Form 8-K Under Armour, Inc. For: Oct 22
UNITED 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): October 22, 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) | |||
Registrant’s 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 October 22, 2015, Under Armour, Inc. issued a press release announcing its financial results for the third quarter ended September 30, 2015. A copy of Under Armour’s press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. Under Armour has scheduled a conference call for 8:30 a.m. ET on October 22, 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 third quarter ended September 30, 2015.
Exhibit 99.2: Portion of conference call script for October 22, 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: October 22, 2015 | By: | /s/ BRAD DICKERSON | ||
Brad Dickerson | ||||
Chief Operating Officer and 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 THIRD QUARTER NET REVENUES GROWTH OF 28%;
RAISES FULL YEAR OUTLOOK
• | Third Quarter Net Revenues Increased 28% to $1.20 Billion, First Billion Dollar Quarter in Company's History |
• | Raises 2015 Net Revenues Outlook to Approximately $3.91 Billion (+27%) |
• | Updates 2015 Operating Income Outlook to Approximately $408 Million (+15%), Inclusive of the Impact of the Connected Fitness Acquisitions |
Baltimore, MD (October 22, 2015) - Under Armour, Inc. (NYSE: UA) today announced financial results for the third quarter ended September 30, 2015. Net revenues increased 28% in the third quarter of 2015 to $1.20 billion compared with net revenues of $938 million in the prior year's period. On a currency neutral basis, net revenues increased 31% compared with the prior year's period. Net income increased 13% in the third quarter of 2015 to $100 million compared with $89 million in the prior year's period and diluted earnings per share for the third quarter of 2015 were $0.45 compared with $0.41 per share in the prior year's period, inclusive of the impacts of the Endomondo and MyFitnessPal acquisitions.
Third quarter apparel net revenues increased 23% to $866 million compared with $705 million in the same period of the prior year, driven primarily by enhanced product offerings in baselayer and the expanded Storm innovation platform. Third quarter footwear net revenues increased 61% to $196 million from $122 million in the prior year's period, primarily reflecting continued product expansion across the running, basketball, and training categories. Third quarter accessories net revenues increased 22% to $104 million from $85 million in the prior year's period, driven primarily by new introductions across the bags category. Direct-to-Consumer net revenues, which represented 26% of total net revenues for the third quarter, grew 28% year-over-year. International net revenues, which represented 11% of total net revenues for the third quarter, grew 52% year-over-year.
Kevin Plank, Chairman and CEO of Under Armour, Inc., stated, "Our scoreboard in the third quarter not only marked our 22nd straight quarter of at least 20% net revenue growth, but also our first $1 billion quarter. Our ongoing success in 2015 has been driven by innovative, head-to-toe product, combined with game-changing performances by our athletes. Leveraging these great successes throughout 2015, our current Rule Yourself global marketing campaign highlights the training and dedication that drives our athletes to be their best on the biggest stages. The campaign features Tom Brady, Misty Copeland, Stephen Curry, and recently named PGA Tour Player of the Year Jordan Spieth. When combined with over 150 million unique registered users across our Connected Fitness community, logging more than 6.5 billion food items and 1.5 billion workouts year-to-date, our brand is resonating with more athletes than ever before and we are investing to not only build deeper relationships with these athletes today, but fulfill our longer term vision to change the way athletes live."
Gross margin for the third quarter of 2015 was 48.8% compared with 49.6% in the prior year's period, primarily reflecting the impacts of foreign exchange rates and sales mix, partially offset by favorable product margins. Selling, general and administrative expenses as a percentage of net revenues were 34.6% in the third quarter of 2015 compared with 34.0% in the prior year's period, primarily reflecting 2015 openings of global Brand House stores and investments to support the Connected Fitness business. Third quarter operating income increased 17% to $171 million compared with $146 million in the prior year's period.
Balance Sheet Highlights
Cash and cash equivalents decreased 36% to $159 million at September 30, 2015 compared with $249 million at September 30, 2014. Inventory at September 30, 2015 increased 36% to $867 million compared with $637 million at September 30, 2014. Total debt increased to $905 million at September 30, 2015 compared with $192 million at September 30, 2014, primarily reflecting borrowing to fund the two Connected Fitness acquisitions.
