Under Armour Reports Fourth Quarter and Full Year Results; Announces Outlook for 2017
"We are incredibly proud that in 2016, we once again posted record revenue and earnings, however, numerous challenges and disruptions in North American retail tempered our fourth quarter results," said
Fourth Quarter 2016 Review
- Revenues were up 12 percent to
$1.3 billion , driven by a 5 percent increase in wholesale revenues to$742 million and a 23 percent increase in direct-to-consumer revenues to$518 million . North American revenues grew 6 percent. International revenues, which represented 16 percent of total revenues in the quarter, were up 55 percent (up 60 percent currency neutral) driven by significant growth in theU.K. ,Germany ,China andAustralia . Apparel revenues increased 7 percent to$929 million including strength in golf and basketball. Footwear revenues increased 36 percent to$228 million driven by accelerated growth in running and basketball. Accessories revenues increased 7 percent to$104 million with strength in bags and headwear. - Gross margin was 44.8 percent compared with 48 percent in the prior year's period, as benefits from more favorable product costs were offset by aggressive efforts to manage inventory, changes in foreign currency and the outperformance of footwear and international businesses in the overall mix, which carry lower margins than our apparel and North American businesses.
- Selling, general and administrative expenses grew 9 percent to
$420 million , or 32.1 percent of sales (down 70 basis points), due to continued investments in the company's highest growth businesses: footwear, international, and direct-to-consumer. - Operating income declined 6 percent to
$167 million . Net income decreased 1 percent to$105 million and diluted earnings per share for the fourth quarter of 2016 were$0.23 compared with$0.24 in the prior year's period.
Full Year 2016 Review
- Revenues increased 22 percent to
$4.8 billion (up 23 percent currency neutral) including a 19 percent increase in wholesale revenues to$3.1 billion and a 27 percent increase in direct-to-consumer revenues which reached$1.5 billion . Direct-to-consumer revenues reached 31 percent of total revenues compared with 30 percent in 2015. North American revenues grew 16 percent and international revenues grew 63 percent (up 69 percent currency neutral). For the full year, international revenues represented 15 percent of total revenues, compared with 11 percent in 2015. Apparel revenues increased 15 percent to$3.2 billion led by growth in golf, basketball and training. Footwear revenues grew 50 percent to reach$1 billion driven by balanced growth across all categories with particular strength in running and basketball. Accessories revenues increased 17 percent to$407 million with strength in bags and headwear andConnected Fitness increased 51 percent to$80 million . - Gross margin was 46.5 percent compared with 48.1 percent as benefits from more favorable product costs were offset by efforts to manage inventory, changes in foreign currency and the outperformance of the footwear and international businesses in the overall mix, which carry lower margins than the apparel and North American businesses.
- In line with revenue growth, full year selling, general and administrative expenses grew 22 percent and reached
$1.8 billion , or 37.8 percent of revenues. - Operating income increased 3 percent to
$420 million and net income grew 11 percent to$259 million . Diluted earnings per share for full year 2016 were$0.45 per share for Class A and B shares and$0.71 per share for Class C shares, reflecting the impact of a$59 million stock dividend paid to Class C shareholders during the second quarter. If the Class C stock dividend had not been paid, non-GAAP diluted earnings per share for all classes for 2016 would have been$0.58 per share. This compares with diluted earnings per share of$0.53 for all classes in 2015.
Balance Sheet Highlights - As of
Compared with
- Cash and cash equivalents increased 93 percent to
$250 million . - Inventory increased 17 percent to
$917 million . - Total debt increased 22 percent to
$817 million .
2017 Outlook
"Looking forward, our successful track record of re-defining performance gives us great confidence that the opportunities for long-term growth at
Key points related to
- Net revenues are expected to grow 11 to 12 percent to reach nearly
$5.4 billion , up 12 to 13 percent currency neutral. - Gross margin is expected to be slightly down compared to the prior year with benefits in product costs being offset by continued pressure from changes in foreign currency and sales mix, as the footwear and international businesses continue to outpace the growth of the higher margin apparel and North American businesses.
