Under Armour (NYSE: $UA, $UAA) Reports Fourth Quarter And Full Year Results; Announces Outlook For 2018
Fourth Quarter Revenue up 5 Percent; Full Year Reaches $5.0 Billion
BALTIMORE - February 13, 2018 (Investorideas.com Newswire) Under Armour, Inc. (NYSE: UA, UAA) today announced financial results for the fourth quarter ended December 31, 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. References to adjusted financial measures exclude the impact of the company's restructuring plans and recent U.S. tax reform legislation, which we refer to as the U.S. Tax Act. 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.
"After years of rapid growth and building a globally recognized brand, the dynamic landscape of 2017 was a catalyst for us to begin strategically transforming Under Armour into an operationally excellent company," said Under Armour Chairman and CEO Kevin Plank. "A year into this journey, our fourth quarter and full year results demonstrate that the tough decisions we're making are generating the stability necessary to create a more consistent and predictable path to deliver long-term value to our shareholders."
Fourth Quarter 2017 Review
Revenue was up 5 percent to $1.4 billion (up 4 percent currency neutral).
Gross margin declined 150 basis points to 43.2 percent as benefits from changes in foreign currency rates and product costs were more than offset by pricing and other inventory management initiatives, and channel mix. Adjusted gross margin, which excludes a $1 million impact from restructuring efforts, was 43.3 percent.
Selling, General and administrative expenses increased 40.7 percent to $591 million, or 43.3 percent of revenue, primarily due to third to fourth quarter timing shifts in marketing execution and lower incentive compensation in the prior period, as well as continued investments in the direct-to-consumer, footwear and international businesses.
Restructuring and impairment charges were $36 million.
Operating loss was $37 million. Adjusted operating income was $0 million
Net loss was $88 million in the fourth quarter. Excluding both a one-time charge related to the U.S. Tax Act, and the impact of the restructuring plan, adjusted net loss was $1 million.
Diluted earnings per share was negative $0.20. Adjusted earnings per share was $0.00.
Inventory increased 26 percent to $1.2 billion driven by a mid-teen percentage rate increase in North America and nearly 50 percent growth in the international business.
Cash and cash equivalents increased 25 percent to $312 million.
Full Year 2017 Review
Revenue was up 3 percent to $5.0 billion.
Gross margin declined 140 basis points to 45.0 percent as inventory management initiatives more than offset favorable channel mix. Adjusted gross margin, which excludes a $5 million impact from restructuring efforts, was 45.1 percent.
Selling, general, and administrative expenses was up 14 percent to $2.1 billion, representing 41.9 percent of revenue, an increase driven by continued investments in demand creation, and the direct-to-consumer, footwear and international businesses.
Restructuring and impairment charges were $124 million in 2017.
Operating income was $28 million. Adjusted operating income was $157 million.
Net loss was $48 million in 2017. Excluding both the fourth quarter one-time charge related to the U.S. Tax Act, and the impact of the restructuring plan, adjusted net income was $87 million.
Diluted earnings per share was negative $0.11. Adjusted diluted earnings per share was $0.19.
2017 and 2018 Restructuring Plans
On October 31, 2017, the company provided an update that it expected its restructuring plan (announced on August 1, 2017) would include approximately $140 to $150 million of pre-tax restructuring, impairment and related charges to be substantially completed in 2017. In the fourth quarter of 2017, it recognized pre-tax costs totaling $37 million comprised of $14 million in cash related charges and $23 million in non-cash charges. For the full year, $129 million of pre-tax charges were realized including $39 million in cash related charges and $90 million in non-cash related charges.
After additional review, the company has announced an additional 2018 restructuring plan identifying further opportunities to optimize operations. In conjunction with this plan, approximately $110 to $130 million of pre-tax restructuring and related charges are expected to be incurred, including:
Up to $105 million in cash related charges, consisting of up to $55 million in facility and lease terminations and up to $50 million in contract termination and other restructuring charges; and,
Up to $25 million in non-cash charges comprised of up to $10 million of inventory related charges and up to $15 million of asset related impairments.
Based on the restructuring efforts in 2017 and 2018, the company anticipates a minimum of $75 million in savings annually from these efforts in 2019 and beyond.
Full Year 2018 Outlook
Key points related to Under Armour's full year 2018 outlook include:
Net revenue is expected to be up at a low single-digit percentage rate reflecting a mid-single-digit decline in North America and international growth of greater than 25 percent.
Gross margin is expected to increase approximately 50 basis points to 45.5 percent due to benefits from lower planned promotional activity, product costs, channel mix and changes in foreign currency.
Operating income is expected to reach $20 million to $30 million. Excluding the impact of continued restructuring efforts, adjusted operating income is expected to be $130 to $160 million.
Interest and other expense net is planned at 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; and,
Capital expenditures are planned at approximately $225 million compared with $275 million in 2017.
Conference Call and Webcast
Under Armour will hold its fourth 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.
U.S. Tax Act
The U.S. Tax Act was enacted into law on December 22, 2017. The new legislation contains several key tax provisions that affect Under Armour and, as required, the company has included reasonable estimates of the income tax effects of the changes in tax law and tax rate in the company's 2017 financial results. These changes include a one-time mandatory transition tax on accumulated foreign earnings and a re-measuring of deferred tax assets, resulting in an increase to the company's provision for income taxes of $39 million and a decrease to diluted earnings per share of $0.09 for both the fourth quarter and full year of 2017. Since the U.S. Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and additional accounting interpretation are expected over the next 12 months, the company considers the accounting of the transition tax, deferred tax re-measurements, and other items to be provisional based on potential future guidance. The company expects to finalize its estimates within the one-year measurement period allowed by the SEC.
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 2018 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 and the impact of the U.S. Tax Act, as applicable. 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 its restructuring plans and recent significant changes in U.S. tax laws. 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, projected annualized savings related to our restructuring plans, the impact of recent tax reform legislation on our results of operations, the development and introduction of new products, the implementation of our marketing and branding strategies, and the future benefits and opportunities from 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 plans and realize their 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.
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