BALTIMORE — December 12, 2018 — At an investor meeting held today at its global headquarters, Under Armour Inc. introduced the company’s 2023 strategic growth plan which provided an overview of its long-term strategy and key initiatives to deliver sustainable, profitable growth and shareholder value.
“Under Armour is designed for resilience and over the past two years, our global team has worked tirelessly to transform our business — operationally, strategically and culturally,” said Under Armour Chairman and CEO Kevin Plank. “With a distinct strategy engineered around a clear, uniquely defined consumer supported by a disciplined go-to-market process and data-driven demand mapping, we have never been more inspired, aligned and capable of achieving our goals.”
“As we execute against our long-term strategy, we remain unwavering in our commitment to protecting and growing the Under Armour brand,” Plank continued. “Led by a strong management team, an accelerated innovation agenda and comprehensive discipline around our commitment to increasing total shareholder return, we look forward to delivering the next chapter in our growth story.”
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 “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 the related tax effects, as well as adjustments to our one-time impacts of the 2017 U.S. tax reform legislation, which we refer to as the U.S. Tax Act. All per share amounts are referenced on a diluted basis.
2023 Strategic Growth Plan
The new 5-year plan is architected around two strategic priorities: protect and perform.
The first priority is a continued focus on elevating and protecting the Under Armour brand by taking actions to ensure the ability to consistently deliver what consumers, customers and shareholders expect from the company. This means an accelerated innovation agenda, driving even deeper connections through return-driven demand creation and brand experiences, and utilizing an optimized supply chain model along with improving service levels to keep pace within a dynamically evolving market. Simultaneously, the second priority is performing with balance and working to create greater financial and operational agility across the company’s portfolio of businesses to ensure future growth is repeatable and consistent.
Serving as a foundation to its 5-year strategy are the following core elements:
- Single-minded focus on innovative athletic performance product and experiences.
- Becoming consumer centric by harnessing data science and analytics along with the world’s largest digitally connected health and fitness community to drive engagement, preference and consideration.
- Continuing to elevate investments toward the largest long-term growth opportunities including the company’s international, direct-to-consumer, footwear and women’s businesses.
- Emphasizing digital engagement and conversion, and retail excellence.
- Protecting the brand through selective, optimal and premium wholesale distribution.
- Delivering balanced, sustainable earnings growth through margin expansion, cost efficiencies and investment in strategic growth initiatives to drive consistent shareholder return.
2023 Financial Targets
Reviewing the company’s expected performance against its long-term growth strategy, Chief Financial Officer David Bergman emphasized foundational operating principles set to drive consistent results over the five-year period, “Focusing on sustainable, profitable growth while increasing returns on capital and generating substantial cash will empower our ability to deliver industry-leading innovation, compelling premium consumer experiences and drive toward our targets, while steadily increasing returns to our shareholders.”
- Revenue is expected to return to a low double-digit growth rate by 2023, inclusive of a mid to high single-digit five-year compounded annual growth rate (“CAGR”), driven primarily by the company’s International and Direct-to-Consumer businesses.
- Gross margin is expected to increase approximately 275 to 300 basis points reaching at least 48.0 percent in 2023.
- Annual operating margin is expected to reach a low double-digit percentage rate by 2023.
- Earnings per share is expected to grow at a five-year CAGR of approximately 40 percent.
- Annual cash flow from operations, by 2023, is targeted at approximately $700 million, with a cumulative $2.5 billion in cash flow to be generated between 2019 and 2023.
- Return on invested capital is expected to reach 20 percent by 2023.
Updated Fiscal 2018 Outlook
At the meeting, the company provided the following updates to its previous annual outlook, which was issued October 30:
- Gross margin is now expected to be flat versus the previous expectation of “flat to down slightly” versus 45.1 percent in 2017. Adjusted gross margin is expected to improve 20 to 30 basis points compared to 45.2 percent in 2017 as benefits from product costs and lower planned promotional activity are offset primarily by inventory management actions.1
- Operating loss is now expected to be approximately $40 to $55 million versus the previously expected $50 to 55 million loss. On an adjusted basis, operating income is now expected to reach the $160 to $165 million range versus the previous $150 to $165 million range.
- Excluding the impact of the restructuring efforts, adjusted diluted earnings per share is now expected to be $0.21 to $0.22 versus the previous expectation of $0.19 to $0.22.
- Year-end inventory for 2018 is now expected to be down at a mid-single-digit rate versus the previous expectation of flat to down slightly.
Initial Fiscal 2019 Outlook
In addition to updating its 2018 full year outlook that was provided on its October 30 earnings call, the company presented an initial outlook for the full year 2019:
- Revenue is expected to be up approximately 3 to 4 percent reflecting a low double-digit percentage rate increase in the international business and relatively flat results for North America.
- Gross margin is expected to increase approximately 60 to 80 basis points compared to 2018 adjusted gross margin due to channel mix benefits from lower planned sales to the off-price channel and a higher percentage of direct-to-consumer sales along with more favorable product costs due to ongoing supply chain initiatives.
- Operating income is expected to reach $210 million to $230 million.
- Interest and other expense net is planned at approximately $40 million.
- Effective tax rate is expected to be in the 19 percent to 22 percent range.
- Earnings per share is expected to be in the range of $0.31 to $0.33; and,
- Capital expenditures are planned at approximately $210 million.
Meeting Presenters and Content
Additional presenters from Under Armour’s senior management included: Patrik Frisk, President and Chief Operating Officer; Paul Fipps, Chief Digital Officer; Clay Dean, Chief Innovation Officer; Colin Browne, Chief Supply Chain Officer; Kevin Eskridge, Chief Product Officer; Jason LaRose, President, North America; Jim Mollica, SVP, Consumer Engagement; Attica Jaques, VP, Global Brand Management; Massimo Baratto, Managing Director, EMEA; Manuel Ovalle, Managing Director, Latin America; Jason Archer, Managing Director, Asia Pacific; and, Christina Mei, Managing Director, China.
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. During 2018, the company has revised its reasonable estimate made in the company’s 2017 financial results for the one-time mandatory transition tax on accumulated foreign earnings and the re-measuring of deferred tax assets due to the U.S. Tax Act. Since the U.S. Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and additional accounting interpretation were expected over the subsequent 12 months, the company considers the accounting of the transition tax, deferred tax re-measurements, and other items to be provisional. The company expects to finalize its estimates within the one-year measurement period allowed by the SEC.
Non-GAAP Financial Information
This press release and materials presented at the company’s investor meeting refer to “adjusted” results as well as “adjusted” forward looking estimates of the company’s fiscal 2018 outlook and 2017 results. Adjusted gross margin, adjusted operating income, adjusted operating income percentage (or margin) 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.
Posted December 19, 2018
Source: Under Armour Inc.