- Tempered top line results coupled with strategic investments in the company's fastest growing businesses are expected to cause a decline in operating income to approximately
$320 million . - Other full year assumptions include interest expense of approximately
$40 million and an effective tax rate of 32 to 34 percent.
Management Changes
The Company's Chief Financial Officer,
Conference Call and Webcast
Non-GAAP Financial Information
The Company reports its financial results in accordance with accounting principles generally accepted in
Non-GAAP diluted earnings per share is calculated to exclude the one-time dividend to our Class C stockholders discussed above. Management believes this presentation provides a useful metric to investors because it excludes the effect of this one-time event allowing investors to compare the Company's results over multiple periods. Currency neutral financial information is calculated to exclude foreign exchange impact. Management uses this information internally to assess sales performance and believes this information is useful both internally and to investors to facilitate a comparison of the Company's results of operations period-over-period. 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. In addition, the Company's non-GAAP financial information may not be comparable to similarly titled measures reported by other companies.
About
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, the development and introduction of new products, the implementation of our marketing and branding strategies, and the future benefits and opportunities from acquisitions. 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; the financial health of our customers; our ability to effectively manage our growth and a more complex global business; increased competition causing us to lose market share or reduce the prices of our products or to increase significantly our marketing efforts, which can impact our profitability and growth; 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; 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; our ability to comply with existing trade and other regulations, and the potential impact of new trade and tax regulations on our profitability; 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 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.
| ||||||||||||||||||||||||||||
For the Quarter and Year Ended | ||||||||||||||||||||||||||||
(Unaudited; in thousands, except per share amounts) | ||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||||||||||||||
Quarter Ended |
Year Ended | |||||||||||||||||||||||||||
2016 |
% of Net |
2015 |
% of Net |
2016 |
% of Net |
2015 |
% of Net | |||||||||||||||||||||
Net revenues |
$ |
1,308,128 |
100.0 |
% |
$ |
1,170,686 |
100.0 |
% |
$ |
4,828,186 |
100.0 |
% |
$ |
3,963,313 |
100.0 |
% | ||||||||||||
Cost of goods sold |
721,574 |
55.2 |
% |
609,016 |
52.0 |
% |
2,584,724 |
53.5 |
% |
2,057,766 |
51.9 |
% | ||||||||||||||||
Gross profit |
586,554 |
44.8 |
% |
561,670 |
48.0 |
% |
2,243,462 |
46.5 |
% |
1,905,547 |
48.1 |
% | ||||||||||||||||
Selling, general and |
419,804 |
32.1 |
% |
384,088 |
32.8 |
% |
1,823,140 |
37.8 |
% |
1,497,000 |
37.8 |
% | ||||||||||||||||
Income from |
166,750 |
12.7 |
% |
177,582 |
15.2 |
% |
420,322 |
8.7 |
% |
408,547 |
10.3 |
% | ||||||||||||||||
Interest expense, net |
