Under Armour has announced financial results for the second quarter ended June 30, 2018. During Q2 2018, revenue was up 8% year on year to US$1.2 billion (+7% on a currency neutral basis).
Revenue to wholesale customers increased 9% to US$710 million and direct-to-consumer revenue was up 7% to $414 million. The direct-to-consumer business represented 35% of global revenue in the quarter.
“Through the first half of 2018, we are making progress toward our transformation of running a more operationally excellent company while amplifying the power of the Under Armour brand,” said Under Armour Chairman and CEO Kevin Plank. “The ongoing improvements in our structure, systems and go-to-market process across our global business better position us to drive a more consistent, predictable path to deliver for our consumers, customers and shareholders over the long-term.”
North America revenue increased 2% to US$843 million (up 1% currency neutral); and the international business continued to deliver strong growth with a 28% increase to US$302 million (up 24% currency neutral), representing 26% of total revenue.
Within the international business, revenue in EMEA was up 31% (up 25% currency neutral), up 34% in Asia-Pacific (up 28% currency neutral) and up 7% in Latin America (up 12% currency neutral).
Apparel revenue increased 10% to US$747 million, driven by the training and running sub-categories. Footwear revenue was up 15% to US$271 million with strength in running and team sports. Accessories revenue decreased 14% to US$106 million due to softer demand.
Gross margin decreased approximately 110 basis points to 44.8% due to inventory management initiatives and a US$6 million impact related to restructuring efforts. Adjusted gross margin decreased 60 basis points to 45.3% driven predominantly by inventory management initiatives.
Selling, general and administrative expenses increased 10% to US$553 million, or 47.0% of revenue – driven by continued investments in direct-to-consumer, footwear, and international businesses, along with a reserve related to a commercial dispute.
Restructuring and impairment charges were US$79 million. In the Q2 2018 period, the operating loss was US$105 million. Adjusted operating loss was US$20 million. The net loss was US$96 million. Excluding the impact of the restructuring plan, the adjusted net loss was US$34 million.
2018 Restructuring Plan
On February 13, the company announced a 2018 restructuring plan, which detailed expectations to incur total estimated pre-tax restructuring and related charges of approximately US$110-130 million. After further review, the company has identified approximately $80 million of additional restructuring initiatives and now expects to incur approximately $190-210 million of pre-tax restructuring and related charges in 2018.
In the second quarter, Under Armour recognized pre-tax costs totalling US$85 million consisting of US$64 million in cash related charges and US$21 million in non-cash charges. Based on the updated restructuring plan, in 2018 the company expects to incur:
- Up to US$155 million in cash related charges, consisting of up to US$75 million in facility and lease terminations and up to US$80 million in contract termination and other restructuring charges; and
- Up to US$55 million in non-cash charges comprised of up to US$20 million of inventory related charges and up to US$35 million of asset related impairments.
CEO Kevin Plank concluded, “As we work through our multi-year transformation, we continue to proactively attack underperforming areas of our business including our SG&A cost structure and inventory. All of this will help create a better and stronger Under Armour through even greater operational efficiencies. We are unwavering in building our global brand and confident we’re on the right track.”
Updated fiscal 2018 outlook
- Net revenue is now expected to increase approximately 3% to 4% reflecting a low to mid-single-digit decline in North America and international growth of greater than 25%. From a product perspective, apparel is expected to grow at a mid-single digit rate, footwear at a low-single digit rate, and accessories is expected to decline at a low-single digit rate.
- Gross margin is now expected to be flat to down slightly versus the prior year rate of 45.0%. Adjusted gross margin is now expected to improve slightly compared to 2017, as ‘benefits from product costs and lower planned promotional activity are offset by increased inventory management actions.’
Operating loss is now expected in the range of US$50-60 million. Excluding the impact of the restructuring plan, adjusted operating income is expected to be $130-160 million.
