Under Armour Reports Fourth Quarter and Full Year 2019 Results; Provides Initial 2020 Outlook

Under Armour, Inc. (NYSE: UA, UAA) on February 11, 2020, reported unaudited financial results for the fourth quarter and fiscal year ended December 31, 2019.

“Under Armour is an operationally better company following our transformation over the past few years, with a clearly defined and focused strategy, enhanced go-to-market process, cleaner inventories and a stronger balance sheet,” said Under Armour President and CEO Patrik Frisk. “However, ongoing demand challenges and the need to drive greater efficiencies in our business requires us to further prioritize our investments to put our company in the best position possible to achieve sustainable, profitable growth over the long-term.”

Fourth Quarter 2019 Review

  • Revenue was up 4 percent to USD 1.4 billion (up 4 percent currency neutral).
  • Gross margin increased 230 basis points to 47.3 percent compared to the prior year driven primarily by pricing including lower discounts to our wholesale partners, channel mix and supply chain initiatives.
  • Selling, general & administrative expenses increased 3 percent to USD 607 million, or 42.1 percent of revenue.
  • Operating income was USD 74 million.
  • Net loss was USD 15 million or USD 0.03 diluted loss per share, inclusive of:
    • A USD 23 million tax expense, which had a USD 0.05 negative earnings per share impact related to the recording of valuation allowances against certain of the company’s U.S. state deferred tax assets.
    • A USD 39 million impairment charge, which had an USD 0.08 negative earnings per share impact related to the company’s equity interest investment in its Japan licensee.
  • Cash and cash equivalents increased 41 percent to USD 788 million.
  • Inventory decreased 12 percent to USD 892 million.
  • Total long-term debt decreased 19 percent to USD 593 million.

Full Year 2019 Review

  • Revenue was up 1 percent to USD 5.3 billion (up 3 percent currency neutral).
  • Gross margin was 46.9 percent, a 180-basis point improvement from 45.1 percent in the prior year driven predominantly by supply chain initiatives, channel mix and prior period restructuring charges.
  • Selling, general & administrative expenses increased 2 percent to USD 2.2 billion, or 42.4 percent of revenue.
  • Operating income was USD 237 million. 
  • Net income was USD 92 million or USD 0.20 diluted earnings per share, inclusive of:
    • A USD 0.05 negative earnings per share impact related to the recording of valuation allowances against certain of the company’s U.S. state deferred tax assets.
    • A USD 0.09 negative earnings per share impact related to the impairment of the company’s equity interest investment in its Japan licensee.

Initial 2020 Outlook

The company’s initial 2020 outlook currently includes an estimated negative impact of the coronavirus outbreak in China of approximately USD 50 million to USD 60 million in sales related to the first quarter of 2020. This outlook does not contemplate additional financial or operational impacts past the first quarter of 2020. Given the significant level of uncertainty with this dynamic and evolving situation, full year results could be further materially impacted. The following outlook also does not include any possible benefits or costs from a potential restructuring initiative. Key points related to Under Armour’s full year 2020 outlook include:

  • Revenue is expected to be down at a low single-digit percent compared to 2019 results. This reflects a mid to high-single-digit percentage decline in North America as work continues to rebalance the business against market demand dynamics and pro-active strategies to better protect the company’s premium brand positioning. The international business is expected to grow at a low double-digit percentage rate.
  • Gross margin is expected to be up approximately 30 to 50 basis points versus the prior year due to ongoing supply chain initiatives and regional mix benefits.
  • Operating income is expected to reach USD 105 million to USD 125 million.
  • Interest and other expense net is planned at approximately USD 30 million.
  • Diluted earnings per share is expected to be in the range of USD 0.10 to USD 0.13, inclusive of an estimated USD 0.01 to USD 0.02 negative impact from the company’s equity interest in its Japan licensee.
  • Capital expenditures are planned at approximately USD 160 million compared with USD 144 million in 2019.

2020 Restructuring Initiative

The company also announced it is currently assessing a potential 2020 restructuring initiative to rebalance its cost base to further improve profitability and cash flow generation. In connection with this potential plan, the company is considering USD 325 million to USD 425 million in estimated pre-tax charges for 2020, including approximately USD 225 million to USD 250 million related to the possibility of foregoing opening a flagship store in New York City while pursuing sublet options for the long-term lease.

Based on initial assessments and timing of a potential restructuring initiative, the company could realise approximately USD 30 million to USD 50 million in pre-tax benefits in 2020. The company expects to complete its assessment during the first quarter of 2020, and subject to board review, and approval, would announce any potential restructuring charges upon adoption of any plan. 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