Q4 2019 Earnings Call

February 13, 2020

Operator: Welcome to the Under Armour Incorporated Fourth Quarter 2019 Earnings Webcast and Conference Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Lance Allega, Senior Vice President of Investor Relations and Corporate Development. Thank you. Please go ahead, sir.

Operator: Welcome to the Under Armour Incorporated Q4 2019 Earnings Webcast and Conference Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Lance Allega, Senior Vice President of Investor Relations and Corporate Development. Thank you. Please go ahead, sir.

Welcome to the Under Armour incorporated fourth-quarter 2019 earnings webcast and conference call. At this time, all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance please press star zero. I would now to hand the conference over your speaker today, Mr. Lance Allega, Senior Vice President of Investor Relations and corporate development. Thank you. Please go ahead, Sir.

If you require any further assistance please press star zero.

I would now like Pan the conference over your speaker today.

Mr. Lance Allega, Senior Vice President of Investor Relations and corporate development. Thank you. Please go ahead, Sir.

Lance Allega: Thank you, good morning to everyone joining us for Under Armour's Fourth Quarter and Fiscal Year 2019 Earnings Call. On today's call, participants will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in this morning's press release and documents filed regularly with the SEC, all which can be found on our website at about.underarmour.com. We may also reference certain non-GAAP financial information, including adjusted and currency-neutral terms, which are defined in this morning's release. We do use a non-GAAP amount as the lead of our discussions because we feel it more accurately represent the true operational nature and performance of underlying results of our business. You may also hear us refer to amounts in accordance with the US GAAP.

Lance Allega: Thank you, good morning to everyone joining us for Under Armour's Q4 and Fiscal Year 2019 Earnings Call. On today's call, participants will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in this morning's press release and documents filed regularly with the SEC, all which can be found on our website at about.underarmour.com. We may also reference certain non-GAAP financial information, including adjusted and currency-neutral terms, which are defined in this morning's release. We do use a non-GAAP amount as the lead of our discussions because we feel it more accurately represent the true operational nature and performance of underlying results of our business. You may also hear us refer to amounts in accordance with the US GAAP.

Thank you and good morning to everyone joining us for under Armour's fourth quarter and fiscal year 2019 earnings call. On today's call participants will make forward-looking statements. These statements are based on current expectations that are subject to uncertainties that could cause actual results to differ materially.

These uncertainties are detailed in this mornings press release and documents filed regularly with the SEC, all of which can be found on our website at about underarmour.com. They may also reference certain non-GAAP financial information, including adjusted and currency neutral terms, which are defined in this mornings release. We do use a non-GAAP amount. As a leader of our discussions because we feel that more accurately represent the true operational nature and performance of underlying results of our business.

As a leader of our discussions because we feel that more accurately represent the true operational nature and performance of underlying results of our business.

You may also hear us referred to amounts in accordance with U.S. GAAP reconciliations of GAAP to non-GAAP measures can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items to provide management's view of why this information is useful to investors.

Lance Allega: Reconciliations of GAAP to non-GAAP measures can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items to provide management's view of why this information is useful to investors. Joining us on today's call will be Under Armour President and CEO, Patrik Frisk, and CFO, Dave Bergman. Following our prepared remarks, we'll open up the call for questions. With that, I'll turn it over to Patrik.

Joining us on today's call will be Under Armour, President and CEO, Patrik Frisk and CFO, Dave Bergman. Following our prepared remarks, we'll open up the call for questions. With that, I'll turn over to Patrick. Good morning, everyone. I want to say something out front. Last night, we learned a terrible tragedy involving the loss of a member of the Under Armour family at one of our stores in Orlando. Our heart goes out to her teammates and to this teammate's family and to all the teammates affected by this awful incident.

Patrik Frisk: Good morning, everyone. I wanna say something upfront. Last night, we learned of a terrible tragedy involving the loss of a member of the Under Armour family at one of our stores in Orlando. Our heart goes out to her teammate, to this teammate and her family, and to all the teammates affected by this awful incident. Our concern right now is with the safety and security of everyone involved. We have closed our stores in Orlando area and are making grief counseling available to our teammates. We will offer updates as soon as possible in coordination with local authorities and the teammate's family. Now, let's get into the prepared remarks. On my first call to CEO, I'll start by underscoring several things. First and foremost, I'm not satisfied with where we are today.

Yes in Orlando.

Our heart goes out to her teammates and to this teammate's family and to all the teammates affected by this awful incident.

Our concern right now is with the safety and security of everyone involved. We have closed our stores in the Orlando area and are making grief counseling available to our teammates. We will offer updates as soon as possible in coordination with local authorities and the teammates family.

Now, let's get into prepared remarks. On my first call as CEO, I'll start by on the scoring several things. First and foremost, I'm not satisfied with where we are today. As a company, we've made significant operational progress in the form of better systems and structure and processes as well as a considerably stronger balance sheet and the ability to generate cash.

Patrik Frisk: As a company, we've made significant operational progress in the form of better systems, structure, and processes, as well as a considerably stronger balance sheet and the ability to generate cash. As a brand, however, we see a paradox of two challenges in front of us: continued softer demand in North America as we work through our elevated inventory and multiple years of discounting, and a highly committed cost structure, which is taking longer to unpack and is limiting us from being able to spend as aggressively as we would like to, to increase brand consideration. Next, we are firm in our commitment to staying centered in athletic performance and bringing authenticity to the brand through innovative products, solutions, and experiences that athletes didn't know they needed, and once they have them, can't imagine living without.

As a company we've made significant operational progress in the form of better systems and structure and processes as well as a considerably stronger balance sheet and the ability to generate cash.

As a brand, however, we see a paradox of two challenges in front of us, continued softer demand in North America as we work through our elevated inventory and multiple years of discounting and a highly committed cost structure, which is taking longer to unpack and is limiting us from being able to spend as aggressively as we would like to two increased brand consideration.

Next, we are affirming our commitment to staying centered in athletic performance and bringing authenticity to the brand through innovative products, solutions and experiences that athletes didn't know they needed and once they have them can imagine living without. And finally, to thoroughly execute a strategic operational and cultural transformation of this magnitude takes time and quite simply, the realization of milestones and progress within certain areas of our business is taking longer than we anticipated.

Patrik Frisk: Finally, to thoroughly execute a strategic, operational, and cultural transformation of this magnitude takes time, and quite simply, the realization of milestones and progress within certain areas of our business is taking longer than we anticipated. Amid this journey, with 2019 behind us, it's important to reflect on the work we've done during the most transformative three-year period in Under Armour's history. Against a highly competitive and dynamic consumer backdrop, we are fundamentally running a better company today, one that strives to deliver the right product to the right place, the right time, in a more consistent and purposeful manner than ever before. We have healthier inventories, less debt, and have meaningfully improved cash generation through a more disciplined approach within our sales and operations planning process.

Sampling the realization of milestones and progress within certain areas of our business is taking longer than we anticipated.

Amid this journey and with 2019 behind us, it's important to reflect on the work we've done during the most transformative three year period in Under Armour's history. Against a highly competitive and dynamic consumer backdrop, we are fundamentally running a better company today. One that strives to deliver the right product to the right place, the right time, in a more consistent and purposeful manner than ever before.

