Under Armour (NYSE: UA) (NYSE: UAA) reported Q2 EPS of ($0.08), in-line with the analyst estimate of ($0.08). Revenue for the quarter came in at $1.2 billion versus the consensus estimate of $1.15 billion.

"Through the first half of 2018, we are making progress toward our transformation of running a more operationally excellent company while amplifying the power of the Under Armour brand," said Under Armour Chairman and CEO Kevin Plank. "The ongoing improvements in our structure, systems and go-to-market process across our global business better position us to drive a more consistent, predictable path to deliver for our consumers, customers and shareholders over the long-term."

Second Quarter Review

• Revenue was up 8 percent to $1.2 billion (up 7 percent currency neutral).
  • Revenue to wholesale customers increased 9 percent to $710 million and direct-to-consumer revenue was up 7 percent to $414 million. The direct-to-consumer business represented 35 percent of global revenue in the quarter.
  • North America revenue increased 2 percent to $843 million (up 1 percent currency neutral) and the international business continued to deliver strong growth with a 28 percent increase to $302 million (up 24 percent currency neutral), representing 26 percent of total revenue. Within the international business, revenue in EMEA was up 31 percent (up 25 percent currency neutral), up 34 percent in Asia-Pacific (up 28 percent currency neutral) and up 7 percent in Latin America (up 12 percent currency neutral).
  • Apparel revenue increased 10 percent to $747 million, driven by strength in training and running. Footwear revenue was up 15 percent to $271 million with strength in running and team sports. Accessories revenue decreased 14 percent to $106 million due to softer demand.
• Gross margin decreased approximately 110 basis points to 44.8 percent due to inventory management initiatives and a $6 million impact related to restructuring efforts. Adjusted gross margin decreased 60 basis points to 45.3 percent driven predominantly by inventory management initiatives.
• Selling, general and administrative expenses increased 10 percent to $553 million, or 47.0 percent of revenue driven by continued investments in our direct-to-consumer, footwear, and international businesses, along with a reserve related to a commercial dispute.
• Restructuring and impairment charges were $79 million.
• Operating loss was $105 million. Adjusted operating loss was $20 million.
• Net loss was $96 million. Excluding the impact of the restructuring plan, adjusted net loss was $34 million.
• Diluted loss per share was $0.21. Adjusted diluted loss per share was $0.08.
• Inventory increased 11 percent to $1.3 billion.
• Cash and cash equivalents increased 19 percent to $197 million.

Plank concluded, "As we work through our multi-year transformation, we continue to proactively attack underperforming areas of our business including our SG&A cost structure and inventory. All of this will help create a better and stronger Under Armour through even greater operational efficiencies. We are unwavering in building our global brand and confident we\'re on the right track."

Updated Fiscal 2018 Outlook

• Net revenue is now expected to increase approximately 3 percent to 4 percent reflecting a low to mid-single-digit decline in North America and international growth of greater than 25 percent. From a product perspective, apparel is expected to grow at a mid-single digit rate, footwear at a low-single digit rate, and accessories is expected to decline at a low-single digit rate.
• Gross margin is now expected to be flat to down slightly versus the prior year rate of 45.0 percent. Adjusted gross margin is now expected to improve slightly compared to 2017 as benefits from product costs and lower planned promotional activity are offset by increased inventory management actions.
• Operating loss is now expected in the range of $50 million to $60 million. Excluding the impact of the restructuring plan, adjusted operating income is expected to be $130 million to $160 million.
• Interest and other expense net is expected to be approximately $45 million.
• Excluding the impact of the restructuring efforts, adjusted diluted earnings per share is expected to be in the range of $0.14 to $0.19.
• Capital expenditures are now planned at approximately $200 million.

GUIDANCE:

Under Armour sees FY2018 EPS of $0.14-$0.19, versus the consensus of $0.20.

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