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Under Armour Reports Second Quarter Results

BALTIMORE, Aug. 1, 2017 /PRNewswire/ -- Under Armour, Inc. (NYSE: UA, UAA) today announced financial results for the second quarter ended June 30, 2017. The company reports its financial performance in accordance with accounting principles generally accepted in the United States of America ("GAAP"). This press release refers to "currency neutral" and "adjusted" amounts, which are non-GAAP financial measures described below under the "Non-GAAP Financial Information" paragraph. Reconciliations of non-GAAP amounts to the most directly comparable financial measure calculated in accordance with GAAP are presented in supplemental financial information furnished with this release. All per share amounts are reported on a diluted basis.

"Our second quarter performance validates the strength of our multiple growth levers to deliver solid results in today's dynamic global environment," said Under Armour Chairman and CEO Kevin Plank. "More than doubling our business over the last three years has required significant investments and resources to build our brand. We are utilizing 2017 to ensure that operations across our diverse portfolio of sport categories, distribution channels and geographies are optimized as we are building a stronger, faster and smarter company."

Restructuring Plan

Under Armour's Board of Directors has approved a restructuring plan to more closely align its financial resources to support the company's efforts to better serve the evolving needs of the changing consumer and customer landscape.

"As we stand up our category management structure within a consumer-led approach, we intend to meaningfully increase our go-to-market speed and amplify our digital capabilities," continued Plank. "We've identified a number of areas to enhance our operational capabilities, drive process improvement and gain greater efficiencies. We remain steadfast in driving and building our brand while shifting our operational focus to become more return-on-investment and cost of capital centric - institutionalizing discipline to deliver more consistent, long-term shareholder value."

In conjunction with this plan, the company expects to incur total estimated pre-tax restructuring and related charges of approximately $110-130 million in fiscal 2017, including approximately:

  • Up to $70 million in cash related charges, consisting of up to: $25 million in facility and lease terminations, $15 million in employee severance and benefits costs, and $30 million in contract termination and other restructuring charges; and,
  • Up to $60 million in non-cash charges comprised of approximately $20 million of inventory related charges and approximately $40 million of intangibles and other asset related impairments.

Second Quarter Review

  • Revenue was up 9 percent to $1.1 billion, up 8 percent currency neutral.
    • Revenue to wholesale customers rose 3 percent to $655 million and direct-to-consumer revenue was up 20 percent to $386 million.
    • A dynamic and promotional retail environment in North America continued to temper results with revenue in line with last year's same period. Outside North America, the strong momentum continued with international revenue up 57 percent (up 54 percent currency neutral), representing 22 percent of total revenue. Within our international business, revenue in EMEA was up 57 percent (up 53 percent currency neutral), up 89 percent in Asia-Pacific (up 87 percent currency neutral) and up 10 percent in Latin America (up 9 percent currency neutral).
    • Apparel revenue increased 11 percent to $681 million including strength in men's and women's training, and golf. Footwear revenue was down 2 percent to $237 million, against last year's same period which was up 58 percent due to significant strength in basketball sales. Accessories revenue increased 22 percent to $123 million with strength in men's and women's training, and youth performance.
  • Gross margin declined 190 basis points to 45.8 percent as benefits from channel and product mix were offset by inventory management initiatives, changes in foreign currency rates, and higher air freight in connection with our enterprise resource planning (ERP) system implementation, which impacted the timing of shipments to certain key customers.
  • Selling, general and administrative expenses increased 10 percent to $503 million, or 46.2 percent of revenue (up 40 basis points), due to continued investments in the direct-to-consumer, footwear and international businesses.
  • Operating loss was $5 million. Including other interest and expense, there was a net loss of $12 million in the second quarter and a $0.03 loss in diluted earnings per share.

Updated Fiscal 2017 Outlook

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

  • Net revenues expected to grow 9 to 11 percent versus the previous expectation of 11 to 12 percent growth, reflecting moderation in the company's North American business.
  • Gross margin, on a reported basis, is expected to be down approximately 160 basis points compared to 46.4% in 2016 as benefits from product costs and sales mix are offset by impacts from the restructuring plan, changes in foreign currency and increased efforts to manage inventory. Excluding the impact of the restructuring, adjusted gross margin is expected to be down at least 120 basis points compared to 46.4% in 2016.
  • On a reported basis, operating income, is expected to reach approximately $160-180 million. Excluding the impact of the restructuring plan, adjusted operating income is expected to be approximately $280 million to $300 million.
  • An effective tax rate of 31 to 32 percent.
  • On a reported basis, full year diluted earnings per share is expected to be $0.18 to $0.21. Excluding the impact of the restructuring plan, full year adjusted diluted earnings per share is expected to reach $0.37-$0.40; and,
  • Other full year assumptions include capital expenditures of approximately $350 million.

Conference Call and Webcast

Under Armour will hold its second quarter 2017 conference call and webcast today at approximately 8:30 a.m. Eastern Time. The call will be webcast live at and will be archived and available for replay approximately three hours after the live event.

Non-GAAP Financial Information

This press release refers to "currency neutral" results as well as "adjusted" forward looking estimates of the company's fiscal 2017 outlook. Currency neutral financial information is calculated to exclude the impact of changes in foreign currency. Management believes this information is useful to investors to facilitate a comparison of the Company's results of operations period-over-period. Adjusted operating income, adjusted gross margin and adjusted diluted earnings per share estimates exclude the impact of the previously described restructuring plan. Management believes this information is useful to investors because it provides enhanced visibility into the company's expected underlying results excluding the impact of the restructuring plan. These non-GAAP financial measures 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. Additionally, 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, Inc. (NYSE: UA, UAA), 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...