(7,958) |
(0.6) |
% |
(4,056) |
(0.4) |
% |
(26,434) |
(0.5) |
% |
(14,628) |
(0.4) |
% | ||||||||||||||||
Other expense, net |
(1,731) |
(0.1) |
% |
(2,196) |
(0.2) |
% |
(2,755) |
(0.1) |
% |
(7,234) |
(0.2) |
% | ||||||||||||||||
Income before income |
157,061 |
12.0 |
% |
171,330 |
14.6 |
% |
391,133 |
8.1 |
% |
386,685 |
9.7 |
% | ||||||||||||||||
Provision for income taxes |
52,151 |
4.0 |
% |
65,727 |
5.6 |
% |
132,473 |
2.7 |
% |
154,112 |
3.8 |
% | ||||||||||||||||
Net income |
$ |
104,910 |
8.0 |
% |
$ |
105,603 |
9.0 |
% |
$ |
258,660 |
5.4 |
% |
$ |
232,573 |
5.9 |
% | ||||||||||||
Adjustment |
— |
— |
59,000 |
— |
||||||||||||||||||||||||
Net income available |
104,910 |
105,603 |
199,660 |
232,573 |
||||||||||||||||||||||||
Basic net income per share |
$ |
0.24 |
$ |
0.24 |
$ |
0.46 |
$ |
0.54 |
||||||||||||||||||||
Basic net income per share |
$ |
0.24 |
$ |
0.24 |
$ |
0.73 |
$ |
0.54 |
||||||||||||||||||||
Diluted net income per |
$ |
0.23 |
$ |
0.24 |
$ |
0.45 |
$ |
0.53 |
||||||||||||||||||||
Diluted net income per |
$ |
0.23 |
$ |
0.24 |
$ |
0.71 |
$ |
0.53 |
||||||||||||||||||||
Weighted average common shares outstanding Class A and B common stock | ||||||||||||||||||||||||||||
Basic |
218,220 |
215,948 |
217,707 |
215,498 |
||||||||||||||||||||||||
Diluted |
222,802 |
221,307 |
221,983 |
220,868 |
||||||||||||||||||||||||
Weighted average common shares outstanding Class C common stock | ||||||||||||||||||||||||||||
Basic |
220,040 |
215,948 |
218,623 |
215,498 |
||||||||||||||||||||||||
Diluted |
224,777 |
221,307 |
222,922 |
220,868 |
| ||||||||||||||||||||||
For the Quarter and Year Ended | ||||||||||||||||||||||
(Unaudited; in thousands) | ||||||||||||||||||||||
NET REVENUES BY PRODUCT CATEGORY | ||||||||||||||||||||||
Quarter Ended |
Year Ended | |||||||||||||||||||||
2016 |
2015 |
% Change |
2016 |
2015 |
% Change | |||||||||||||||||
Apparel |
$ |
928,546 |
$ |
864,841 |
7.4 |
% |
$ |
3,229,142 |
$ |
2,801,062 |
15.3 |
% | ||||||||||
Footwear |
227,701 |
166,880 |
36.4 |
% |
1,013,544 |
677,744 |
49.5 |
% | ||||||||||||||
Accessories |
104,348 |
97,130 |
7.4 |
% |
406,614 |
346,885 |
17.2 |
% | ||||||||||||||
Total net sales |
1,260,595 |
1,128,851 |
11.7 |
% |
4,649,300 |
3,825,691 |
21.5 |
% | ||||||||||||||
Licensing revenues |
29,926 |
24,852 |
20.4 |
% |
99,849 |
84,207 |
18.6 |
% | ||||||||||||||
|
18,267 |
16,983 |
7.6 |
% |
80,447 |
53,415 |
50.6 |
% | ||||||||||||||
Intersegment eliminations |
(660) |
— |
(100.0) |
% |
(1,410) |
— |
(100.0) |
% | ||||||||||||||
Total net revenues |
$ |
1,308,128 |
$ |
1,170,686 |
11.7 |
% |
$ |
4,828,186 |
$ |
3,963,313 |
21.8 |
% |
NET REVENUES BY SEGMENT | ||||||||||||||||||||||
Quarter Ended |
Year Ended | |||||||||||||||||||||
2016 |
2015 |
% Change |
2016 |
2015 |
% Change | |||||||||||||||||
|
$ |
1,075,251 |
$ |
1,015,009 |
5.9 |
% |
$ |
4,008,165 |
$ |
3,455,737 |
16.0 |
% | ||||||||||
International |
215,270 |
138,694 |
55.2 |
% |
740,984 |
454,161 |
63.2 |
% | ||||||||||||||
|
18,267 |
16,983 |
7.6 |
% |
80,447 |
53,415 |
50.6 |
% | ||||||||||||||
Intersegment eliminations |
(660) |
— |
(100.0) |
% |
(1,410) |
— |
(100.0) |
% | ||||||||||||||
Total net revenues |
$ |
1,308,128 |
$ |
1,170,686 |
11.7 |
% |
$ |
4,828,186 |
$ |
3,963,313 |
21.8 |
% |
OPERATING INCOME (LOSS) BY SEGMENT | ||||||||||||||||||||||
Quarter Ended |
