Under Armour Reports Second Quarter 2020 Results

Rhea-AI Summary

Under Armour reported its second-quarter financial results on July 31, 2020, revealing a 41% revenue decline to $708 million due to COVID-19 disruptions. Wholesale revenue fell 58% to $299 million, while direct-to-consumer revenue decreased 13% to $368 million. North America saw a 45% revenue drop. Despite a 280 basis point improvement in gross margin to 49.3%, the company posted a net loss of $183 million. Under Armour ended the quarter with $1.1 billion in cash and cash equivalents, though it remains cautious about ongoing market uncertainties.

Positive

• Gross margin improved by 280 basis points to 49.3% year-over-year.
• Cash and cash equivalents stood at $1.1 billion, providing liquidity.

Negative

• Revenue dropped 41% to $708 million, primarily due to COVID-19.
• Wholesale revenue decreased by 58%; North America revenue fell 45%.
• Operating loss was $170 million, with an adjusted operating loss of $131 million.
• Net loss was $183 million; adjusted net loss was $141 million.

BALTIMORE, July 31, 2020 /PRNewswire/ -- Under Armour, Inc. (NYSE: UA, UAA) today announced financial results for the second quarter ended June 30, 2020. 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 2020 restructuring plan and related impairment charges, impairments associated with certain long-lived assets and goodwill and related tax effects, and with respect to certain measure, the non-cash amortization of debt discount on the company's convertible debt and 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.

"With the majority of our own stores and wholesale locations closed for most of the second quarter due to the COVID-19 pandemic, while we performed better than expected, we still experienced a significant decline in revenue across all markets," said Under Armour President and CEO Patrik Frisk. "In navigating this environment, our team continues to respond strategically and methodically – amplifying Under Armour's connection with our consumers through innovative digital activations, proactively managing our cost structure and working to harness our brand strength amid shifts in consumer behavior to emerge as a stronger company."

Frisk continued, "Now, with most of these doors reopened, we are encouraged by some of the momentum we've experienced in June and July. However, we remain appropriately cautious with respect to the balance of 2020 due to continued uncertainty related to consumer shopping dynamics, the potential for a highly promotional environment and proactive decisions to reduce inventory purchases to be more aligned with anticipated demand related to ongoing COVID-19 impacts."

Second Quarter 2020 Review

• Revenue was down 41 percent to $708 million (down 40 percent currency neutral) predominantly related to the COVID-19 pandemic impacts in the quarter.
• Wholesale revenue decreased 58 percent to $299 million and direct-to-consumer revenue was down 13 percent to $368 million.
• North America revenue decreased 45 percent to $450 million and revenue from our international business decreased 34 percent to $224 million (down 32 percent currency neutral). Within the international business, revenue decreased 39 percent in EMEA (down 37 percent currency neutral), decreased 20 percent in Asia-Pacific (down 17 percent currency neutral), and decreased 72 percent in Latin America (down 68 percent currency neutral).
• Apparel revenue decreased 42 percent to $426 million. Footwear revenue decreased 35 percent to $185 million. Accessories revenue decreased 47 percent to $56 million.
• Gross margin increased 280 basis points to 49.3 percent compared to the prior year driven by channel mix which benefitted from significantly lower sales to the off-price channel, as well as a higher mix of direct-to-consumer sales, partially offset by the negative impacts from COVID-19 related discounting.
• Selling, general & administrative expenses decreased 15 percent to $480 million driven primarily by reduced marketing spend in addition to other cost cutting initiatives to mitigate top line impacts from COVID-19 including lower incentive compensation and reduced variable expenses tied to revenue.
• Restructuring and impairment charges were $39 million consisting of $28 million in non-cash and $11 million in cash related charges. For the full year, the company has recognized $475 million of restructuring and impairment charges consisting of $340 million in restructuring and related impairment charges ($326 million in non-cash and $14 million in cash related charges) and $135 million from impairments of long-lived assets and goodwill.
• Operating loss was $170 million. Excluding the impact of restructuring and impairment charges, adjusted operating loss was $131 million.
• Net loss was $183 million. Adjusted net loss was $141 million.
• Diluted loss per share was $0.40. Adjusted diluted loss per share was $0.31.
• Inventory was up 24 percent to $1.2 billion.

