in each of our four SG&A buckets. Additional SG&A details are as follows:
" | First, Marketing costs decreased to 8.4% of net revenues for the quarter from 8.9% in the prior year period. |
" | Second, Selling costs decreased to 11.0% of net revenues for the quarter from 11.6% in the prior year period. |
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" | Third, Product Innovation and Supply Chain costs decreased to 8.4% of net revenues for the quarter from 9.0% in the prior year period. |
" | Finally, Corporate Services decreased to 5.8% of net revenues for the quarter from 7.4% in the prior period, inclusive of closing costs for the MapMyFitness acquisition in the prior year period. |
Operating income for the fourth quarter increased 49% to $146 million compared with $98 million in the prior year period. For the full year, operating income increased 34% to $354 million, compared to our most recent guidance of $348 million. Operating margin expanded 190 basis points during the quarter to 16.3% compared to 14.4% in the prior year period. For the full year, operating margin expanded 10 basis points to 11.5% compared to 11.4% in 2013.
Interest and other expense for the fourth quarter increased to $4 million compared with $1 million in the prior year period, primarily reflecting the negative impact of foreign currency along with increased interest expense from our additional term debt.
Our fourth quarter tax rate of 38.3% was unfavorable to the 34.0% rate last year, primarily driven by the timing of a state tax credit received in the fourth quarter of 2013. Our full year effective tax rate of 39.2% was higher than the 37.8% rate from 2013, primarily due to increased international investments and the lapping of a state tax credit.
Our fourth quarter net income increased 37% to $88 million compared to $64 million in the prior year period. Diluted earnings per share increased 35% to $0.40 compared to $0.30 in the prior year period. Full year diluted earnings per share increased 27% to $0.95 compared to $0.75 in 2013.
On the balance sheet, total cash and cash equivalents at year-end increased 71% to $593 million compared with $347 million at December�31, 2013. Total debt increased to $284 million from $153 million at December 31, 2013. Both our cash and debt positions reflect an additional $100 million term loan drawn during the fourth quarter used primarily for the closing on the $85 million Endomondo acquisition in early January. Inventory at year-end increased 14% to $537 million compared to $469 million at December 31, 2013.
Looking at our cash flows, our investment in capital expenditures was approximately $59 million for the fourth quarter and approximately $145 million for 2014.
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Now moving onto 2015. We have three factors driving our updated outlook: first, the impact of the two new Connected Fitness businesses we are acquiring; second, the negative impact of the strengthening dollar on our international results; and third, the continued strength of our existing business.
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Starting with revenues, we are maintaining our prior guidance of approximately 22% net revenue growth. It should be noted this is off of a higher number compared to three months ago, as we exceeded our most recent 2014 target by nearly $55 million. This growth rate takes into account the strengthening of the U.S. dollar over the past 90 days which has negatively impacted our 2015 net revenues forecast by approximately 1 percentage point from our prior guidance. However, revenues from the Connected Fitness acquisitions are expected to largely offset this currency impact.
As stated in our previous guidance, we expect solid growth across all of our growth drivers led by continued outperformance in our Footwear and International businesses. We expect the year over year growth rates across each of the quarters in 2015 to be relatively consistent, except for the fourth quarter, where we will be lapping strong international growth including new market entries.
Now moving on to operating income. We are now planning 2015 operating income in the range of $397 millon to $407 million, representing growth of 12% to 15%. This change from our prior guidance of operating income growth of 22% is largely due to the impact of our two Connected Fitness acquisitions.