Other than ever before.

We have healthier inventories, less debt and have meaningfully improved cash generation through a more disciplined approach within our sales and operations planning process. And I'm proud of this strong management team we have in place that is committed to executing our long term goals and objectives. Operationally and strategically, we are aligned to ensure we had the best opportunity to succeed as a performance-oriented brand.

Patrik Frisk: I'm proud of the strong management team we have in place that is committed to executing our long-term goals and objectives. Operationally and strategically, we are aligned to ensure we have the best opportunity to succeed as a performance-oriented brand. With ongoing and robust consumer insights work, we have clearly defined our opportunity set. We compete in athletic performance. Our target consumer is the focus performer. Our brand positioning is the human performance company that gives you the edge to go beyond any limit. All of this is driven by delivering the world's most innovative products to fulfill our mission, which is to make you better. Our purpose and strategy are clear to us. However, there are those who believe our focus on athletic performance may currently be too narrow. We disagree.

Orient the brand.

And with ongoing and robust consumer insights work, we have clearly defined our opportunity set. We compete in athletic performance. Our target consumers to focus performer, our brand positioning as the human performance company that gives you the edge to go beyond any limit and all of this is driven by delivering the world's most innovative products to fulfill our mission, which is to make it better.

Our target consumers to focus performer our brand positioning is the human performance company that gives you the edge to go beyond any limit and all of this is driven by delivering the world's most innovative products to fulfill our mission, which is to make it better.

Our purpose and strategy are clear to us. However, there are those who believe our focus on athletic performance may currently be too narrow we disagree. In fact, we see an even greater opportunity to drive harder towards our vision mission. Of course, being in athletic performance requires us to make innovative highly functional product, but it must also be great looking and on-trend. Like our design team says without beauty there is no performance.

Patrik Frisk: In fact, we see an even greater opportunity to drive harder towards our vision and mission. Of course, being in athletic performance requires us to make innovative, highly functional product, but it must also be great-looking and on-trend. Like our design team says, "Without beauty, there is no performance." Turning back to the year at hand and our outlook for 2020, I'd first like to take a minute to provide our thoughts on the rapidly evolving situation related to the coronavirus outbreak in China. Along with all companies who do business there, our primary concern is for the health and well-being of the Chinese citizens, our teammates and partners, and those affected around the world.

Like our design team says without beauty there is no performance.

Turning back to the year at hand, and our outlook for 2020. I'd first like to take a minute to provide our thoughts on the rapidly evolving situation related to the Coronavirus outbreak in China. Along with all companies to do business there, our primary concerns for the health and wellbeing of the Chinese citizens, our teammates and partners and those affected around the world.

Along with all companies to do business. There are primary concerns for the health and wellbeing of the Chinese citizens, our teammates and partners and those affected around the world.

Patrik Frisk: As it relates to potential operational and financial impacts to Under Armour specifically, there are several unknowns that we're continuing to monitor and assess, not only for the APAC region, but also on a global basis. From a supply chain point of view, there could be challenges that develop from the material, factory, and logistics perspective. In materials, we are assessing possible impacts related to fabric, trim, and package sourcing, and potential delays and capacity challenges that could prove to be difficult in second half of the year. With respect to factories, we're continuing to see closures, changing timelines of when they might reopen, and trying to assess what it means for production fulfillment, capacity, and the prioritization of which products to make.

As it relates to potential operational and financial impacts to Under Armour specifically, there are several unknowns that we're continuing to monitor and assess, not only for the APAC region but also on a global basis. From a supply chain point of view, there could be challenges that developed from the material factory and logistics perspective.

In materials, we're assessing possible impacts related to fabric trim and package sourcing and potential delays and capacity challenges that could prove to be difficult in the second half of the year. With respect to factories, we're continuing to see closures, changing timelines of when they might reopen and trying to assess what it means for production fulfillment, capacity and the prioritization of which products to make.

I'd station, which products to make.

Patrik Frisk: In logistics, we think it's reasonable to expect industry-wide delays in terms of delivery around the world, including potentially missed shipment and service windows, and the need for increased air freight and additional measures at ports that could create unforeseen congestion. Looking at the greater marketplace and how consumption, consumer behavior, and overall economic shifts could potentially play out is where it gets even more unclear with respect to duration and the possible levels of elevated inventories and promotional activities later in the year. In aggregate, we are evaluating each of these items individually and collectively to assess potential impacts and options to try to mitigate risks to the best extent possible. At only five weeks into this situation, one that is clearly not stabilized, we're electing to stay appropriately prudent and not prepared to quantify many of these elements today as events could meaningfully evolve in the coming weeks.

In logistics, we think it's reasonable to expect industry-wide delays in terms of delivery around the world, including potentially missed shipment and service windows and the need for increased airfreight and additional measures at ports that could create unforeseen congestion.

Looking at the greater marketplace, and how consumption consumer behavior and overall economic shifts could potentially play out is where it gets even more unclear with respect to duration and the possible levels of elevated inventories and promotional activities later in the year.

In aggregate, we are evaluating each of these items individually and collectively to assess the potential impact on options to try to mitigate risks to divest extent possible. In only five weeks into this situation, one that is clearly not stabilized we're electing to stay appropriately prudent and not prepared to quantify many of these elements today as events could meaningfully evolve in the coming weeks.

I would only five weeks into this situation one that is clearly not stabilized we're electing to stay appropriately prudent and not prepared to quantify many of these elements today as events could meaningfully evolve in the coming weeks.

Patrik Frisk: With respect to what we have factored into today's initial 2020 outlook, with almost 600 monogranded Under Armour doors in China currently closed, we're estimating a Q1 revenue impact to the APAC region of about $50 to $60 million, which is a little more than a point of growth for Under Armour globally this year. Given the ongoing uncertainty, it is possible that this situation could have a significant material impact, both financially and operationally, on our full year, including the potential for additional top-line contraction for total UA. To reiterate, at this point, we're only contemplating a Q1 APAC revenue impact. As we gain better clarity and additional events unfold, we will provide updates as appropriate.

With respect to what we have factored into today's initial 2020 outlook, with almost 600 mono branded under armour doors in China currently closed. We're estimating at first-quarter revenue impact to the APAC region of about 50 to 60 million, which is a little more than a point of growth for Under Armour globally this year.

We're estimating at first quarter revenue impact to the APAC region about 50 to 60 million, which is a little more than a point of growth for under armour globally. This year.

Given the ongoing uncertainty, it is possible that this situation could have a significant material impact both financially and operationally on our full year, including the potential for additional topline contraction for total UAE. But to reiterate at this point, we're only contemplating a first quarter APAC revenue impact. As we gain better clarity and additional events unfold, we will provide updates as appropriate.

I'd and additional events unfold, we will provide updates as appropriate.

Patrik Frisk: Turning to our full year 2020 outlook, including a little more than 1 point due to the coronavirus, we are expecting global revenue to be down at low single-digit rate. This is not where we expect it to be at this point in time. We will need to evaluate what this means with respect to the long-term financial targets from our Investor Day in 2018. The high level of uncertainty around the situation in China that could further impact these targets. To provide some more color and context around drivers contributing to this expectation, let's start with our international business, where we continue to deliver consistently towards our long-term strategic expectations. Higher service levels and better-managed inventory, along with targeted return-based investments and continued improved operational discipline, have begun to unlock the potential of our long-term productivity growth algorithm.

