Under Armour, Inc. - Form 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended March 31, 2009. Under Armour, Inc. is a developer, marketer, and distributor of branded performance apparel, footwear, and accessories sold worldwide. The company operates within a single reportable segment.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Net Revenues | $200.0 million | $157.3 million |
| Gross Profit | $90.6 million | $74.8 million |
| Gross Margin | 45.3% | 47.6% |
| Operating Income | $7.9 million | $4.3 million |
| Net Income | $4.0 million | $2.9 million |
| Diluted EPS | $0.08 | $0.06 |
| Cash and Equivalents (End of Period) | $65.6 million | $17.6 million |
| Net Cash Used in Operating Activities | ($1.8 million) | ($16.8 million) |
| Revolving Credit Facility Availability | $143.6 million | N/A (Prior facility) |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 27.1% year-over-year, driven primarily by a 243.0% surge in footwear sales ($56.9 million vs. $16.6 million) following the launch of performance running footwear in Q1 2009. Apparel sales grew modestly by 2.4%.
- Margin Compression: Gross margin decreased 230 basis points to 45.3%. This was attributed to the higher proportion of lower-margin footwear sales, less favorable apparel mix, increased sales returns, and markdown allowances.
- Operating Expenses: Selling, general, and administrative (SG&A) expenses rose 17.2% to $82.7 million, though as a percentage of revenue, they declined from 44.9% to 41.3% due to revenue leverage. Marketing costs increased $5.1 million to support the footwear launch and new sponsorships.
- Debt Restructuring: In January 2009, the company terminated its prior $100 million revolving credit facility and entered a new $200 million facility. The company repaid the $25 million outstanding balance on the old facility and incurred $1.4 million in deferred financing costs for the new agreement.
- Cash Flow: Net cash used in operating activities improved significantly to $1.8 million from $16.8 million used in the prior year, driven by better inventory management and reduced cash outflows from operating assets.
Guidance, Outlook, and Risks
- Marketing Investment: Management expects to invest in marketing at the high end of the 12% to 13% range of net revenues for the full year 2009.
- Capital Expenditures: Full-year 2009 capital investments are anticipated to be between $30.0 million and $35.0 million, focusing on retail outlets, distribution facilities, and IT systems.
- Tax Outlook: The annual 2009 effective tax rate is expected to improve from the 2008 rate of 45.3% due to new tax strategies.
- Seasonality: The company expects a larger portion of operating income to be recognized in the last two quarters of 2009, consistent with historical trends driven by the fall selling season.
- Risks: Key risks include the weakened retail environment, instability in credit markets affecting lender performance, foreign currency exchange rate fluctuations, and the ability to manage inventory levels effectively.
Investor Verification Checklist
- Verify the sustainability of the 243% growth in footwear sales following the Q1 2009 launch.
- Monitor gross margin trends as the mix of lower-margin footwear sales increases relative to apparel.
- Assess the impact of the new $200 million revolving credit facility covenants and borrowing base calculations.
- Review inventory turnover rates and markdown allowances given the company's focus on inventory management initiatives.
- Track the achievement of performance-based stock option targets tied to operating income for 2009 and 2010.