Updated 2015 Outlook
The Company had previously anticipated 2015 net revenues of approximately $3.84 billion, representing growth of 25% over 2014, and 2015 operating income in the range of $405 million to $408 million, representing growth of 14% to 15% over 2014. Based on current visibility, the Company expects 2015 net revenues of approximately $3.91 billion, representing growth of 27% over 2014 and 2015 operating income of approximately $408 million, representing growth of 15% over 2014. The 2015 guidance continues to reflect the net dilutive impact from the Connected Fitness acquisitions, as well as the impact of the strong dollar negatively affecting our operating margin within our international businesses.
Mr. Plank concluded, "We are experiencing powerful brand momentum in 2015 and we continue to invest to capitalize on our success in the near-term while establishing the foundation for sustainable growth in the future. We are confident that the building blocks to reach our Investor Day target of $7.5 billion in net revenues by 2018 are firmly in place. As we think bigger about the opportunity of our brand, an ongoing focus on investing in key areas like footwear, international, Connected Fitness and manufacturing capability will position us for the long runway of growth beyond just the next three years. Still, with all the success we have seen to date, we firmly believe that we are just getting started."
Conference Call and Webcast
The Company will provide additional commentary regarding its third quarter results as well as its updated 2015 outlook during its earnings conference call today, October 22nd, at 8:30 a.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.
Non-GAAP Financial Information
The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). However, this press release refers to certain “currency neutral” financial information, which is a non-GAAP financial measure. The Company provides a reconciliation of this non-GAAP measure to the most directly comparable financial measure calculated in accordance with GAAP. See the end of this press release for this reconciliation.
Currency neutral financial information is calculated to exclude foreign exchange impact. Management believes this information is useful to investors to facilitate a comparison of the Company's results of operations period-over-period. This non-GAAP financial measure should not be considered in isolation and should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP. In addition, the Company's non-GAAP financial information may not be comparable to similarly titled measures reported by other companies.
About Under Armour, Inc.
Under Armour (NYSE: UA), the originator of performance footwear, apparel and equipment, 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. The Under Armour Connected Fitness™ platform powers the world’s largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal. 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, the implementation of our marketing and branding strategies, 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 or capital expenditures; 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, including due to port disruptions; 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; risks related to foreign currency exchange rate fluctuations; 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 information systems and other technology, as well as any potential interruption in such systems or technology; risks related to data security or privacy breaches; our ability to raise additional capital required to grow our business on terms acceptable to us; our potential exposure to litigation and other proceedings; 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 Nine Months Ended September 30, 2015 and 2014
(Unaudited; in thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||
2015 | % of Net Revenues | 2014 | % of Net Revenues | 2015 | % of Net Revenues | 2014 | % of Net Revenues | |||||||||||||||||||||
Net revenues | $ | 1,204,109 | 100.0 | % | $ | 937,908 | 100.0 | % | $ | 2,792,627 | 100.0 | % | $ | 2,189,169 | 100.0 | % | ||||||||||||
Cost of goods sold | 616,949 | 51.2 | % | 472,608 | 50.4 | % | 1,448,750 | 51.9 | % | 1,123,227 | 51.3 | % | ||||||||||||||||
Gross profit | 587,160 | 48.8 | % | 465,300 | 49.6 | % | 1,343,877 | 48.1 | % | 1,065,942 | 48.7 | % | ||||||||||||||||
Selling, general and administrative expenses | 415,763 | 34.6 | % | 319,194 | 34.0 | % | 1,112,912 | 39.8 | % | 858,286 | 39.2 | % | ||||||||||||||||
Income from operations | 171,397 | 14.2 | % | 146,106 | 15.6 | % | 230,965 | 8.3 | % | 207,656 | 9.5 | % | ||||||||||||||||
Interest expense, net | (4,100 | ) | (0.3 | )% | (1,535 | ) | (0.2 | )% | (10,572 | ) | (0.4 | )% | (3,608 | ) | (0.2 | )% | ||||||||||||
Other expense, net | (3,239 | ) | (0.3 | )% | (3,355 | ) | (0.3 | )% | (5,038 | ) | (0.2 | )% | (3,982 | ) | (0.2 | )% | ||||||||||||
Income before income taxes | 164,058 | 13.6 | % | 141,216 | 15.1 | % | 215,355 | 7.7 | % | 200,066 | 9.1 | % | ||||||||||||||||
Provision for income taxes | 63,581 | 5.3 | % | 52,111 | 5.6 | % | 88,384 | 3.2 | % | 79,733 | 3.6 | % | ||||||||||||||||
Net income | $ | 100,477 | 8.3 | % | $ | 89,105 | 9.5 | % | $ | 126,971 | 4.5 | % | $ | 120,333 | 5.5 | % | ||||||||||||
Net income available per common share | ||||||||||||||||||||||||||||
Basic | $ | 0.47 | $ | 0.42 | $ | 0.59 | $ | 0.56 | ||||||||||||||||||||
Diluted | $ | 0.45 | $ | 0.41 | $ | 0.58 | $ | 0.55 | ||||||||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||||||||||
Basic | 215,743 | 213,522 | 215,347 | 213,035 | ||||||||||||||||||||||||
Diluted | 221,053 | 217,982 | 220,708 | 217,601 | ||||||||||||||||||||||||
Under Armour, Inc.