Turning to our full-year 2020 outlook, including a little more than a point due to the Coronavirus, we are expecting global revenue to be down at low single-digit rate. This is not where we expected to be at this point in time. So we will need to evaluate what this means with respect to the long term financial targets from our Investor Day in 2018, and the high level of uncertainty around the situation in China that could further impact these targets.

This is not where we expected to be at this point in time, So we will need to evaluate what this means with respect to the long term financial targets from our Investor day in 2018, and the high level of uncertainty around the situation in China that could further impact these targets.

To provide some more color in context around drivers contributing to this expectation, let's start with our international business where we continue to deliver consistently towards our long term strategic expectations. Higher service levels and better-managed inventory along with targeted return based investments and continued improve operational discipline have begun to unlock the potential of our long term productivity growth algorithm. In total, our international business should be up at a low double-digit rate in 2020 with each region also growing at a double-digit rate for the year.

Higher service levels and better managed inventory along with targeted return based investments and continued improve operational discipline have begun to unlock the potential of our long term productivity growth algorithm in total our international business should be up at a low double digit rate in 2020 with each region also growing at a double digit rate for the year.

Patrik Frisk: In total, our international business should be up at a low double-digit rate in 2020, with each region also growing at a double-digit rate for the year. Clicking down, in Asia Pacific, we believe our strategy to expand and penetrate key markets is working. From a channel perspective, we are seeing outpaced e-commerce growth and plan to invest even more heavily into digital and marketing to continue to increase brand awareness and consumer engagement. We also expect to continue to grow our owned and partner door base, which is now just over 900 locations across the region. By leveraging our integrated go-to-market process, key innovation platforms, and more cohesive marketing to drive stronger consumer connections, we remain bullish on this region's long-term growth potential.

Clicking down in Asia Pacific, we believe our strategy to expand and penetrate key markets is working. From a channel perspective, we are seeing outpaced e-commerce growth and plan to invest even more heavily into digital and marketing to continue to increase brand awareness and consumer engagement. We also expect to continue to grow our owned and partner door base, which is now just over 900 locations across the region. By leveraging our integrated go to market process, key innovation platforms, and more cohesive marketing to drive stronger consumer connections. We remain bullish on this region's long term growth potential.

900 locations across the region.

By leveraging our integrated go to market process, key innovation platforms, and more cohesive marketing to drive stronger consumer connections. We remain bullish on this region's long term growth potential.

Patrik Frisk: Turning to EMEA, we continue to work to optimize the marketplace across accounts, strengthening the business to focus on strategic growth in the countries that we believe have the highest levels of return. Throughout 2019, we made good progress against this objective. With the transition into our new regional headquarters in Amsterdam, we are confident that we have the right infrastructure to continue to deliver greater leverage and operational efficiencies as we grow and scale the business. Based on the operational improvements we made, we expect our revenue growth to accelerate as our efforts to more cleanly manage the marketplace are yielding stronger bookings among our key wholesale partners. From a portfolio perspective, one of our largest channel opportunities lies in expanding our D2C presence, where we believe we can better manage the pace and premium presentation of our brand.

Turning to EMEA, we continue to work to optimize the marketplace across accounts, strengthening the business to focus on strategic growth in the countries that we believe had the highest levels of return. Throughout 2019, we've made good progress against this objective. With the transition into our new regional headquarters in Amsterdam, we're confident that we have the right infrastructure to continue to deliver greater leverage and operational efficiencies as we grow and scale the business.

With the transition into our new regional headquarters in Amsterdam, We're confident that we have the right infrastructure to continue to deliver greater leverage and operational efficiencies as we grow and scale the business.

Based on the operational improvements we've made, we expect our revenue growth to accelerate as our efforts to more cleanly manage the marketplace are yielding stronger bookings among our key wholesale partners. From a portfolio perspective, one of our largest channel opportunities lies in expanding our DTC presence, where we believe we can better manage to pace in premium presentation of our brand.

In EMEA's e-commerce business, we round last year with very few promotions and saw little impact to our results. So an encouraging sign of brand strength is returning to this play. Using this as a potential proof point for the rest of world, we continue to get smarter about volumetric impacts, price sensitivity and overall brand validation to drive consumer engagement. In Latin America, we're staying focused on amplifying footwear and optimizing our distribution model. 2020 in this region is about underscoring our brand positioning in athletic performance, enhancing our commitment to growing premium distribution with a sharper focus on key accounts and leveraging the integrated go to market process we have put in place. We also plan to bring Latin America onto our global ERP platform.

Patrik Frisk: In EMEA's e-commerce business, we ran last year with very few promotions and saw little impact to our results. An encouraging sign of brand strength is returning to this play. Using this as a potential proof point for the rest of the world, we continue to get smarter about volumetric impacts, price sensitivity, and overall brand validation to drive consumer engagement. In Latin America, we're staying focused on amplifying footwear and optimizing our distribution model. 2020 in this region is about underscoring our brand positioning and athletic performance, enhancing our commitment to growing premium distribution with a sharper focus on key accounts, and leveraging the integrated go-to-market process we have put in place. We also plan to bring Latin America onto our global ERP platform.

Humor engagement in Latin America, we're staying focused on amplifying footwear and optimizing our distribution model.

2020 in this region is about underscoring our brand positioning in athletic performance, enhancing our commitment to growing premium distribution with a sharper focus on key accounts and leveraging the integrated go to market process we have put in place. We also plan to bring Latin America onto our global ERP platform.

We also plan to bring Latin America onto our global ERP platform.

Patrik Frisk: Finally, is our North American business, where our expectation was that we'd see stabilization by the end of last year and pivot back to growth this year. Operationally, we continue to make positive strides, managing the marketplace and driving better operational discipline. However, a combination of demand challenges and distribution dynamics is materially impacting our business. These issues are most evident in our full price, wholesale, and e-commerce businesses, leading to an expected mid to high single-digit decline in 2020 for our North American business. Let's dive into each of these channels, review some of the issues we're facing, and what we're doing to fight our way back in our largest market.

Finally, as our North American business, where our expectation was that we'd see stabilization by the end of last year and pivot back to growth this year, operationally, we continue to make positive strides managing the marketplace and driving better operational discipline. However, a combination of demand challenges and distribution dynamics is materially impacting our business.

These issues are most evident in our full-price wholesale and e-commerce businesses, leading to an expected mid to high single-digit decline in 2020 for our North American business. So let's dive into each of these channels review some of the issues we're facing and what we're doing a fight our way back in our largest market. Starting with our wholesale business. A reduction of sales to the off-price channel from its peak in 2018 is on track, where we expected to be in terms of working it down to a more optimal mix within our portfolio.

So let's dive into each of these channels review some of the issues were facing and what we're doing a fight our way back in our largest market starting with our wholesale business a reduction of sales to the off price channel from its peak in 2018 is on track, where we expected to be in terms of working it down to a more optimal mix within our portfolio.