COVID-19 Update

Due to ongoing uncertainty related to COVID-19 and its potential effect on global markets, the company continues to anticipate material impacts on its business results for the remainder of 2020. The following provides additional information on channels and the company's cash and liquidity position.

• Channel Status and Trends
• Through mid-May, the company estimated that approximately 80 percent of locations where the brand could be purchased globally were closed. As of today, with most of these doors having reopened, traffic trends continue to be considerably lower than the prior year period, however, the overall rate of conversion is higher. The company expects traffic trends to remain lower for the remainder of 2020.
• Additionally, the company experienced significant eCommerce growth around the world during the quarter.
• Cash and Liquidity
• The company ended the second quarter with Cash and Cash Equivalents of $1.1 billion.
• During the quarter, the company amended its credit agreement, in order to provide improved access to liquidity during this period. Under the amended $1.1 billion revolving credit facility, there was $250 million outstanding at the end of the second quarter.
• Additionally, the company issued $500 million of convertible senior notes, utilizing $440 million of the net proceeds to reduce the amount outstanding under its revolving credit facility.

Conference Call and Webcast

Under Armour will hold its second quarter 2020 conference call and webcast today at approximately 8:30 a.m. Eastern Time. The call will be webcast live at https://about.underarmour.com/investor-relations/financials 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" amounts. Currency neutral financial information is calculated to exclude the impact of changes in foreign currency exchange rates. Management believes this information is useful to investors to facilitate a comparison of the company's results of operations period-over-period. Adjusted financial measures exclude the impact of the company's 2020 restructuring plan and related impairment charges, impairments associated with certain long-lived assets and goodwill, and related tax effects. Management believes this information is useful to investors because it enhances visibility into the company's actual underlying results excluding these impacts. Adjusted net loss and adjusted diluted loss per share also exclude the non-cash amortization of debt discount on the company's convertible senior notes and related tax effects. Management believes the non-cash portion of the interest expense, which represents the accretion of the bifurcated equity component of the conversion option of the convertible senior notes, is not core to the company's operations given the intent and ability to settle in shares of the company's Class C common stock. These supplemental 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.

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, the impact of the COVID-19 pandemic on our business, our plans to reduce our 2020 operating expenses, anticipated charges and restructuring costs, the timing of these measures and projected savings related to our restructuring plans. 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: the impact of the COVID-19 pandemic on our industry and our business, financial condition and results of operations; changes in general economic or market conditions that could affect overall consumer spending or our industry; changes to the financial health of our customers; 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; our ability to access capital and financing required to manage our business on terms acceptable to us; our ability to successfully execute our long-term strategies; our ability to successfully execute any potential restructuring plans and realize their expected benefits; our ability to effectively drive operational efficiency in our business; our ability to manage the increasingly complex operations of our global business; our ability to comply with existing trade and other regulations, and the potential impact of new trade, tariff and tax regulations on our profitability; our ability to effectively develop and launch new, innovative and updated products; our ability to accurately forecast consumer demand for our products and manage our inventory in response to changing demands; any disruptions, delays or deficiencies in the design, implementation or application of our new global operating and financial reporting information technology system; increased competition causing us to lose market share or reduce the prices of our products or to increase significantly our marketing efforts; fluctuations in the costs of our products; 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; our ability to successfully manage or realize expected results from acquisitions and other significant investments or capital expenditures; 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 of such systems or technology; risks related to data security or privacy breaches; 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.

 