Year Ended | |||||||||||||||||||||
2016 |
2015 |
% Change |
2016 |
2015 |
% Change | |||||||||||||||||
|
$ |
160,191 |
$ |
188,418 |
(15.0) |
% |
$ |
411,275 |
$ |
460,961 |
(10.8) |
% | ||||||||||
International |
10,870 |
2,761 |
293.7 |
% |
45,867 |
8,887 |
416.1 |
% | ||||||||||||||
|
$ |
(4,311) |
$ |
(13,597) |
68.3 |
% |
$ |
(36,820) |
$ |
(61,301) |
39.9 |
% | ||||||||||
Income from operations |
$ |
166,750 |
$ |
177,582 |
(6.1) |
% |
$ |
420,322 |
$ |
408,547 |
2.9 |
% |
| ||||||||
As of | ||||||||
(Unaudited; in thousands) | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
As of |
As of | |||||||
Assets |
||||||||
Cash and cash equivalents |
$ |
250,470 |
$ |
129,852 |
||||
Accounts receivable, net |
625,536 |
433,638 |
||||||
Inventories |
917,491 |
783,031 |
||||||
Prepaid expenses and other current assets |
183,393 |
152,242 |
||||||
Total current assets |
1,976,890 |
1,498,763 |
||||||
Property and equipment, net |
804,211 |
538,531 |
||||||
|
563,591 |
585,181 |
||||||
Intangible assets, net |
64,310 |
75,686 |
||||||
Deferred income taxes |
135,692 |
92,157 |
||||||
Other long term assets |
110,204 |
78,582 |
||||||
Total assets |
$ |
3,654,898 |
$ |
2,868,900 |
||||
Liabilities and Stockholders' Equity |
||||||||
Accounts payable |
418,565 |
200,460 |
||||||
Accrued expenses |
208,750 |
192,935 |
||||||
Current maturities of long term debt |
27,000 |
42,000 |
||||||
Other current liabilities |
40,387 |
43,415 |
||||||
Total current liabilities |
694,702 |
478,810 |
||||||
Long term debt, net of current maturities |
790,388 |
627,000 |
||||||
Other long term liabilities |
137,227 |
94,868 |
||||||
Total liabilities |
1,622,317 |
1,200,678 |
||||||
Total stockholders' equity |
2,032,581 |
1,668,222 |
||||||
Total liabilities and stockholders' equity |
$ |
3,654,898 |
$ |
2,868,900 |
| |||||||
For the Year Ended | |||||||
(Unaudited; in thousands) | |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
Year Ended | |||||||
2016 |
2015 | ||||||
Cash flows from operating activities |
|||||||
Net income |
$ |
258,660 |
$ |
232,573 |
|||
Adjustments to reconcile net income to net cash provided by (used in) operating activities |
|||||||
Depreciation and amortization |
144,770 |
100,940 |
|||||
Unrealized foreign currency exchange rate losses |
12,627 |
33,359 |
|||||
Loss on disposal of property and equipment |
1,580 |
549 |
|||||
Stock-based compensation |
46,149 |
60,376 |
|||||
Deferred income taxes |
(41,834) |
(4,426) |
|||||
Changes in reserves and allowances |
67,337 |
40,391 |
|||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
|||||||
Accounts receivable |
(249,853) |
(191,876) |
|||||
Inventories |
(148,055) |
(278,524) |
|||||
Prepaid expenses and other assets |
(34,170) |
(76,476) |
|||||
Accounts payable |
211,332 |
(22,583) |
|||||
Accrued expenses and other liabilities |
52,656 |
64,126 |
|||||
Income taxes payable and receivable |
(16,712) |
(2,533) |
|||||
Net cash provided by (used in) operating activities |
304,487 |
(44,104) |
|||||
Cash flows from investing activities |
|||||||
Purchases of property and equipment |
(316,458) |
(298,928) |
|||||
Purchases of property and equipment from related parties |
(70,288) |
— |
|||||
Purchase of businesses, net of cash acquired |
— |
(539,460) |
|||||
Purchases of available-for-sale securities |
(24,230) |
(103,144) |
|||||