Patrik Frisk: Starting with our wholesale business, our reduction of sales to the off-price channel from its peak in 2018 is on track, where we expect it to be in terms of working it down to a more optimal mix within our portfolio. While overall positive for our brand health and eventual supply-demand rebalancing, this reduction should remain a revenue headwind in 2020. In full-price wholesale, we're working to improve every aspect of our partnership, from service levels and on-time delivery to segmentation and marketing support. Operationally, I'm confident that we've become a better partner for our wholesale accounts. While we are checking the right boxes and seeing confidence return into the mix, the rate of recovering our shelf space in this channel is not happening as quickly as we had expected.

While overall positive for our brand health and eventual supply-demand rebalancing. This reduction should remain a revenue headwind in 2020. In full-price wholesale we're working to improve every aspect of our partnership from service levels and on-time delivery to segmentation and marketing support. Operationally, I'm confident that we've become a better partner for our wholesale accounts. And while we're checking drive boxes and seeing confidence return into the mix, the rate of recovering our shelf space in this channel is not happening as quickly as we had expected.

And while we're checking drive boxes and seeing confidence return into the mix the rate of recovering our shelf space in this channel, it's not happening as quickly as we had expected.

Patrik Frisk: Of course, it takes more than being a great operator to win with our accounts. It takes a strong brand, and we've been a very quiet brand for the past few years. In 2020, that changes dramatically. Having launched The Only Way Is Through brand platform last month, we believe we are firmly shifting back to offense and putting more of the pieces in place to holistically empower touch points with our consumers and better support our wholesale partners. A year-long effort, this is the most comprehensive and coordinated brand campaign in our history, orchestrated globally across wholesale, e-commerce, brick-and-mortar, social media, grassroots, and sporting moments, completely centered around our consumer. We see this platform as a key initiative to improve brand health and drive consideration for purchase, and are excited to continue to build off this base as we get deeper into 2020.

And of course, it takes more than being a great operated to win with our accounts. It takes a strong brand and we've been a very quiet brand for the past few years. In 2020 that changes dramatically. Having launched the only way is through brand platform last month, we believe we are firmly shifting back to all funds and putting more of the pieces in place to holistically empowered touchpoints with our consumers and better support our wholesale partners. As the year long effort, this is the most comprehensive and coordinated brand campaign in our history, orchestrated globally across wholesale e-commerce, brick and mortar, social media, grass root and sporting moments. Completely centered around our consumer. We see this platform as a key initiative to improve brand health and drive consideration for purchase and are excited to continue to build off this base as we get deeper into 2020.

with our consumers and better support our wholesale partners. As the year long effort, this is the most comprehensive and coordinated brand campaign in our history, orchestrated globally across wholesale e-commerce, brick and mortar, social media, grass root and sporting moments. Completely centered around our consumer. We see this platform as

a key initiative to improve brand health and drive consideration for purchase and are excited to continue to build off this base as we get deeper into 2020.

Patrik Frisk: How does all of this translate into wholesale expectations for 2020? In the first half of this year, wholesale orders came in lower than expected, driven, we believe, in part by tempered demand against last year's spring/summer season. With respect to the second half, keep in mind that we are just now finalizing our Q3 bookings, which are trending relatively flat. For the Q4, we have only recently started to take orders, so in total, are not in a position, as of this call, to make a well-informed second-half conclusion. Instead, we'll choose to stay prudent with our outlook. Additionally, we continue to plan for a reduction in off-price sales for the full year.

So how does all of this translate into wholesale expectations for 2020? In the first half of this year, wholesale orders came in lower than expected driven we believe in part by tempered demand against last year's spring-summer season. With respect for the second half ,keep in mind that we are just now finalizing our third quarter bookings, which are trending relatively flat. For the fourth quarter, we have only recently started to take orders. So in total, we're not in a position as of this call to make a well informed second half conclusion, so instead will choose to stay prudent with our outlook. Additionally, we continue to plan for reduction off-price sales for the full year.

In the first half of this year wholesale orders came in lower than expected spec that driven we believe in part by tempered demand against last year's spring summer season with respect for the second half keep in mind that we are just now finalizing our third quarter bookings, which are trending relatively flat for the fourth quarter. We have only recently started to take orders. So in total our non in a position as of this.

Coal to make a well informed second half conclusion, so instead will choose to stay prudent with our outlook. Additionally, we continue to plan for reduction off price sales for the full year.

We're working hard to support our key retail partners and believe the marketing efforts assortment improvements and increased digital investments, we're making will enable us to better serve both our customers and consumers in our journey to returning to growth moving through our direct consumer business in North America, and a little more color on our three concepts I'll start with our brand house stores.

Patrik Frisk: We're working hard to support our key retail partners and believe the marketing efforts, assortment improvements, and increased digital investments we're making will enable us to better serve both our customers and consumers in our journey to returning to growth. Moving to our direct consumer business in North America, and a little more color on our three concepts. I'll start with our Brand House stores. Although only a small percentage of North American D2C, we are very encouraged by some of the store reset work that we have done. Next up is Factory House, our outlet concept, which is at 90% of our physical door count and about 2/3 of D2C revenue in North America. It is the workhorse of the fleet.

Although only small percentage of North American DTC, we're very encouraged by some of the stories that work that we've done. Next up is factory house, our outlet concept, which is at 90% of our fiscal door count and about two-thirds of DTC revenue in North America. It is the workforce of the fleet.

Patrik Frisk: Given the tremendous effort we've done to manage inventories across the marketplace over the last couple of years, we're seeing steadiness across this business, with more balanced capacity, increasingly better in-stocks, and improving operations. While difficult traffic conditions continue to persist, we're expecting our Factory House business to end the year relatively in line, if not a little better than 2019 results. All in stable. The remainder of direct consumer, our e-commerce business, continues to be challenged and is meaningfully behind where we thought we'd be at this point in time. We believe there are two primary things going on. First, we believe prior promotional activity has impacted consumers' willingness to pay full price for our brand to a higher degree than we originally anticipated.

Given the tremendous effort, we've done to manage inventories across the marketplace over the last couple of years, we're seeing steadiness across this business with more balanced capacity increasingly better in stocks and improving operations. And while difficult traffic conditions continue to persist, we're expecting our factory house business to end the year relatively in line, if not a little bit better than 2019 results so all in stable. The remainder of direct consumer our e-commerce business continues to be challenged and is meaningfully behind where we thought we'd be at this point in time.

Other than 2019 results so all in stable.

The remainder of direct consumer our ecommerce business continues to be challenged is meaningfully behind where we thought we'd be at this point in time.

We believe there are two primary things going on. First, we believe prior promotional activity has impacted consumers' willingness to pay full price for our brand to a higher degree than we originally anticipated. And while the trend of higher AUR among those that do purchase on our side continues the volume necessary to offset the impacts to our business declines that we experienced last year is not yet materializing. Second, as a vehicle capable of delivering a premium inspirational brand experience to our consumers, we're working to improve our e-commerce platform to better compete in today's ever-changing highly competitive market. And to support this, we're standing up a CRM program to drive higher engagement frequency and repetition.