Under Armour, Inc. For the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited; in thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF OPERATIONS
		Three Months Ended June 30,														Six Months Ended June 30,
		2020				% of Net Revenues			2019				% of Net Revenues			2020				% of Net Revenues			2019				% of Net Revenues
Net revenues		$	707,640			100.0	%		$	1,191,729			100.0	%		$	1,637,880			100.0	%		$	2,396,451			100.0	%
Cost of goods sold		358,471				50.7	%		637,408				53.5	%		857,727				52.4	%		1,297,343				54.1	%
Gross profit		349,169				49.3	%		554,321				46.5	%		780,153				47.6	%		1,099,108				45.9	%
Selling, general and administrative expenses		479,906				67.8	%		565,803				47.5	%		1,032,607				63.0	%		1,075,331				44.9	%
Restructuring and impairment charges		38,937				5.5	%		—				—	%		475,400				29.0	%		—				—	%
Income (loss) from operations		(169,674)				(24.0)	%		(11,482)				(1.0)	%		(727,854)				(44.4)	%		23,777				1.0	%
Interest expense, net		(11,336)				(1.6)	%		(5,988)				(0.5)	%		(17,296)				(1.1)	%		(10,226)				(0.4)	%
Other expense, net		(4,843)				(0.7)	%		(1,128)				(0.1)	%		(3,309)				(0.2)	%		(1,795)				(0.1)	%
Income (loss) before income taxes		(185,853)				(26.3)	%		(18,598)				(1.6)	%		(748,459)				(45.7)	%		11,756				0.5	%
Income tax expense (benefit)		(3,137)				(0.4)	%		(5,740)				(0.5)	%		18,410				1.1	%		2,391				0.1	%
Loss from equity method investments		(179)				—	%		(4,491)				(0.4)	%		(5,707)				(0.3)	%		(4,237)				(0.2)	%
Net income (loss)		$	(182,895)			(25.8)	%		$	(17,349)			(1.5)	%		$	(772,576)			(47.2)	%		$	5,128			0.2	%
Basic net income (loss) per share of Class A, B and C common stock		$	(0.40)						$	(0.04)						$	(1.70)						$	0.01
Diluted net income (loss) per share of Class A, B and C common stock		$	(0.40)						$	(0.04)						$	(1.70)						$	0.01
Weighted average common shares outstanding Class A, B and C common stock
Basic		454,121							451,066							453,496							450,411
Diluted		454,121							451,066							453,496							453,717

 

Under Armour, Inc. For the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited; in thousands)
NET REVENUES BY PRODUCT CATEGORY
					Three Months Ended June 30,											Six Months Ended June 30,
					2020				2019				% Change			2020				2019				% Change
Apparel					$	425,858			$	739,736			(42.4)	%		$	1,024,145			$	1,514,366			(32.4)	%
Footwear					185,089				284,080				(34.8)	%		394,777				576,627				(31.5)	%
Accessories					56,104				106,250				(47.2)	%		123,852				188,242				(34.2)	%
Total net sales					667,051				1,130,066				(41.0)	%		1,542,774				2,279,235				(32.3)	%
Licensing revenues					6,188				25,308				(75.5)	%		26,123				46,965				(44.4)	%
Connected Fitness					32,912				31,935				3.1	%		65,706				62,039				5.9	%
Corporate Other					1,489				4,420				(66.3)	%		$	3,277			$	8,212			(60.1)	%
Total net revenues					$	707,640			$	1,191,729			(40.6)	%		$	1,637,880			$	2,396,451			(31.7)	%
NET REVENUES BY SEGMENT
					Three Months Ended June 30,											Six Months Ended June 30,
					2020				2019				% Change			2020				2019				% Change
North America					$	449,702			$	816,220			(44.9)	%		$	1,058,682			$	1,659,469			(36.2)	%
EMEA					89,125				145,320				(38.7)	%		227,029				279,424				(18.8)	%
Asia-Pacific					123,265				154,113				(20.0)	%		218,951				298,398				(26.6)	%
Latin America					11,147				39,721				(71.9)	%		64,235				88,909				(27.8)	%
Connected Fitness					32,912				31,935				3.1	%		65,706				62,039				5.9	%
Corporate Other					1,489				4,420				(66.3)	%		3,277				$	8,212			(60.1)	%
Total net revenues					$	707,640			$	1,191,729			(40.6)	%		$	1,637,880			$	2,396,451			(31.7)	%