For the Quarter and Nine Months Ended September 30, 2015 and 2014
(Unaudited; in thousands)
NET REVENUES BY PRODUCT CATEGORY
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
2015 | 2014 | % Change | 2015 | 2014 | % Change | |||||||||||||||||
Apparel | $ | 865,514 | $ | 704,557 | 22.8 | % | $ | 1,936,221 | $ | 1,583,834 | 22.2 | % | ||||||||||
Footwear | 196,279 | 121,597 | 61.4 | % | 510,864 | 345,177 | 48.0 | % | ||||||||||||||
Accessories | 103,564 | 84,949 | 21.9 | % | 249,755 | 196,419 | 27.2 | % | ||||||||||||||
Total net sales | 1,165,357 | 911,103 | 27.9 | % | 2,696,840 | 2,125,430 | 26.9 | % | ||||||||||||||
Licensing revenues | 24,313 | 22,307 | 9.0 | % | 59,355 | 49,800 | 19.2 | % | ||||||||||||||
Connected Fitness | 14,439 | 4,498 | 221.0 | % | 36,432 | 13,939 | 161.4 | % | ||||||||||||||
Total net revenues | $ | 1,204,109 | $ | 937,908 | 28.4 | % | $ | 2,792,627 | $ | 2,189,169 | 27.6 | % | ||||||||||
NET REVENUES BY SEGMENT
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
2015 | 2014 | % Change | 2015 | 2014 | % Change | |||||||||||||||||
North America | $ | 1,059,440 | $ | 847,563 | 25.0 | % | $ | 2,440,728 | $ | 1,988,141 | 22.8 | % | ||||||||||
Other foreign countries | 130,230 | 85,847 | 51.7 | % | 315,467 | 187,089 | 68.6 | % | ||||||||||||||
Connected Fitness | 14,439 | 4,498 | 221.0 | % | 36,432 | 13,939 | 161.4 | % | ||||||||||||||
Total net revenues | $ | 1,204,109 | $ | 937,908 | 28.4 | % | $ | 2,792,627 | $ | 2,189,169 | 27.6 | % | ||||||||||
OPERATING INCOME BY SEGMENT
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
2015 | 2014 | % Change | 2015 | 2014 | % Change | |||||||||||||||||
North America | $ | 181,822 | $ | 147,509 | 23.3 | % | $ | 272,543 | $ | 227,045 | 20.0 | % | ||||||||||
Other foreign countries | 6,180 | 3,817 | 61.9 | % | 6,126 | (3,910 | ) | 256.7 | % | |||||||||||||
Connected Fitness | (16,605 | ) | (5,220 | ) | (218.1 | )% | (47,704 | ) | (15,479 | ) | (208.2 | )% | ||||||||||
Total operating income | $ | 171,397 | $ | 146,106 | 17.3 | % | $ | 230,965 | $ | 207,656 | 11.2 | % | ||||||||||
Under Armour, Inc.
