Under Armour Reports Third Quarter Results

BALTIMORE, Oct. 31, 2017 /PRNewswire/ -- Under Armour, Inc. (NYSE: UA, UAA) today announced financial results for the third quarter ended September 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.

"While our international business continues to deliver against our ambition of building a global brand, operational challenges and lower demand in North America resulted in third quarter revenue that was below our expectations," said Under Armour Chairman and CEO Kevin Plank. "Based on these issues in our largest market, we believe it is prudent to reduce our sales and earnings outlook for the remainder of 2017."

"Against this difficult backdrop, our management team is working aggressively to evolve our strategy and level of execution to proactively address these challenges. We understand that success in our next chapter requires managing with focused financial discipline and driving excellence into every area of our business while we amplify innovation, deliver fresh product and connect even more deeply with our consumers."

The summary below provides both GAAP and adjusted non-GAAP financial measures. In the third quarter of 2017, in connection with the company's restructuring plan, it recognized pre-tax costs totaling $89 million comprising of $22 million in cash related charges and $67 million in non-cash charges. Adjusted financial measures exclude the impact of the restructuring and other related charges and the related tax effects.

Third Quarter Review

• Revenue was down 5 percent to $1.4 billion. During the third quarter, operational challenges due to the implementation of the company's enterprise resource planning system and related service levels along with lower North American demand negatively impacted revenue.
• Revenue to wholesale customers declined 13 percent to $880 million and direct-to-consumer revenue was up 15 percent to $468 million.
• North America challenges impacted results with revenue down 12 percent. Strong international momentum continued with revenue up 35 percent (up 34 percent currency neutral), representing 22 percent of total revenue. Within our international business, revenue in EMEA was up 22 percent (up 20 percent currency neutral), up 52 percent in Asia-Pacific (up 53 percent currency neutral) and up 33 percent in Latin America (up 27 percent currency neutral).
• Apparel revenue decreased 8 percent to $939 million, as growth in golf and sportstyle was more than offset by declines in outdoor, women's training and youth. Footwear revenue was up 2 percent to $285 million, driven by strength in running and outdoor, offset by basketball and youth. Accessories revenue increased 1 percent to $123 million led by golf and men's training, tempered by a decline in outdoor.
• Gross margin declined 160 basis points to 45.9 percent as benefits from changes in foreign currency rates and product costs were more than offset by pricing and other inventory management initiatives, and regional mix. Adjusted gross margin, which excludes a $4 million impact from restructuring efforts, was 46.2 percent, a decrease of 130 basis points compared to the prior year.
• SG&A was in-line with the prior year.
• Restructuring and impairment charges were $85 million.
• Operating income was $62 million. Adjusted operating income was $151 million.
• Effective tax rate was negative 5 percent due to higher mix of international pre-tax income and challenged results in the North American business, coupled with the impact of the restructuring and impairment charges. The adjusted effective tax rate was 29 percent.
• Net income was $54 million in the third quarter. Adjusted net income was $100 million.
• Diluted earnings per share was $0.12. Adjusted diluted earnings per share was $0.22.
• Inventory increased 22 percent to $1.2 billion.
• Cash and cash equivalents increased 43 percent to $258 million.

Updated Fiscal 2017 Outlook

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

• Net revenue is expected to be up at a low single-digit percentage rate reflecting lower North American demand and operational challenges due to the implementation of the company's enterprise resource planning system and related service levels.
• Gross margin is expected to be down approximately 220 basis points compared to 46.4 percent in 2016 as benefits from product costs and channel mix are more than offset by increased efforts to manage inventory within a highly promotional environment, impacts from the restructuring plan and increasing regional mix. Adjusted gross margin is expected to be down approximately 190 basis points compared to 46.4 percent in 2016.
• Operating income is expected to be approximately $0 to $10 million. Adjusted operating income is expected to reach $140 million to $150 million.
• Interest and other expense net of approximately $35 million.
• Excluding the effect of the restructuring plan, adjusted effective tax rate of approximately 23 percent.
• Adjusted diluted earnings per share of $0.18 to $0.20.
• Capital expenditures of approximately $300 million.

On August 1, the company announced a restructuring plan, which detailed expectations to incur total estimated pre-tax restructuring and related charges of approximately $110 million to $130 million. In the third quarter, the company recognized $60 million of pre-tax charges in connection with this restructuring plan. In addition to these charges, the company also recognized restructuring related goodwill impairment charges of $29 million for its Connected Fitness business. Inclusive of this impairment, the company now expects to incur total estimated pre-tax restructuring and related charges of approximately $140 million to $150 million.

Conference Call and Webcast

Under Armour will hold its third quarter 2017 conference call and webcast today at approximately 8:30 a.m. Eastern Time. The call will be webcast live at http://investor.underarmour.com 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" and "adjusted" 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, adjusted effective tax rate, adjusted net income and adjusted diluted earnings per share exclude the impact of restructuring and other related charges. Management believes this information is useful to investors because it provides enhanced visibility into the company's actual and 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., headquartered in Baltimore, Maryland is a leading innovator, marketer and distributor of branded performance athletic apparel, footwear and accessories. Designed to make all athletes better, the brand's innovative products are sold worldwide to consumers with active lifestyles. The company's Connected Fitness™ platform powers the world's largest digitally connected health and fitness community. For further information, please visit 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, our anticipated charges and restructuring costs and the timing of these measures, the development and introduction of new products, the implementation of our marketing and branding strategies, and the future benefits and opportunities from acquisitions and other significant investments. In many cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "assumes," "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 overall consumer spending or our industry; changes to the financial health of our customers; our ability to effectively manage our growth and a more complex global business; our ability to successfully execute our restructuring plan and realize its expected benefits; our ability to effectively drive operational efficiency in our business; any disruptions, delays or deficiencies in the design or implementation of our new global operating and financial reporting information technology system; our ability to comply with existing trade and other regulations, and the potential impact of new trade and tax regulations on our profitability; 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; increased competition causing us to lose market share or reduce the prices of our products or to increase significantly our marketing efforts; our ability to accurately forecast consumer demand for our products and manage our inventory in response to changing demands; 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; 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 key talent 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.

The company is not able to provide a reconciliation of the non-GAAP adjusted effective tax rate or adjusted diluted earnings per share to the GAAP effective tax rate or diluted earnings per share for its 2017 outlook. As a result of the restructuring plan, the company's GAAP net income for fiscal year 2017 is expected to be insignificant, and therefore the GAAP effective tax rate is subject to a significant variability. Given this variability, the company cannot provide a meaningful outlook of the GAAP effective tax rate or diluted earnings per share without unreasonable effort. These non-GAAP measures exclude the impact of the restructuring plan.

SOURCE Under Armour, Inc.