INCOME (LOSS) FROM OPERATIONS
		Three Months Ended June 30,												Six Months Ended June 30,
		2020			% of Net Revenues (1)			2019			% of Net Revenues (1)			2020			% of Net Revenues (1)			2019				% of Net Revenues (1)
North America		$	30,759		6.8	%		$	139,198		17.1	%		$	26,986		2.5	%		$	299,471			18.0	%
EMEA		(698)			(0.8)	%		10,493			7.2	%		3,006			1.3	%		22,711				8.1	%
Asia-Pacific		(12,447)			(10.1)	%		19,647			12.7	%		(49,288)			(22.5)	%		39,450				13.2	%
Latin America		(4,374)			(39.2)	%		(3,891)			(9.8)	%		(52,558)			(81.8)	%		(4,250)				(4.8)	%
Connected Fitness		3,691			11.2	%		11			—	%		7,391			11.2	%		1,080				1.7	%
Corporate Other		(186,605)			NM			(176,940)			NM			(663,391)			NM			(334,685)				NM
Income (loss) from operations		$	(169,674)		(24.0)	%		$	(11,482)		(1.0)	%		$	(727,854)		(44.4)	%		$	23,777			1.0	%
(1) The operating income (loss) percentage is calculated based on total segment net revenues. Additionally, the operating income (loss) percentage for Corporate Other is not presented as it is not a meaningful metric (NM).

 

Under Armour, Inc. As of June 30, 2020, December 31, 2019 and June 30, 2019 (Unaudited; in thousands)
CONDENSED CONSOLIDATED BALANCE SHEETS
		June 30, 2020				December 31, 2019				June 30, 2019
Assets
Current assets
Cash and cash equivalents		$	1,079,409			$	788,072			$	455,726
Accounts receivable, net		568,430				708,714				735,181
Inventories		1,198,509				892,258				965,711
Prepaid expenses and other current assets		242,661				313,165				287,829
Total current assets		3,089,009				2,702,209				2,444,447
Property and equipment, net		702,885				792,148				795,499
Operating lease right-of-use assets		568,010				591,931				606,018
Goodwill		486,868				550,178				548,762
Intangible assets, net		38,748				36,345				39,527
Deferred income taxes		42,589				82,379				129,403
Other long term assets		75,232				88,341				116,252
Total assets		$	5,003,341			$	4,843,531			$	4,679,908
Liabilities and Stockholders' Equity
Revolving credit facility, current		$	250,000			$	—			$	—
Accounts payable		664,288				618,194				607,382
Accrued expenses		266,399				374,694				304,063
Customer refund liabilities		199,016				219,424				241,456
Operating lease liabilities		148,408				125,900				116,219
Other current liabilities		90,503				83,797				63,521
Total current liabilities		1,618,614				1,422,009				1,332,641
Long term debt, net of current maturities		987,949				592,687				591,396
Operating lease liabilities, non-current		892,465				580,635				601,665
Other long term liabilities		80,899				98,113				105,932
Total liabilities		3,579,927				2,693,444				2,631,634
Total stockholders' equity		1,423,414				2,150,087				2,048,274
Total liabilities and stockholders' equity		$	5,003,341			$	4,843,531			$	4,679,908

 

Under Armour, Inc. For the Six Months Ended June 30, 2020 and 2019 (Unaudited; in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
	Six Months Ended June 30,
	2020				2019
Cash flows from operating activities
Net income (loss)	$	(772,576)			$	5,128
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation and amortization	86,919				93,721
Unrealized foreign currency exchange rate gain (loss)	(1,134)				(3,077)
Loss on disposal of property and equipment	825				2,447
Impairment charges	449,090				—
Amortization of bond premium	1,867				127
Stock-based compensation	23,258				25,635
Deferred income taxes	22,296				(13,890)
Changes in reserves and allowances	19,772				(10,196)
Changes in operating assets and liabilities:
Accounts receivable	126,059				(75,116)
Inventories	(307,430)				62,302
Prepaid expenses and other assets	77,368				64,533
Other non-current assets	(301,523)				12,812
Accounts payable	46,449				57,674
Accrued expenses and other liabilities	230,670				(48,094)
Customer refund liabilities	(18,630)				(60,089)
Income taxes payable and receivable	7,310				(1,210)
Net cash provided by (used in) operating activities	(309,410)				112,707
Cash flows from investing activities
Purchases of property and equipment	(50,862)				(77,046)
Purchases of other assets	—				(997)
Purchase of businesses	(38,190)				—
Net cash used in investing activities	(89,052)				(78,043)
Cash flows from financing activities
Proceeds from long term debt and revolving credit facility	1,288,753				25,000
Payments on long term debt and revolving credit facility	(550,000)				(162,817)
Purchase of capped call	(47,850)				—
Employee taxes paid for shares withheld for income taxes	(2,732)				(3,077)
Proceeds from exercise of stock options and other stock issuances	2,859				4,238
Payments of debt financing costs	(4,823)				(2,661)
Other financing fees	—				76
Net cash provided by (used in) financing activities	686,207				(139,241)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	4,351				4,463
Net increase in (decrease in) cash, cash equivalents and restricted cash	292,096				(100,114)
Cash, cash equivalents and restricted cash
Beginning of period	796,008				566,060
End of period	$	1,088,104			$	465,946