As of September 30, 2015, December 31, 2014 and September 30, 2014
(Unaudited; in thousands)
CONDENSED CONSOLIDATED BALANCE SHEETS
As of 9/30/15 | As of 12/31/14 | As of 9/30/14 | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents | $ | 159,398 | $ | 593,175 | $ | 249,469 | ||||||
Accounts receivable, net | 551,188 | 279,835 | 449,221 | |||||||||
Inventories | 867,082 | 536,714 | 637,459 | |||||||||
Prepaid expenses and other current assets | 136,936 | 87,177 | 86,914 | |||||||||
Deferred income taxes | 60,692 | 52,498 | 40,840 | |||||||||
Total current assets | 1,775,296 | 1,549,399 | 1,463,903 | |||||||||
Property and equipment, net | 478,418 | 305,564 | 264,629 | |||||||||
Goodwill | 591,872 | 123,256 | 123,356 | |||||||||
Intangible assets, net | 79,692 | 26,230 | 28,850 | |||||||||
Deferred income taxes | 42,866 | 33,570 | 47,602 | |||||||||
Other long term assets | 67,358 | 57,064 | 49,770 | |||||||||
Total assets | $ | 3,035,502 | $ | 2,095,083 | $ | 1,978,110 | ||||||
Liabilities and Stockholders’ Equity | ||||||||||||
Revolving credit facility, current | $ | 300,000 | $ | — | $ | — | ||||||
Accounts payable | 274,285 | 210,432 | 273,687 | |||||||||
Accrued expenses | 188,266 | 147,681 | 143,299 | |||||||||
Current maturities of long term debt | 42,124 | 28,951 | 19,524 | |||||||||
Other current liabilities | 43,929 | 34,563 | 53,969 | |||||||||
Total current liabilities | 848,604 | 421,627 | 490,479 | |||||||||
Long term debt, net of current maturities | 362,550 | 255,250 | 172,124 | |||||||||
Revolving credit facility, long term | 200,000 | — | — | |||||||||
Other long term liabilities | 89,094 | 67,906 | 61,366 | |||||||||
Total liabilities | 1,500,248 | 744,783 | 723,969 | |||||||||
Total stockholders’ equity | 1,535,254 | 1,350,300 | 1,254,141 | |||||||||
Total liabilities and stockholders’ equity | $ | 3,035,502 | $ | 2,095,083 | $ | 1,978,110 | ||||||
Under Armour, Inc.
For the Nine Months Ended September 30, 2015 and 2014
(Unaudited; in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, | ||||||||
2015 | 2014 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 126,971 | $ | 120,333 | ||||
Adjustments to reconcile net income to net cash used in operating activities | ||||||||
Depreciation and amortization | 72,211 | 52,391 | ||||||
Unrealized foreign currency exchange rate losses | 24,677 | 4,881 | ||||||
Loss on disposal of property and equipment | 434 | 78 | ||||||
Stock-based compensation | 44,800 | 38,965 | ||||||
Deferred income taxes | (15,266 | ) | (19,783 | ) | ||||
Changes in reserves and allowances | 19,577 | 10,794 | ||||||
Changes in operating assets and liabilities, net of effects of acquisitions: | ||||||||
Accounts receivable | (288,687 | ) | (248,256 | ) | ||||
Inventories | (357,874 | ) | (176,770 | ) | ||||
Prepaid expenses and other assets | (52,629 | ) | (20,282 | ) | ||||
Accounts payable | 58,155 | 118,236 | ||||||
Accrued expenses and other liabilities | 44,863 | 20,180 | ||||||
Income taxes payable and receivable | 9,320 | 26,737 | ||||||
Net cash used in operating activities | (313,448 | ) | (72,496 | ) | ||||
Cash flows from investing activities | ||||||||
Purchases of property and equipment | (226,733 | ) | (96,596 | ) | ||||
Purchase of businesses, net of cash acquired | (539,460 | ) | (10,924 | ) | ||||
Purchases of available-for-sale securities | (80,272 | ) | — | |||||
Sales of available-for-sale securities | 68,314 | — | ||||||
Purchases of other assets | (2,670 | ) | (724 | ) | ||||
Net cash used in investing activities | (780,821 | ) | (108,244 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from revolving credit facility | 500,000 | — | ||||||
Payments on revolving credit facility | — | (100,000 | ) | |||||
Proceeds from term loan | 150,000 | 150,000 | ||||||
Payments on long term debt | (29,527 | ) | (11,275 | ) | ||||
Excess tax benefits from stock-based compensation arrangements | 40,768 | 33,056 | ||||||
Proceeds from exercise of stock options and other stock issuances | 7,527 | 14,060 | ||||||
Payments of debt financing costs | (947 | ) | (1,714 | ) | ||||
Net cash provided by financing activities | 667,821 | 84,127 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (7,329 | ) | (1,407 | ) | ||||
Net decrease in cash and cash equivalents | (433,777 | ) | (98,020 | ) | ||||
Cash and cash equivalents | ||||||||
Beginning of period | 593,175 | 347,489 | ||||||
End of period | $ | 159,398 | $ | 249,469 | ||||
Non-cash investing and financing activities | ||||||||
Increase (decrease) in accrual for property and equipment | $ | 4,800 | $ | (10,601 | ) | |||
Property and equipment acquired under build-to-suit leases | 5,631 | — | ||||||
Non-cash acquisition of business | — | 11,233 | ||||||
Under Armour, Inc.
