BALTIMORE, Feb. 14, 2019: Under Armour, Inc. (NYSE: UA, UAA) today announced financial results for the fourth quarter ended December 31, 2018. 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 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.
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.
"Our 2018 results demonstrate significant progress against our multi-year transformation toward becoming an even stronger brand and more operationally excellent company," said Under Armour Chairman and CEO Kevin Plank. "As we look ahead to 2019, our accelerated innovation agenda, disciplined go-to-market process and powerful consumer-centric approach gives us increasingly greater confidence in our ability to deliver for Under Armour athletes, customers and shareholders."
Fourth Quarter 2018 review
Revenue was up 2 percent to $1.4 billion (up 3 percent currency neutral).
Wholesale revenue increased 1 percent to $737 million and direct-to-consumer revenue was flat at $577 million, representing 41 percent of total revenue.
North America revenue decreased 6 percent to $965 million and our international business increased 24 percent to $395 million (up 28 percent currency neutral), representing 28 percent of total revenue. Within the international business, revenue was up 32 percent in EMEA (up 35 percent currency neutral), up 35 percent in Asia-Pacific (up 39 percent currency neutral), and down 15 percent in Latin America (down 11 percent currency neutral).
Apparel revenue increased 2 percent to $970 million with growth in the train category. Footwear revenue decreased 4 percent to $235 million primarily driven by lower sales to the off-price channel. Accessories revenue decreased 2 percent to $108 million.
Gross margin increased 160 basis points to 45.0 percent compared to the prior year, including a $2 million impact related to restructuring efforts. Excluding restructuring efforts in both periods, adjusted gross margin increased 160 basis points to 45.1 percent compared to the prior year driven predominantly by regional and channel mix, product cost improvements, lower promotional activity, and lower air freight partially offset by changes in foreign currency.
Selling, general & administrative expenses decreased 1 percent to $587 million, or 42.3 percent of revenue.
Restructuring and impairment charges were $48 million.
Operating loss was $10 million. Adjusted operating income was $40 million.
Net income was $4 million or $0.01 earnings per share. Adjusted net income was $42 million or $0.09 adjusted earnings per share.
Inventory decreased 12 percent to $1.0 billion.
Cash and cash equivalents increased 78 percent to $557 million.
Full Year 2018 Review
Revenue was up 4 percent to $5.2 billion.
Wholesale revenue increased 3 percent to $3.1 billion and direct-to-consumer revenue was up 4 percent to $1.8 billion, representing 35 percent of total revenue.
North America revenue decreased 2 percent to $3.7 billion and our international business increased 23 percent to $1.3 billion (up 22 percent currency neutral), representing 26 percent of total revenue. Within the international business, revenue was up 25 percent in EMEA (up 23 percent currency neutral), up 29 percent in Asia-Pacific (up 27 percent currency neutral), and up 5 percent in Latin America (up 8 percent currency neutral).
Apparel revenue increased 5 percent to $3.5 billion with growth primarily driven by the train category. Footwear revenue increased 2 percent to $1.1 billion largely driven by growth in the run category. Accessories revenue was down 5 percent to $422 million due to softer demand and continued actions to optimize our inventory and distribution.
Gross margin was 45.1 percent, in line with the prior year including a $21 million impact related to restructuring efforts. Excluding restructuring efforts in both periods, adjusted gross margin increased 30 basis points to 45.5 percent driven predominantly by product cost improvements, lower promotional activity, and changes in foreign currency offset by channel mix.
Selling, general & administrative expenses increased 4 percent to $2.2 billion, or 42.0 percent of revenue.
Restructuring and impairment charges were $183 million.
Operating loss was $25 million. Adjusted operating income was $179 million.
Net loss was $46 million or $0.10 loss per share. Adjusted net income was $122 million or $0.27 adjusted earnings per share.
2018 Restructuring Plan
For the full year the company recognized $204 million of pre-tax charges, inclusive of $50 million in the fourth quarter. Of the $204 million recognized, there were $151 million in cash related charges and $53 million in non-cash related charges. This compares to the previously announced 2018 plan which anticipated approximately $200 to $220 million in restructuring related charges for the full year.
Full Year 2019 Outlook
There are no changes to the company's 2019 outlook, which was provided at its December 12, 2018 investor day:
Revenue is expected to increase approximately 3 to 4 percent reflecting relatively flat results for North America and a low double-digit percentage rate increase in the international business.
Gross margin is expected to improve 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 are 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.