Patrik Frisk: While the trend of higher AUR among those that do purchase on our site continues, the volume necessary to offset the impacts to our business declines that we experienced last year is not yet materializing. Second, as a vehicle capable of delivering a premium, inspirational brand experience to our consumers, we're working to improve our e-commerce platform to better compete in today's ever-changing, highly competitive market. To support this, we're standing up a CRM program to drive higher engagement, frequency, and repetition. That's just it. There's a tremendous opportunity to right this business, and accordingly, we're not sitting idly by. This summer, we plan to launch an enhanced e-commerce site in North America on a new platform that has tested successfully at a small scale in EMEA for nearly two years.

Last year is not yet materializing.

Second, as a vehicle capable of delivering a premium inspirational brand experience to our consumers, we're working to improve our e-commerce platform to better compete in today's ever-changing highly competitive market. And to support this, we're standing up a CRM program to drive higher engagement frequency and repetition.

And that's just it. There's a tremendous opportunity to write this business and accordingly, we're not sitting idly by. This summer we plan to launch an enhanced e-commerce site in North America on a new platform that has tested successfully at a small scale in EMEA for nearly two years. We believe this new platform together with investments into personalization and CRM later this year will enhance our ability to elevate our storytelling and experience for our consumers.

Patrik Frisk: We believe this new platform, together with investments into personalization and CRM later this year, will enhance our ability to elevate our storytelling and experience for our consumers. Additionally, in the second half of 2020, we are currently planning reduced promotional activity across our direct consumer business. While this may create a revenue headwind, we believe it is the appropriate strategy to enhance our premium positioning with our North American consumers. To wrap up North America, our transformation is taking longer than we had originally expected, and as we work through a reset, grounded both on quality of revenue and long-term margin expansion, there are several strategies focusing on our product and brand at every touch point to stabilize and return to growth in our largest market.

Will enhance our ability to elevate our storytelling and experience for our consumers.

Additionally, in the second half of 2020, we're currently planning reduced promotional activity across our direct consumer business and while this may create revenue headwind, we believe it is the appropriate strategy to enhance our premium positioning with our North American consumers.

To wrap up North America, our transformation is taking longer than we had originally expected. And as we work through a reset rounded both on quality of revenue and long term margin expansion, there are several strategies focusing on our product and brand at every touch point to stabilize and return to growth in our large market. First, as a sharp focus on ensuring our product innovation and segmentation are well-positioned to drive greater shelf space opportunities with our key accounts and consideration from their consumers. Second, is building a stronger brand utilizing deep consumer insights and increased marketing investments to better activate our roster of athletes and influencers. Significantly amplifying our visibility in the marketplace. Third, is continuing to drive operational improvements to enhance our ability to better serve the end consumer quite simply becoming their brand of choice. And finally, is underscoring our priority to become a better direct consumer organization that is digitally and physically capable of the lighting and inspiring consumers with a premium seamless experience every time they engage our brand.

Patrik Frisk: First, is a sharp focus on ensuring our product innovation and segmentation are well positioned to drive greater shelf space opportunities with our key accounts and consideration from their consumers. Second, is building a stronger brand, utilizing deep consumer insights and increased marketing investments to better activate our roster of athletes and influencers, significantly amplifying our visibility in the marketplace. Third, is continuing to drive operational improvements to enhance our ability to better serve the end consumer, quite simply, becoming their brand of choice. Finally, is underscoring our priority to become a better direct-to-consumer organization that is digitally and physically capable of delighting and inspiring consumers with a premium, seamless experience every time they engage our brand. To close out, I'd reiterate again that we are not satisfied with where we're at today. While we've made significant improvements as a company, overall, there's more work to do.

First, as a sharp focus on ensuring our product innovation and segmentation are well-positioned to drive greater shelf space opportunities with our key accounts and consideration from their consumers. Second, is building a stronger brand utilizing deep consumer insights and increased marketing investments to better activate our roster of athletes and influencers.

Significantly amplifying our visibility in the marketplace. Third, is continuing to drive operational improvements to enhance our ability to better serve the end consumer quite simply becoming their brand of choice. And finally, is underscoring our priority to become a better direct consumer organization that is digitally and physically capable of the lighting and inspiring consumers with a premium seamless experience every time they engage our brand.

lighting and inspiring consumers with a premium seamless experience every time they engage our brand.

So to close out, I'd reiterate again that we're not satisfied with where we're at today. While we made significant improvements as a company, overall, there's more work to do. Given the challenges ahead, given our board and the entire global management team are aligned and confident that our transformation will continue to support our ability to execute against our long term strategy and realize Under Armour's full potential. And with that, I'll hand it over to Dave.

While we made significant improvements as a company overall, there's more work to do given the challenges ahead, Kevin our board and the entire global management team are aligned and confident that our transformation will continue to support our ability to execute against our long term strategy and realize under armours full potential and with that I'll hand, it over to date.

Patrik Frisk: Given the challenges ahead, Kevin, our Board, and the entire global management team are aligned and confident that our transformation will continue to support our ability to execute against our long-term strategy and realize Under Armour's full potential. With that, I'll hand it over to Dave.

David Bergman: Thank you, Patrick. Before moving into greater detail on our initial outlook for 2020, let's take a quick run through our Q4 highlights, starting with revenue, which was up 4% to $1.4 billion. Clicking down by channel, sales to our wholesale customers were up 2%, primarily driven by our improving service levels around the world relative to spring floor sets. Direct consumer revenue was up 2%, with growth across our international regions offset by continued declines in North America. Licensing increased 36%, primarily driven by contractual royalty minimums and one-time settlements with two of our North American partners. By product type, Apparel revenue was relatively flat compared to the prior year. Footwear revenue was up 10%, driven primarily by our team sports and running categories and improved service levels, as previously noted.

Dave Bergman: Thank you, Patrick. Before moving into greater detail on our initial outlook for 2020, let's take a quick run through our Q4 highlights, starting with revenue, which was up 4% to $1.4 billion. Clicking down by channel, sales to our wholesale customers were up 2%, primarily driven by our improving service levels around the world relative to spring floor sets. Direct consumer revenue was up 2%, with growth across our international regions offset by continued declines in North America. Licensing increased 36%, primarily driven by contractual royalty minimums and one-time settlements with two of our North American partners. By product type, Apparel revenue was relatively flat compared to the prior year. Footwear revenue was up 10%, driven primarily by our team sports and running categories and improved service levels, as previously noted.

Thank you, Patrick. Before moving into greater detail on our initial outlook for 2020, let's take a quick run through our fourth quarter highlights starting with revenue, which was up 4% to 1.4 billion. Clicking down by channel, sales to our wholesale customers were up 2%, primarily driven by our improving service levels around the world relative to spring for sets. Direct to consumer revenue was up 2% with growth across our international regions offset by continued declines in North America.

Looking down by channel sales to our wholesale customers were up 2%, primarily driven by our improving service levels around the world relative to spring for sets.

Direct to consumer revenue was up 2% with growth across our international regions offset by continued declines in North America.

Licensing increased 36%, primarily driven by contractual royalty minimums and onetime settlements with two of our North American partners. By product type, apparel revenue was relatively flat compared to the prior year. Footwear revenue was up 10% driven primarily by our team sports and running categories and improve service level as previously noted. And accessories revenue was up 2%. From a regional perspective, revenue in North America was up 2% in the fourth quarter, driven by our licensing and wholesale channels. Within wholesale, service level improvements enabled us to meet demand earlier, providing an incremental benefit to the fourth quarter. This growth was tempered by lower sales to the off-price channel.