(Unaudited)
The table below presents the reconciliation of non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP. See "Non-GAAP Financial Information" above for further information regarding the Company's use of non-GAAP financial measures.
CURRENCY NEUTRAL NET REVENUE GROWTH RECONCILIATION
September 30, 2015 | ||||||
Total Net Revenue | Quarter Ended | Nine Months Ended | ||||
Currency neutral net revenue growth - Non-GAAP | 31.1 | % | 29.9 | % | ||
Foreign exchange impact | (2.7 | )% | (2.3 | )% | ||
Net revenue growth - GAAP | 28.4 | % | 27.6 | % | ||
North America | ||||||
Currency neutral net revenue growth - Non-GAAP | 26.3 | % | 23.9 | % | ||
Foreign exchange impact | (1.3 | )% | (1.1 | )% | ||
Net revenue growth - GAAP | 25.0 | % | 22.8 | % | ||
Other foreign countries | ||||||
Currency neutral net revenue growth - Non-GAAP | 67.8 | % | 84.0 | % | ||
Foreign exchange impact | (16.1 | )% | (15.4 | )% | ||
Net revenue growth - GAAP | 51.7 | % | 68.6 | % | ||
BRAND HOUSE AND FACTORY HOUSE DOOR COUNT
As of September 30, | ||||
2015 | 2014 | |||
Factory House | 137 | 121 | ||
Brand House | 10 | 5 | ||
North America total doors | 147 | 126 | ||
Factory House | 7 | 3 | ||
Brand House | 19 | 8 | ||
Other foreign countries total doors | 26 | 11 | ||
Factory House | 144 | 124 | ||
Brand House | 29 | 13 | ||
Total doors | 173 | 137 | ||
Exhibit 99.2
Under Armour: 3Q15 Earnings Call, October 22, 2015 (Brad Dickerson)
Thanks, Kevin. I would now like to spend some time reviewing our third quarter results, followed by our updated outlook for 2015 and our preliminary thoughts on 2016.
Our net revenues for the third quarter of 2015 increased 28% to $1.20 billion. On a currency neutral basis, net revenues increased 31% for the period.
Within our product categories, we grew Apparel net revenues 23% to $866 million compared to $705 million in the prior year's quarter. From a product perspective, our new Armour baselayer and expanded innovation platforms like Storm and ColdGear Infrared were key stories during the third quarter, while in sport categories, we saw significant growth in Golf and Outdoor.
Third quarter Footwear net revenues increased 61% to $196 million from $122 million in the prior year. Our strength in Footwear remains broad-based, including our largest categories of Running and Basketball and extending to some of our newer categories such as Hiking and Global Football. Key products included our latest addition to the SpeedForm platform with the SpeedForm Fortis running shoe, as well as additional Curry 1 basketball styles ahead of the Curry 2 launch this weekend.
Our Accessories net revenues during the third quarter increased 22% to $104 million from $85 million last year, primarily driven by strong consumer demand for our line of bags.
Our global Direct-to-Consumer net revenues increased 28% for the quarter, representing approximately 26% of net revenues. We continue to be encouraged by the success we are seeing with our 2015 Brand House openings. From a global standpoint, we ended the third quarter with 173 owned stores including 144 Factory House stores and 29 Brand House stores.
