Under Armour, Inc. (NYSE: UA, UAA) today announced financial results for the third quarter ended September 30, 2019. 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. References to adjusted financial measures exclude the impact of the company’s 2018 restructuring plan and the related tax effects. 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.
“Building our long-term brand strength remains at the center of everything we do,” said Under Armour Chairman and CEO Kevin Plank. “Our ongoing transformation across the business continues to make us smarter, faster and more operationally excellent. As we make the turn into 2020, we are confident in our ability to deliver our fourth quarter targets while proactively supporting higher levels of strategic marketing investments that will further fuel the Under Armour brand.”
Third Quarter 2019 Review
- Revenue was down 1 percent to $1.4 billion (flat on a currency neutral basis).
- Wholesale revenue decreased 2 percent to $892 million and direct-to-consumer revenue decreased 1 percent to $463 million, representing 32 percent of total revenue.
- North America revenue decreased 4 percent to $1.0 billion and the international business increased 5 percent to $368 million (up 8 percent currency neutral), representing 26 percent of total revenue. Within the international business, revenue was up 9 percent in EMEA (up 13 percent currency neutral), up 4 percent in Asia-Pacific (up 6 percent currency neutral) and down 4 percent in Latin America (down 1 percent currency neutral).
- Apparel revenue increased 1 percent to $986 million; footwear revenue decreased 12 percent to $251 million; and accessories revenue increased 2 percent to $118 million in the third quarter. On a year-to-date basis, apparel and footwear revenue are relatively flat and accessories is down approximately 3 percent compared to 2018.
- Gross margin increased 220 basis points to 48.3 percent compared to the prior year driven by channel mix, supply chain initiatives and restructuring charges in the prior period.
- Selling, general & administrative expenses increased 4 percent to $551 million, or 38.5 percent of revenue.
- Operating income was $139 million.
- Net income was $102 million or $0.23 diluted earnings per share.
- Cash and cash equivalents increased 147 percent to $417 million.
- Inventory decreased 23 percent to $907 million.
- Total debt was down 26 percent to $592 million.
Updated Fiscal 2019 Outlook
- Revenue is now expected to be up about 2 percent versus the previously expected range of 3 to 4 percent, due to:
- Lower than planned excess inventory to service the off-price channel;
- Ongoing traffic and conversion challenges in direct-to-consumer; and,
- Negative impacts from changes in foreign currency.
- Gross margin is now expected to increase approximately 130 to 150 basis points versus the previously expected range of 110 to 130 basis points compared to 2018. Excluding restructuring charges from the comparable prior period, we now expect an increase of approximately 90 to 110 basis points (versus previous expectation of 70 to 90 basis points) compared to 2018 adjusted gross margin due to ongoing supply chain initiatives and additional channel mix benefits.
- Operating income is now expected to reach the high end of the previously given range of approximately of $230 million to $235 million.
- Interest and other expense, net is expected to be approximately $30 million.
- Effective tax rate is expected to be approximately 22 percent.
- Earnings per share is now expected to reach the high end of the previously given range of approximately of $0.33 to $0.34.
- Capital expenditures are now expected to be approximately $180 million versus the previously expected $210 million.
Non-GAAP Financial Information
This press release refers to “currency neutral” and “adjusted” amounts. 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. 2018 adjusted gross margin is referred to but not presented and excludes the impact of restructuring and other related charges. A reconciliation of 2018 adjusted gross margin is available in the company’s 2018 year-end earnings release. Management believes this information is useful to investors because it provides enhanced visibility into the company’s actual underlying results excluding the impact of its 2018 restructuring plans. 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., headquartered in Baltimore, Maryland, is a leading inventor, marketer and distributor of branded athletic performance apparel, footwear and accessories. Powered by one of the world’s largest digitally connected fitness and wellness communities, Under Armour’s innovative products and experiences are designed to help advance human performance, making all athletes better. For further information, please visit https://about.underarmour.com.