By product type.

Apparel revenue was relatively flat compared to the prior year.

Footwear revenue was up 10% driven primarily by our team sports and running categories and improve service level as previously noted.

David Bergman: Accessories revenue was up 2%. From a regional perspective, revenue in North America was up 2% in Q4, driven by our licensing and wholesale channels. Within wholesale, service level improvements enabled us to meet demand earlier, providing an incremental benefit to Q4. This growth was tempered by lower sales to the off-price channel. In EMEA, revenue was up 2%, driven by growth in our DTC business. Relative to wholesale, as a reminder, some shipments originally planned in Q4 2019 were shipped in Q3 in anticipation of Brexit. Revenue in Asia Pacific was up 10%, with growth in wholesale and DTC. Like North America, we experienced improved service levels that benefited the quarter.

Dave Bergman: Accessories revenue was up 2%. From a regional perspective, revenue in North America was up 2% in Q4, driven by our licensing and wholesale channels. Within wholesale, service level improvements enabled us to meet demand earlier, providing an incremental benefit to Q4. This growth was tempered by lower sales to the off-price channel. In EMEA, revenue was up 2%, driven by growth in our DTC business. Relative to wholesale, as a reminder, some shipments originally planned in Q4 2019 were shipped in Q3 in anticipation of Brexit. Revenue in Asia Pacific was up 10%, with growth in wholesale and DTC. Like North America, we experienced improved service levels that benefited the quarter.

And accessories revenue was up 2%.

From a regional perspective.

Revenue in North America was up 2% in the fourth quarter, driven by our licensing and wholesale channels.

Within wholesale service level improvements enabled us to meet demand earlier, providing an incremental benefit to the fourth quarter. This growth was tempered by lower sales to the off price channel.

In EMEA revenue was up 2% driven by growth in our DTC business. Relative to wholesale, as a reminder, some shipments originally planned in the fourth quarter of 2019 were shipped in the third quarter in anticipation of Brexit. Revenue in Asia Pacific was up 10% with growth in wholesale and DTC. Like North America, we experienced improved service levels that benefited the quarter. DTC growth was slightly below our expectations to the softer than expected sales through key e-commerce moments, including double 11, and 12-12. Latin America revenue was up 12% driven by growth in wholesale and DTC.

Relative to wholesale as a reminder, some shipments originally planned in the fourth quarter of 2019 were shipped in the third quarter in anticipation of Brexit.

Revenue in Asia Pacific was up 10% with growth in wholesale and DTC.

Like North America, we experienced improved service levels that benefited the quarter.

David Bergman: DTC growth was slightly below our expectations due to softer than expected sales through key e-commerce moments, including 11.11 and 12.12. Latin America revenue was up 12%, driven by growth in wholesale and DTC. As a reminder, this was the Q1 after a full year lapping of our Brazilian business model change, effective October 2018. Finally, our Connected Fitness business was up 16% to $35 million, driven by continued strength in subscription revenue. Turning to gross margin, we saw a 230 basis point improvement to 47.3% in the Q4.

Dave Bergman: DTC growth was slightly below our expectations due to softer than expected sales through key e-commerce moments, including 11.11 and 12.12. Latin America revenue was up 12%, driven by growth in wholesale and DTC. As a reminder, this was the Q1 after a full year lapping of our Brazilian business model change, effective October 2018. Finally, our Connected Fitness business was up 16% to $35 million, driven by continued strength in subscription revenue. Turning to gross margin, we saw a 230 basis point improvement to 47.3% in the Q4.

DTC growth was slightly below our expectations to the softer than expected sales through key E commerce moments, including double 11, and 12 12.

Latin America revenue was up 12% driven by growth in wholesale and DTC.

As a reminder, this was the first quarter after full-year lapping of our Brazilian business model change effective October 2018. And finally, our connected fitness business was up 16% to 35 million driven by continued strength in subscription revenue. Turning to gross margin, we saw a 230 basis point improvement to 47.3% in the fourth quarter. To break this down more, benefits included approximately 110 basis points of pricing, including lower discounts with our wholesale partners. 100 basis points of regional mix and channel mix, including higher licensing revenues as well as lower year over year sales in the off-price channel. And 50 basis points of improvement in supply chain initiatives, including product costs and airfreight.

And finally, our connected fitness business was up 16% to 35 million driven by continued strength in subscription revenue.

Turning to gross margin, we saw a 230 basis point improvement to 47.3% in the fourth quarter.

David Bergman: To break this down more, benefits included approximately 110 basis points of pricing, including lower discounts with our wholesale partners, 100 basis points of regional mix and channel mix, including higher licensing revenues, as well as lower year-over-year sales in the off-price channel, and 50 basis points of improvement in supply chain initiatives, including product costs and air freight. These benefits were partially offset by about 20 basis points of product mix due to the strong growth of footwear in the quarter, which carries a lower gross margin rate. SG&A expense increased 3% to $607 million, which includes approximately $20 million of incremental investment to fund digital and marketing investments to better position us for our 2020 brand platform that launched earlier this year.

Dave Bergman: To break this down more, benefits included approximately 110 basis points of pricing, including lower discounts with our wholesale partners, 100 basis points of regional mix and channel mix, including higher licensing revenues, as well as lower year-over-year sales in the off-price channel, and 50 basis points of improvement in supply chain initiatives, including product costs and air freight. These benefits were partially offset by about 20 basis points of product mix due to the strong growth of footwear in the quarter, which carries a lower gross margin rate. SG&A expense increased 3% to $607 million, which includes approximately $20 million of incremental investment to fund digital and marketing investments to better position us for our 2020 brand platform that launched earlier this year.

To break this down more benefits included approximately 110 basis points of pricing, including lower discounts with our wholesale partners.

100 basis points of regional mix and channel mix, including higher licensing revenues as well as lower year over year sales in the off price channel.

And 50 basis points of improvement in supply chain initiatives, including product costs and airfreight.

These benefits were partially offset by about 20 basis points of product mix due to the strong growth of footwear in the quarter, which carries a lower gross margin rate. SG&A expense increased 3% to 607 million, which includes approximately 20 million of incremental investment to fund digital and marketing investments to better position us for our 2020 brand platform that launched earlier this year. Fourth-quarter operating income was $74 million and we had a net loss of $15 million or 3 cents of diluted loss per share. This result includes a negative 5-cent impact related to the recording of evaluation allowance against US state deferred tax assets. And a negative 8 cents impact from an impairment charge related to our equity investment in our Japanese licensee partner.

SGN a expense increased 3% to 607 million, which includes approximately 20 million of incremental investment to fund digital and marketing investments to better position us for our 2020 brand platform that launched earlier this year.

David Bergman: Q4 operating income was $74 million, and we had a net loss of $15 million or $0.03 of diluted loss per share. This result includes a negative $0.05 impact related to the recording of a valuation allowance against US state deferred tax assets and a negative $0.08 impact from an impairment charge related to our equity investment in our Japanese licensee partner. To provide a little bit more color on each of these two discrete items, I'll start with the DTA valuation allowance.