In E-Commerce, we launched six new country websites during the quarter bringing our total to 24 global sites. We continue to utilize more targeted, effective communication to our consumers and traffic remains strong benefiting from the remarkable 2015 success of our sports marketing assets. While very early in its evolution, we were also encouraged by some of our efforts to generate traffic to our E-Commerce sites from our Connected Fitness community.
1
Looking at our regions, North America net revenues increased 25% to $1.1 billion in the third quarter compared to $848 million in the prior year's quarter. On a currency neutral basis, North America net revenues increased 26% based primarily on the drivers I just highlighted. International net revenues increased 52% to $130 million in the third quarter and represented 11% of total net revenues. On a currency neutral basis, International net revenues increased 68% for the period.
• | In the EMEA region, we remain focused on core markets with our largest two countries, the U.K. and Germany, contributing the strongest growth during the period. Our E-Commerce strategy has also played a key role in broadening our reach and awareness in the region as we have launched 9 new local sites year-to-date. |
• | In Asia-Pacific, the growth of our own DTC combined with partner store expansion continues to drive our business. The recent Stephen Curry tour and opening of our largest international brand house in Shanghai have helped drive strong demand for our brand. |
• | And in Latin America, we continue to see balanced growth throughout the region following our market entry into many of these countries during 2014. |
Moving on to margins, third quarter gross margins contracted 80 basis points to 48.8% compared to 49.6% in the prior year's period. The following factors were the primary drivers during the quarter.
• | First, the continued strength of the US Dollar negatively impacted gross margin by approximately 90 basis points versus the prior year. |
• | Second, sales mix negatively impacted gross margin by approximately 50 basis points in the third quarter versus the prior year primarily driven by the continued strong performance of our Footwear business. |
• | Also, our on-going focus on better flow of product to service our business resulted in higher freight expenses which negatively impacted gross margin by approximately 20 basis points in the quarter versus the prior year. |
• | Partially offsetting this margin pressure, we continued to see favorable product margins in both our North America and International businesses which benefited gross margin by approximately 90 basis points in the third quarter. |
Selling, general and administrative expenses as a percentage of net revenues deleveraged 60 basis points to 34.6% in the third quarter of 2015 from 34.0% in the prior year's period. SG&A details for the third quarter are as follows:
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• | Marketing costs increased to 10.7% of net revenues for the quarter from 10.6% in the prior year period, reflecting higher marketing associated with our Connected Fitness business and our most recent global marketing campaigns for training and global football. |
• | Other SG&A costs increased to 23.9% of net revenues for the quarter from 23.4% in the prior year, driven primarily by our Connected Fitness business and investments in our global Brand House strategy. |
Operating income for the third quarter increased 17% to $171 million compared with $146 million in the prior year period.
Interest and other expense for the third quarter increased to $7 million compared with $5 million in the prior year period, primarily reflecting increased interest expense associated with the financing of our Connected Fitness acquisitions. Our third quarter tax rate of 38.8% was unfavorable to the 36.9% rate last year, primarily driven by non-deductible costs associated with our Connected Fitness acquisitions as well as increased losses in our newer Latin American businesses, partially driven by strengthening of the U.S. dollar.
Our third quarter net income increased 13% to $100 million compared to $89 million in the prior year period, while our diluted earnings per share increased to $0.45 from $0.41 in the prior year's period.
On the balance sheet, total cash and cash equivalents for the quarter decreased 36% to $159 million compared with $249 million at September 30, 2014. Inventory for the quarter increased 36% to $867 million compared to $637 million at September 30, 2014. Total debt increased to $905 million as compared to $192 million at September 30, 2014, primarily reflecting the financing of our Connected Fitness acquisitions.
Looking at our cash flows, our investment in capital expenditures was $71 million for the third quarter compared to $26 million in the prior year's period, driven primarily by our investments in our global headquarters in Baltimore and our global retail strategy.
Now moving onto our updated 2015 guidance. Based on current visibility, we expect 2015 net revenues of approximately $3.91 billion, representing growth of 27%, and 2015 operating income of approximately $408 million, representing growth of 15%.
