17 Feb Under Armour’s Q4 Tops Guidance, Warns Of Supply Chain Challenges
Under Armour Inc. reported fourth-quarter earnings and sales exceeded Wall Street targets. Sales guidance was also raised for the current quarter, but margins are expected to be impacted by lingering supply chain constraints.
“The final quarter of 2021 demonstrated the power and consistency of Under Armour’s strategic playbook, which allowed us to capitalize on improving brand strength and consumer demand,” said Under Armour President and CEO Patrik Frisk. “By staying hyper-focused on operational excellence and serving the needs of athletes, we were able to deliver record revenue and earnings results for the full year.”
“Amid a dynamic environment with ongoing COVID-19 impacts and resultant supply chain headwinds, I am proud of how consistently our global teams continue to execute our plan,” Frisk continued. “As we navigate ongoing uncertainty in the marketplace, we remain focused on delivering industry-leading innovations, premium experiences, and empowering those who strive for more. Going forward, I am confident that we are running a stronger company – one that is able to deliver sustainable, profitable growth and value creation for our shareholders over the long term.”
Fourth Quarter 2021 Review
- Revenue was up 9 percent to $1.5 billion (up 8 percent currency-neutral) compared to the prior year.
- Wholesale revenue increased 16 percent to $768 million and direct-to-consumer revenue increased 10 percent to $720 million, driven by solid performance in our owned and operated stores and 4 percent growth in eCommerce, which represented 42 percent of the total direct-to-consumer business during the quarter.
- North American revenue increased 15 percent to $1.1 billion, and international revenue increased 3 percent to $461 million (up 2 percent currency-neutral). Within the International business, revenue increased 24 percent in EMEA (up 23 percent currency-neutral), decreased 6 percent in the Asia Pacific (down 7 percent currency-neutral), and decreased 22 percent in Latin America(down 23 percent currency-neutral).
- Apparel revenue increased 18 percent to $1.1 billion. Footwear revenue increased 17 percent to $283 million. Accessories revenue decreased 27 percent to $107 million.
- Gross margins increased 130 basis points to 50.7 percent compared to the prior year, driven by benefits from pricing and restructuring charges in the prior year, offset by elevated freight expenses, the absence of MyFitnessPal and an unfavorable product mix.
- Selling, general & administrative expenses increased 15 percent to $676 million.
- Restructuring and impairment charges were $14 million.
- Operating income was $86 million, and Adjusted operating income was $100 million.
- Net income was $110 million, and Adjusted net income was $67 million.
- Diluted earnings per share were 23 cents per share, and Adjusted diluted earnings per share were 14 cents per share.
- Inventory was down 9 percent to $811 million.
- Cash and Cash Equivalents were $1.7 billion at the end of the quarter, and no borrowings were outstanding under the company’s $1.1 billion revolving credit facility.
Earnings of 14 cents a share on an adjusted basis topped Wall Street’s consensus estimate of 7 cents. Revenue at $1.53 billion surpassed Wall Street’s consensus target of $1.47 billion.
Full Year 2021 Review
- Revenue was up 27 percent to $5.7 billion (up 25 percent currency-neutral) compared to the prior year.
- Gross margin increased 210 basis points to 50.3 percent compared to the prior year. Excluding restructuring efforts of approximately $1 million, adjusted gross margin increased 180 basis points to 50.4 percent, driven by benefits from pricing and favorable changes in foreign currency, partially offset by the absence of MyFitnessPal, elevated freight expenses, and unfavorable channel mix.
- Selling, general & administrative expenses increased 7 percent to $2.3 billion.
- Restructuring and impairment charges were $41 million.
- Operating income was $486 million, and Adjusted operating income was $527 million.
- Net income was $360 million, and Adjusted net income was $397 million.
- Diluted earnings per share were 77 cents per share. Adjusted diluted earnings per share were 85 cents per share.
Fiscal Year End Change
As announced in February 2021, Under Armour is changing its fiscal year from December 31 to March 31. Following a three-month transition period (January 1 through March 31, 2022), Under Armour’s fiscal year 2023 will run from April 1, 2022, through March 31, 2023. Consequently, there will be no fiscal year 2022.
Outlook For Transition Quarter Ending March 31, 2022
Under Armour’s outlook for the transition quarter ending March 31, 2022, when compared to the same calendar period of fiscal 2021, includes the following:
- Revenue is expected to increase at a mid-single-digit rate compared to the previous expectation of a low-single-digit rate increase. This expectation includes approximately 10 percentage points of headwinds related to reductions in our spring-summer 2022 order book from supply constraints associated with ongoing pandemic impacts.
- Gross margin is expected to be down 200 basis points compared to the prior-year period’s adjusted gross margin. This expectation includes approximately 240 basis points of negative impact due to higher freight expenses resulting from ongoing COVID-19 supply chain challenges in addition to unfavorable sales mix, partially offset by pricing benefits.
- Operating income is expected to reach approximately $30 million to $35 million.
- Diluted earnings per share are expected to be 2 cents to 3 cents.
Given the transition to a new fiscal year-end, the company will provide its initial fiscal 2023 financial outlook in conjunction with the announcement of its transition quarter results in early May.
2020 Restructuring Plan
Last quarter, Under Armour reduced its 2020 restructuring plan range to $525 million to $575 million from the prior $550 million to $600 million range estimate. The company now expects to recognize $525 million to $550 million in charges related to this plan and has recognized $514 million of pre-tax charges to date, including $14 million in the fourth quarter of 2021. Of the $514 million recognized in charges, $138 million are cash-related, and $376 million are non-cash-related. The company currently expects to recognize any remaining charges related to this plan by the end of the first quarter of its fiscal year 2023.
Under Armour remains focused on protecting teammate and consumer health and safety while working with its suppliers, partners, and customers to navigate potential disruptions. Given continued uncertainty related to COVID-19, particularly the ongoing and evolving impact of supply chain constraints on its suppliers and logistics providers, the company expects material impacts for its Spring/Summer 2022 season. There could be further material impacts on Under Armour’s results in future periods.