We estimate 90 basis points of operating margin dilution from these acquisitions, mostly within SG&A, offset with a slight gross margin benefit. There are three components of this:
" | First, one-time deal closing costs recorded in the first quarter are expected to impact the full year by approximately 20 basis points. |
" | Second, operating losses from the operations of the two businesses we are acquiring are expected to impact the full year by approximately 40 basis points. |
" | Third, the intangible assets generated from the acquisitions will result in non-cash amortization charges which are expected to impact the full year by approximately 30 basis points. |
The recent strengthening of the U. S. Dollar also has had a negative impact on our 2015 operating income guidance, specifically in our gross margin line as we purchase the majority of our inventory for our international businesses in U.S. dollars. This has created an incremental 50 basis point impact to operating margin just from the time of our prior guidance. We anticipate to offset this currency impact through targeted
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improvements in gross margin and SG&A. Our current guidance assumes no further significant strengthening of the U.S. Dollar compared to current exchange rates.
From a gross margin standpoint, we believe we can still generate a modest improvement from last year's 49.0% level, despite foreign currency headwinds, given ongoing supply chain opportunities as the year progresses. Relative to timing we expect this improvement to be generally consistent throughout the year.
On SG&A, we expect expense deleverage mainly driven by the Connected Fitness acquisitions. The rate of SG&A expense deleverage is expected to gradually ease throughout the year from approximately 200 basis points deleverage during the first quarter. Factors weighing on expenses during the first quarter include higher year-over-year marketing expenses to support our first Brand Holiday of 2015 as well as the one-time deal closing costs for the Connected Fitness acquisitions.
Below the operating line, we expect higher year-over-year interest expense for the funding of our Connected Fitness acquisitions. We anticipate funding these acquisitions through cash on hand and an expanded term loan and revolving credit facility. The full year effective tax rate is now expected to be slightly higher than our 2014 effective rate of 39.2%. The impact of the strong dollar on our international results is negatively impacting our 2015 effective tax rate in excess of 100 basis points. Our 2015 fully diluted share count is expected to be approximately 220 million.
Finally, as we indicated with our preliminary 2015 guidance in October, we expect elevated capital expenditures during the year. Part of this acceleration includes combined investments of approximately $90 million for our new domestic distribution center and the expansion of our corporate headquarters in Baltimore. We also expect elevated capital expenditures tied to our global retail expansion. In total, we are currently planning 2015 capital expenditures in the range of $280 million to $290 million.
In conclusion, 2015 has developed into an important investment year for our company as we create the world's largest digital health & fitness community. We believe these investments will enhance and support our growth drivers and drive long term value for our shareholders. Even after factoring in the dilutive impact on 2015, we believe that our forward three-year operating income CAGR though 2017 will be in-line with the 22% growth rate level that we provided in our prior 2015 guidance. We will provide specific long-term guidance at our Investor Day targeted for September 16th.
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We would now like to open the call for your questions. We ask that you limit your questions to two per person, so we can get to as many of you as possible. Operator?
Forward Looking Statements
Some of the statements contained in this script constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, and the future benefits and opportunities from acquisitions. In many cases, you can identify forward-looking statements by terms such as may, will, should, expects, plans, anticipates, believes, estimates, predicts, outlook, � potential or the negative of these terms or other comparable terminology.� The forward-looking statements contained in this script reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to: changes in general economic or market conditions that could affect consumer spending and the financial health of our retail customers; our ability to effectively manage our growth and a more complex global business; our ability to successfully manage or realize expected results from acquisitions and other significant investments; our ability to effectively develop and launch new, innovative and updated products; our ability to accurately forecast consumer demand for our products and manage our inventory in response to changing demands; increased competition causing us to lose market share or reduce the prices of our products or to increase significantly our marketing efforts; fluctuations in the costs of our products; loss of key suppliers or manufacturers or failure of our suppliers or manufacturers to produce or deliver our products in a timely or cost-effective manner; our ability to further expand our business globally and to drive brand awareness and consumer acceptance of our products in other countries; our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results; our ability to effectively market and maintain a positive brand image; our ability to comply with trade and other regulations; the availability, integration and effective operation of management information systems and other technology, as well as any potential interruption in such systems or technology; our potential exposure to litigation and other proceedings; risks related to foreign currency exchange rate fluctuations; and our ability to attract and retain the services of our senior management and key employees. The forward-looking statements contained in this script reflect our views and assumptions only as of the date of this script. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
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