Dave Bergman: Q4 operating income was $74 million, and we had a net loss of $15 million or $0.03 of diluted loss per share. This result includes a negative $0.05 impact related to the recording of a valuation allowance against US state deferred tax assets and a negative $0.08 impact from an impairment charge related to our equity investment in our Japanese licensee partner. To provide a little bit more color on each of these two discrete items, I'll start with the DTA valuation allowance.

Fourth quarter operating income was $74 million and we had a net loss of $15 million or three cents of diluted loss per share.

This result includes a negative five cent impact related to the recording of evaluation allowance against us state deferred tax assets.

And a negative eight cents impact from an impairment charge related to our equity investment in our Japanese licensee partner.

To provide a little bit more color on each of these two discrete items, I'll start with the DTA valuation allowance. A three-year cumulative loss position in the majority of our US state jurisdictions, coupled with the expectation that our North American business will continue to be challenged in 2020 resulted in our recording a valuation allowance against deferred tax assets, which increased our 2019 tax expense by approximately 23 million a negative 5 cents EPS impact on the full year.

David Bergman: A 3-year cumulative loss position in the majority of our U.S. state jurisdictions, coupled with the expectation that our North American business will continue to be challenged in 2020, resulted in our recording a valuation allowance against deferred tax assets, which increased our 2019 tax expense by approximately $23 million, a negative $0.05 EPS impact on the full year. With respect to the impairment of our equity interest investment, consistent with the expectations we laid out on our last call, the negative impact of our licensee's operating results on our full year earnings through our minority interest was about $9 million, or about $0.02 of EPS. However, based on their updated expectations for 2020, we assessed and ultimately recorded a $39 million impairment to our 29.5% equity stake investment during the Q4.

Dave Bergman: A 3-year cumulative loss position in the majority of our U.S. state jurisdictions, coupled with the expectation that our North American business will continue to be challenged in 2020, resulted in our recording a valuation allowance against deferred tax assets, which increased our 2019 tax expense by approximately $23 million, a negative $0.05 EPS impact on the full year. With respect to the impairment of our equity interest investment, consistent with the expectations we laid out on our last call, the negative impact of our licensee's operating results on our full year earnings through our minority interest was about $9 million, or about $0.02 of EPS. However, based on their updated expectations for 2020, we assessed and ultimately recorded a $39 million impairment to our 29.5% equity stake investment during the Q4.

A three year cumulative loss position in the majority of our US state jurisdictions, coupled with the expectation that our North American business will continue to be challenged in 2020 resulted in our recording a valuation allowance against deferred tax assets, which increased our 2019 tax expense by approximately 23 million a negative five.

EPS impact on the full year.

With respect to the impairment of our equity interest investment, consistent with the expectations we laid out on our last call, the negative impact of our licensees operating results on our full-year earnings through our minority interest was about 9 million or about 2 cents of EPS. However, based on their updated expectations for '22, we assessed and ultimately recorded a 39 million impairment to our 29.5% equity stake investment during the fourth quarter. This resulted in a negative 8 cents EPS impact for the quarter or negative 9 cents for the full year. As they work through their plan of action to address their future performance, we are continuing to monitor any new developments.

Any we assessed and ultimately recorded a 39 million impairment to our 29.5% equity stake investment during the fourth quarter.

David Bergman: This resulted in a negative $0.08 EPS impact for the Q4 or negative $0.09 for the full year. As they work through their plan of action to address their future performance, we are continuing to monitor any new developments. Relative to our 2020 outlook, we anticipate an approximate $0.01 to $0.02 negative impact to EPS as they continue through their transformation. Turning now to our Q4 balance sheet and cash flow statements, where we continue to see improvements. A few highlights would include a 41% increase in cash to cash equivalents to $788 million, a 19% decrease in total debt to $593 million. Capital expenditures were down 3% to $54 million, and for the full year, capital expenditures were down 7% to $144 million, or 3% of revenue.

Dave Bergman: This resulted in a negative $0.08 EPS impact for the Q4 or negative $0.09 for the full year. As they work through their plan of action to address their future performance, we are continuing to monitor any new developments. Relative to our 2020 outlook, we anticipate an approximate $0.01 to $0.02 negative impact to EPS as they continue through their transformation. Turning now to our Q4 balance sheet and cash flow statements, where we continue to see improvements. A few highlights would include a 41% increase in cash to cash equivalents to $788 million, a 19% decrease in total debt to $593 million. Capital expenditures were down 3% to $54 million, and for the full year, capital expenditures were down 7% to $144 million, or 3% of revenue.

This resulted in a negative eight cents EPS impact for the quarter or negative nine cents for the full year.

As they work through their plan of action to address their future performance, we are continuing to monitor any new developments.

Relative to our 2020 outlook, we anticipate an approximate one to two cents negative impact as they continue through their transformation. Turning now to our fourth-quarter balance sheet and cash flow statement, where we continued to see improvements. A few highlights would include a 41% increase in cash equivalents to 788 million, a 19% decrease in total debt to 593 million. Capital expenditures were down 3% to 54 million and for the full-year capital expenditures were down 7% to $144 million or 3% of revenue.

Turning now to our fourth quarter balance sheet and cash flow statement, where we continued to see improvements.

A few highlights would include.

A 41% increase in cash equivalents to 788 million.

A 19% decrease in total debt to 593 million.

Capital expenditures were down 3% to 54 million and for the full year capital expenditures were down 7% to $144 million were 3% of revenue.

David Bergman: Inventory was down 12% to $892 million due to our continued operational and supply chain improvements. Finally, our 2019 cash flow from operations was $509 million. Moving to our initial outlook for this year, let's walk through the components in more detail. In 2020, we expect revenue to be down at a low single-digit rate compared to 2019, reflecting a mid to high single-digit decline in North America and a low double-digit growth in our international business, demonstrating the continued importance of driving greater balance and investment across our regional portfolio. As Patrik detailed, this outlook includes an anticipated Q1 negative impact in the APAC region, stemming from the very unfortunate coronavirus situation, which we currently estimate challenging global revenue growth by a little more than a point in 2020.

Dave Bergman: Inventory was down 12% to $892 million due to our continued operational and supply chain improvements. Finally, our 2019 cash flow from operations was $509 million. Moving to our initial outlook for this year, let's walk through the components in more detail. In 2020, we expect revenue to be down at a low single-digit rate compared to 2019, reflecting a mid to high single-digit decline in North America and a low double-digit growth in our international business, demonstrating the continued importance of driving greater balance and investment across our regional portfolio. As Patrik detailed, this outlook includes an anticipated Q1 negative impact in the APAC region, stemming from the very unfortunate coronavirus situation, which we currently estimate challenging global revenue growth by a little more than a point in 2020.

Inventory was down 12% to 892 million due to our continued operational and supply chain improvements. And finally, our 2019 cash flow from operations was 509 million. Moving to our initial outlook for this year, let's walk through the components in more detail. In 2020, we expect revenues to be down at a low single-digit rate compared to 2019, reflecting a mid to high single-digit decline in North America and a low double-digit growth in our international business, demonstrating the continued importance of driving greater balance and investment across our regional portfolio.