 

Under Armour, Inc. For the Three and Six Months Ended June 30, 2020 (Unaudited)
The table below presents the reconciliation of net revenue growth (decline) calculated in accordance with GAAP to currency neutral net revenue which is a non-GAAP measure. See "Non-GAAP Financial Information" above for further information regarding the Company's use of non-GAAP financial measures.
CURRENCY NEUTRAL NET REVENUE GROWTH (DECLINE) RECONCILIATION
		Three months ended June 30, 2020
Total Net Revenue
Net revenue decline - GAAP		(40.6)	%
Foreign exchange impact		0.8	%
Currency neutral net revenue decline - Non-GAAP		(39.8)	%
North America
Net revenue decline - GAAP		(44.9)	%
Foreign exchange impact		0.1	%
Currency neutral net revenue decline - Non-GAAP		(44.8)	%
EMEA
Net revenue growth - GAAP		(38.7)	%
Foreign exchange impact		1.5	%
Currency neutral net revenue growth - Non-GAAP		(37.2)	%
Asia-Pacific
Net revenue decline - GAAP		(20.0)	%
Foreign exchange impact		3.2	%
Currency neutral net revenue decline - Non-GAAP		(16.8)	%
Latin America
Net revenue growth - GAAP		(71.9)	%
Foreign exchange impact		3.5	%
Currency neutral net revenue growth - Non-GAAP		(68.4)	%
Total International
Net revenue decline - GAAP		(34.1)	%
Foreign exchange impact		2.5	%
Currency neutral net revenue decline - Non-GAAP		(31.6)	%

 

Under Armour, Inc. For the Three and Six Months Ended June 30, 2020 (Unaudited)
The tables below present the reconciliation of the Company's consolidated statement of operations presented in accordance with GAAP to certain adjusted non-GAAP financial measures discussed in this press release. See "Non-GAAP Financial Information" above for further information regarding the Company's use of non-GAAP financial measures.
ADJUSTED OPERATING LOSS RECONCILIATION
		Three months ended June 30, 2020
Loss from operations		$	(169,674)
Add: Impact of restructuring and related impairment		38,937
Adjusted loss from operations		$	(130,737)
ADJUSTED NET LOSS RECONCILIATION
		Three months ended June 30, 2020
Net loss		$	(182,895)
Add: Impact of restructuring and related impairment		40,201
Add: Impact of amortization of debt discount		1,797
Adjusted net loss		$	(140,897)
ADJUSTED DILUTED LOSS PER SHARE RECONCILIATION
		Three months ended June 30, 2020
Diluted net loss per share		$	(0.40)
Add: Impact of restructuring and related impairment		0.09
Add: Impact of amortization of debt discount		—
Adjusted diluted loss per share		$	(0.31)

 

Under Armour, Inc. As of June 30, 2020 and 2019
BRAND HOUSE AND FACTORY HOUSE DOOR COUNT
		June 30,
		2020		2019
Factory House		170		165
Brand House		18		16
North America total doors		188		181
Factory House		116		86
Brand House		123		79
International total doors		239		165
Factory House		286		251
Brand House		141		95
Total doors		427		346

 

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SOURCE Under Armour, Inc.

FAQ

What were Under Armour's financial results for Q2 2020?

Under Armour reported a 41% decline in revenue to $708 million for Q2 2020.

What was the impact of COVID-19 on Under Armour's revenue?

COVID-19 caused a significant revenue decline across all markets, particularly a 58% drop in wholesale revenue.

What is Under Armour's current cash position?

Under Armour ended Q2 2020 with $1.1 billion in cash and cash equivalents.

What was Under Armour's net loss in Q2 2020?

The net loss for Q2 2020 was $183 million, with an adjusted net loss of $141 million.

How did Under Armour's gross margin perform in Q2 2020?

Under Armour's gross margin improved by 280 basis points to 49.3% compared to the previous year.