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Under Armour Fourth Quarter 2017 And Full Year Results – 2018 Guidance | Transcribed Notes and Main Points

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I typed this as the conference call was being performed so some notes are rushed. Leave a comment for clarification and please link back if you use any info as a source. – Chris B.

Kevin Plank

7 major initiatives

4 Pillars: Product, Story, Service and Team

Product – Category Management Structure – Athlete Insight to inspire consumer. Revamping design approach. Curry 4 Speed 2, HOVR

Bringing Stories to market. 2017 we were loud company and a quiet brand. We plan to be a quiet company, to Loud brand. HOVR was an example of the roll out. (Which was flawed). HOVR is a trifecta and has the largest rollout of marketing ever. This is an example.

Consumer athletes at the forefront and meeting them wherever they are. Our perceived short term weakness, focusing on performance, will be our strength.

Team is resilient and single minded “Under Armour Makes You Better” our new motto.

We see you and we hear you. It takes time

Patrick Frist

Consumer first, simplify operations and drive growth

Finished global segmentation study to understand our consumers. Identify unique areas of whitespace. Unpack five years in five quarters.

Narrowing our focus to have greater operation agility.

Optimizing customer direct business and improving ecommerce. Focus on men’s running, women’s and training. We have to be a product machine. We are 100% focused on the consumer.

Aligning inventory and evolving distribution.

Greater Asia is a focus

Shortening to go to market calendar should reach full effect by 2020. From concept to inline which is critical. SKU optimization is doing more with less. 40% less SKUs.

Loud brand, quiet company. Focusing our marketing (They’ve been saying this for two years.) Sports social and digital for ROI.

Product, Connected Fitness for the best performance products to individuals.

Moving from seasonal to a continuous connection to consumers.

Dave Bergman

4thQ results and outlook for 2018

140-150 Million pre tax charges (129 Million and 37 Million in 4th Q)

New 2018 plan 110-130 in pretax charges

75 Million in savings heading into 2018 and beyond.

Revenue up 1.5 Billion

Wholesale down 1%

Direct grew 11% with International market.

DTC was 42%

Licensing up due to Japanese building

Revenue down 4% in North America

International saw a 47% increase 373 Million.

Highlight was the opening of a brand house in Europe.

Latin American was up 36% in Key markets of Mexico, Brazil and Chile, and entrance into Argentina.

Operating loss 37 Million

Inventory up 26% (Split between North America up mid teen and International up more to support growth)

DTC in North America should offset Wholesale losses.

Low single digit rate across the board in apparel and footwear.

SG&A  is not where we want.

Smarter, leaner and more efficient business is the goal.


Randy Koenig with Jeffries

Q: Give us perspective on tailwinds that are sustainable through 2018?

Dave: Feel good about and assuming less promotions. Basis point improvement on the backend. International is no longer a problem, it’s a bonus. Air Freight issues should be gone. (Late shipment of Curry). Supply chain should be better in 19 and beyond. Channel mix is positive due to DTC growth.

Q: HOVR what have you learned from aesthetic and design improvements? What can you take away and learn for all products in 18 and beyond?

Kevin: Style, performance and fit… when we deliver on reason and purpose for being it exemplifies what UA is. HOVR can be executed in globally. Footwear, women’s, international are our biggest growth drivers. It hits our trifecta. (Still touting Connected Fitness with HOVR)

John with Baird

Q: Recovery is a two year journey, what are specific examples?

Patrick: Confidence is based on putting the consumer at the forefront. The Global study gives us more insight in where we can be effective. We have line of site for speed to market. HOVR was a 360 degree campaign around the globe was the first time and it worked. SKU optimization at 40% less SKUs over a two year period is reason for confidence.

Kevin: Focusing on scale has been important as a 5 Billion dollar brand. Heavy focus on what we will build and becoming operationally excellent.

Q: Cost Efficiencies 75 Million of savings by 2019 

Dave: Investor’s Day in the fall. North America is deleveraging due to top line. Fixed costs were growing well ahead of revenue. Variable expenses who have to prioritize.

Edward with Keybank

Q: Improving Profitability in international

Dave: Teams in international regions have been doing phenomenal job. Exceeding 40% growth especially in China/Korea. EMEA great traction with DTC growth. Latin America is our smallest market but becoming more significant. After years of investment they are becoming profitable. Asia Pacific is becoming very profitable.

Jim Duffy

Q: What are key steps with inventory in line with revenue growth. Will there be more clearance and discounting through the back half of the year?

Dave: Context: Took 300 Million out of our top line. Definitely overhang from 2017. We will use our brand stores an off price for clearance. We should be back in line by the back half of the year.

Patrick: Planning on the back half with Que Optimization and being more realistic about inventory levels throughout 2018.

Bob Derbal with Guggenhiem

Q: Where do you think you are women’s and kids heading into 2018?

Patrick: Women’s is a tremendous growth opportunity. Youth is a very important part of our business where we want to increase market share. contracts with over 400 organizations and over a 1000 high schools and others we sell too. As we expand digital and DTC it should improve. Category management helped women’s in 2017. Style, performance and fit will be much, much better in 2018.

Kevin: Kids love this brand. We are doubling down on that. We can just be better with women. What we need to do for her is deliver on fit, style and color. We believe in it, but we have to give her a better reason to buy from us.

Segmentation by channel, where are you?

Patrick: Category Management couple with a deeper understanding has come with a better understanding of which SKUs drive us. We are making the really hard decisions.

John Kernan with Cowen (sp)

Asia-Pac what are you learning about China? How big can it be?

Patrick: We’re small but very premium. Most distribution in DTC is in Tier 1 and Tier 2 cities with great opportunity for Brick and Mortar and Digital growth.

Dave: Gross margins are strong and we’ve been building the infrastructure and now we have scale we can grow profits.

Kevin: we have a terrific team on the ground, we’re in 60 cities and over 100 doors and we just opened our largest store in Beijing with a 20000 Sq foot store. Doubling down on international.

What’s guidance for North America Wholesale?

Dave: Problems in 2017 will carry over to 2018. Promo will carry over and there will be additional contraction. We’re not expecting a turnaround in 2018. We have to be strategic.

Omar Saad (sp)

Creative process, what is your aim for better products?

Patrick: Entirety of the process is consumer first inside of the space we are competing. (SPF) Cutting SKUs, focused on consumer, understand space we compete in, and product and design is more focused, which will drive better products. Couple this with “go to market” process creates a 360 degree delivery to consumer. We have to enable our teams from production and marketing.

Kevin: 21 years, 13 as a public, calendar discipline, go to market is critical. Our competitors are very good we have to make sure we are segmented. Bringing product to market should not be complicated. When we innovate, we win. The current perceived weakness of performance is going to be our strength. (I like that they get this. It’s the only place they can dwell.)

Are you carving out your position in this lifestyle market?

Kevin: We know who we are. (YES!!!!) We get it. Every product we make has to be stylish, but it has to perform. With UA it has to be what does it do? It’s not just a sweatshirt, you can wear it in a storm. Under Armour product does something and it makes you better. We will be market and trend right.

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