As we have highlighted on our last earnings call in July and during our recent Investor Day, we believe the decisions we make on where, when and how much we invest are a key driver of our success to-date and it is our job to deliver both near and long-term value while simultaneously investing in our growth. In a year
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where we have seen unprecedented success from our athletes on a global scale, we believe the investments we are making today will help fuel our growth for years to come. As Kevin mentioned earlier, we have abundant opportunities that we are investing in to drive our long-term top-line growth. With so many areas that require investment, we continue to be focused on driving operating income dollars and not necessarily operating margin. This is why we have now raised our 2015 net revenues guidance by a cumulative $150 million since January, while at the same time maintaining the high-end of our operating income target at $408 million. We are committed to a certain level of investment back into our business and will continue to be opportunistic if and when possible during the fourth quarter.
As a reminder, our operating income guidance continues to include the dilutive impact of the Connected Fitness acquisitions consisting of one-time transaction costs in the first quarter, operating losses from these businesses, and non-cash amortization charges of the intangible assets generated from the acquisitions.
Below operating results, we continue to expect a full year effective tax rate of approximately 41% compared to 39.2% in the prior year, primarily given the strengthening of the U.S. dollar which continues to negatively impact our international profitability.
Now I would also like to provide additional color on several items pertaining to the fourth quarter.
Starting with Revenues. We believe we are well positioned to execute heading into the holidays as our investments in service are paying off in fresher, cleaner assortments across our distribution. As we expand our innovation stories like ColdGear Infrared and Storm across our sports categories, we also believe we are more diversified in our solutions for the athlete. Supported by the launch of Curry 2 basketball shoes, we expect Footwear growth will continue to outpace the growth rate for our overall business during the fourth quarter.
Our gross margin rate is now expected to decline by approximately 100 basis points during the fourth quarter. Some of the same themes impacting our business the past few quarters will extend into the fourth quarter, including pressure from the continued strength of the US Dollar, higher freight costs, and a higher mix of Footwear revenues. While higher than planned, the latter two factors are also key in our increased top line guidance for the year. In addition to these factors, driven by the recent higher growth rates in our Footwear business, we are now planning higher excess Footwear liquidation sales as part of our normal inventory management process, which will negatively impact gross margin in the fourth quarter. Partially offsetting these factors, we anticipate that we will continue to see improvements in our product margins.
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In SG&A, we expect a lower rate of spend for the fourth quarter due to the timing of marketing spend, while other SG&A is expected to grow approximately in line with our net revenues growth as we continue with our planned investments in areas to support our long-term growth including Connected Fitness, international, and Footwear. Also, as I mentioned earlier, we will remain opportunistic in investing incremental dollars during the fourth quarter in the event of more favorable than planned net revenues or gross margin rate.
Switching over to Inventory. As we outlined at our Investor Day, over the next few quarters we are focused on delivering our products to our consumers more timely, specifically on key seasonal floor set dates. We anticipate this will result in elevated inventory growth rates over this period to flow product earlier.
Finally on Capital Expenditures. Based on our current visibility, we are now planning capital expenditures in the range of $350 million to $360 million for 2015, including approximately $140 million allocated across three areas to support long-term growth with our new domestic distribution center, the expansion of our corporate headquarters in Baltimore and initial investments in our new and expanded SAP platform. In addition, we have accelerated investments in key areas to drive revenue growth including the roll-out of our global retail strategy and new E-Commerce sites.
Before we turn it over to Q&A, we would also like to provide you with our preliminary outlook for 2016. Based on our current visibility, we are planning 2016 net revenues to grow at approximately 25% and 2016 operating income to grow at approximately 23%. Both of these measures are in-line with our long-term growth targets we established at our Investor Day last month.
We will provide further color on 2016 during our earnings call in January.
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, the implementation of our marketing and branding strategies, 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
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business; our ability to successfully manage or realize expected results from acquisitions and other significant investments or capital expenditures; 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, including due to port disruptions; 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; risks related to foreign currency exchange rate fluctuations; 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 information systems and other technology, as well as any potential interruption in such systems or technology; risks related to data security or privacy breaches; our ability to raise additional capital required to grow our business on terms acceptable to us; our potential exposure to litigation and other proceedings; 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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