Sales of available-for-sale securities |
30,712 |
96,610 |
|||||
Purchases of other assets |
(875) |
(2,553) |
|||||
Net cash used in investing activities |
(381,139) |
(847,475) |
|||||
Cash flows from financing activities |
|||||||
Proceeds from long term debt and revolving credit facility |
1,327,601 |
650,000 |
|||||
Payments on long term debt and revolving credit facility |
(1,170,750) |
(265,202) |
|||||
Excess tax benefits from stock-based compensation arrangements |
44,783 |
45,917 |
|||||
Proceeds from exercise of stock options and other stock issuances |
15,485 |
10,310 |
|||||
Payments of debt financing costs |
(6,692) |
(947) |
|||||
Cash dividends paid |
(2,927) |
— |
|||||
Contingent consideration payments for acquisitions |
(1,505) |
— |
|||||
Net cash provided by financing activities |
205,995 |
440,078 |
|||||
Effect of exchange rate changes on cash and cash equivalents |
(8,725) |
(11,822) |
|||||
Net increase (decrease) in cash and cash equivalents |
120,618 |
(463,323) |
|||||
Cash and cash equivalents |
|||||||
Beginning of period |
129,852 |
593,175 |
|||||
End of period |
$ |
250,470 |
$ |
129,852 |
| ||||||
For the Quarter and Year Ended | ||||||
(Unaudited) | ||||||
The tables below present the reconciliation of non-GAAP financial measures to the most directly | ||||||
CURRENCY NEUTRAL NET REVENUE GROWTH RECONCILIATION | ||||||
Quarter Ended |
Year Ended | |||||
Total Net Revenue |
2016 |
2016 | ||||
Net revenue growth - GAAP |
11.7 |
% |
21.8 |
% | ||
Foreign exchange impact |
0.6 |
% |
1.2 |
% | ||
Currency neutral net revenue growth - Non-GAAP |
12.3 |
% |
23.0 |
% | ||
|
||||||
Net revenue growth - GAAP |
5.9 |
% |
16.0 |
% | ||
Foreign exchange impact |
0.1 |
% |
— |
% | ||
Currency neutral net revenue growth - Non-GAAP |
6.0 |
% |
16.0 |
% | ||
International |
||||||
Net revenue growth - GAAP |
55.2 |
% |
63.2 |
% | ||
Foreign exchange impact |
4.8 |
% |
5.8 |
% | ||
Currency neutral net revenue growth - Non-GAAP |
60.0 |
% |
69.0 |
% | ||
|
||||||
Net revenue growth - GAAP |
7.6 |
% |
50.6 |
% | ||
Foreign exchange impact |
(3.6) |
% |
(1.6) |
% | ||
Currency neutral net revenue growth - Non-GAAP |
4.0 |
% |
49.0 |
% |
NON-GAAP DILUTIVE EPS RECONCILIATION | |||||||||||
Year ended | |||||||||||
GAAP |
Adjustment |
Non-GAAP | |||||||||
Net income |
$ |
258,660 |
$ |
— |
$ |
258,660 |
|||||
Adjustment payment to Class C capital stockholders |
(59,000) |
59,000 |
(a) |
— |
|||||||
Net income Attributable to Common Shareholders |
$ |
199,660 |
$ |
59,000 |
$ |
258,660 |
|||||
Weighted average common shares outstanding Class A and B |
221,983 |
— |
221,983 |
||||||||
Weighted average common shares outstanding Class C common stock - Diluted |
222,922 |
(750) |
(a) |
222,172 |
|||||||
Diluted net income per share of Class A and B common stock |
$ |
0.45 |
$ |
0.58 |
|||||||
Diluted net income per share of Class C common stock |
$ |
0.71 |
$ |
0.58 |
|||||||
(a) To eliminate dividend paid to class C common shareholders. |
BRAND HOUSE AND FACTORY HOUSE DOOR COUNT | ||||
As of | ||||
2016 |
2015 | |||
Factory House |
151 |
140 | ||
Brand House |
18 |
10 | ||
|
169 |
150 | ||
Factory House |
37 |
18 | ||
Brand House |
35 |
22 | ||
International total doors |
72 |
40 | ||
Factory House |
188 |
158 | ||
Brand House |
53 |
32 | ||
Total doors |
241 |
190 |
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