And finally, our 2019 cash flow from operations was 509 million.

Moving to our initial outlook for this year, let's walk through the components in more detail.

In 2020, we expect revenues to be down at a low single digit rate compared to 2019, reflecting a mid to high single digit decline in North America.

And a low double digit growth in our international business, demonstrating the continued importance of driving greater balance and investment across our regional portfolio.

As Patrick detailed, this outlook includes an anticipated first-quarter negative impact in the APAC region stemming from the very unfortunate Coronavirus situation, which we currently estimate challenging global revenue growth by a little more than a point in 2020. To reiterate, this outlook does not contemplate any additional impact beyond the first quarter and these impacts could be material depending on how this situation develops.

David Bergman: To reiterate, this outlook does not contemplate any additional impacts beyond Q1. These impacts could be material depending on how the situation develops. By channel and segment, we expect wholesale revenue to be down at a low to mid single-digit rate, and DTC to be up at a low single-digit rate in 2020. Licensing is expected to be down close to 30% due to significantly lower contractual royalty minimums, driven primarily by our Japanese business, the termination of certain licensees, and contract settlements realized in 2019. Our Connected Fitness business is planning up at a high single-digit rate, driven by continued momentum in our premium subscription business. Within our product segments, we expect apparel and accessories to be down at a low single-digit rate, and footwear to grow at a low single-digit rate for the year.

Dave Bergman: To reiterate, this outlook does not contemplate any additional impacts beyond Q1. These impacts could be material depending on how the situation develops. By channel and segment, we expect wholesale revenue to be down at a low to mid single-digit rate, and DTC to be up at a low single-digit rate in 2020. Licensing is expected to be down close to 30% due to significantly lower contractual royalty minimums, driven primarily by our Japanese business, the termination of certain licensees, and contract settlements realized in 2019. Our Connected Fitness business is planning up at a high single-digit rate, driven by continued momentum in our premium subscription business. Within our product segments, we expect apparel and accessories to be down at a low single-digit rate, and footwear to grow at a low single-digit rate for the year.

To reiterate this outlook does not contemplate any additional impact beyond the first quarter and these impacts could be material depending on how this situation develops.

By channel and segment, we expect wholesale revenues to be down at a low to mid-single-digit rate and DTC to be up at a low single-digit rate in 2020. Licensing is expected to be down close to 30% due to significantly lower contractual royalty minimums, driven primarily by our Japanese business, the termination of certain licensees and contract settlements realized in 2019. And our connected fitness business planning up at a high single-digit rate driven by continued momentum in our premium subscription business.

We expect wholesale revenues to be down at a low to mid single digit rate.

And DTC to be up at a low single digit rate in 2020.

Licensing is expected to be down close to 30% due to significantly lower contractual royalty minimums, driven primarily by our Japanese business, the termination of certain licensees and contract settlements realized in 2019.

And our connected fitness business planning up at a high single digit rate driven by continued momentum in our premium subscription business.

Within our product segments, we expect apparel and accessories to be down at a low single-digit rate. And footwear to grow at a low single-digit rate for the year. Gross margin is expected to be up approximately 30% to 50 basis points compared to 2019 due primarily to continued product cost benefits from ongoing supply chain initiatives and regional mix, partially offset by unfavorable channel mix related to lower licensing revenue.

And footwear to grow at a low single digit rate for the year.

David Bergman: Gross margin is expected to be up approximately 30 to 50 basis points compared to 2019, due primarily to continued product cost benefits from ongoing supply chain initiatives and regional mix, partially offset by unfavorable channel mix related to lower licensing revenue. Moving to SG&A, the realization of milestones and progress within certain areas of our business is taking longer than we anticipated. Specifically, looking at our current cost structure when compared to our continued contraction in North America, we are not optimized against this current state. When juxtaposed against other areas of our long-term strategy, including our need to continue investing more in our digital infrastructure, international expansion, and marketing, 2020 places us in a challenging position relative to our near-term SG&A to revenue relationship in order to continue on our path of realizing our long-term objectives.

Dave Bergman: Gross margin is expected to be up approximately 30 to 50 basis points compared to 2019, due primarily to continued product cost benefits from ongoing supply chain initiatives and regional mix, partially offset by unfavorable channel mix related to lower licensing revenue. Moving to SG&A, the realization of milestones and progress within certain areas of our business is taking longer than we anticipated. Specifically, looking at our current cost structure when compared to our continued contraction in North America, we are not optimized against this current state. When juxtaposed against other areas of our long-term strategy, including our need to continue investing more in our digital infrastructure, international expansion, and marketing, 2020 places us in a challenging position relative to our near-term SG&A to revenue relationship in order to continue on our path of realizing our long-term objectives.

Gross margin is expected to be up approximately 30% to 50 basis points compared to 2019 due primarily to continued product cost benefits from ongoing supply chain initiatives and regional mix, partially offset by unfavorable channel mix related to lower licensing revenue.

Moving to SG&A, the realization of milestones and progress within certain areas of our business is taking longer than we anticipated. Specifically looking at our current cost structure when compared to our continued contraction in North America, we're not optimized against this current state. And when juxtaposed against other areas of our long term strategy, including our need to continue investing more in our digital infrastructure, international expansion and marketing, 2020 places us in a challenging position relative to our near term SG&A to revenue relationship in order to continue on our path of realizing our long term objective.

The realization of milestones and progress within certain areas of our business is taking longer than we anticipated.

Specifically looking at our current cost structure when compared to our continued contraction in North America, we're not optimized against this current state.

And when juxtaposed against other areas of our long term strategy, including our need to continue investing more in our digital infrastructure International expansion and marketing 2020 places us in a challenging position relative to our near term SG native revenue relationship in order to continue on our path of realizing our long term objective.

With respect to the work we've done to drive greater operational efficiencies the restructuring plans that we in late in 2017 and 2018 were targeted at reducing our cost structure as well as allowing us to further reinvest back into key areas to drive the brand. Looking at what we have accomplished through 2019 against those objectives. We've been successful in many areas at achieving what those restructuring plans set out to do. However, they have not necessarily yielded as much benefit in the top line as we expected given demand challenges.

David Bergman: With respect to the work we've done to drive greater operational efficiencies, the restructuring plans that we implemented in 2017 and 2018 were targeted at reducing our cost structure, as well as allowing us to further reinvest back into key areas to drive the brand. Looking at what we have accomplished through 2019 against those objectives, we have been successful in many areas at achieving what those restructuring plans set out to do. However, they have not necessarily yielded as much benefit in the top line as we expected, given demand challenges. Finally, I'd like to comment on brand marketing, where we still see opportunities to increase effectiveness to reignite and deepen our connection with the consumers.

Dave Bergman: With respect to the work we've done to drive greater operational efficiencies, the restructuring plans that we implemented in 2017 and 2018 were targeted at reducing our cost structure, as well as allowing us to further reinvest back into key areas to drive the brand. Looking at what we have accomplished through 2019 against those objectives, we have been successful in many areas at achieving what those restructuring plans set out to do. However, they have not necessarily yielded as much benefit in the top line as we expected, given demand challenges. Finally, I'd like to comment on brand marketing, where we still see opportunities to increase effectiveness to reignite and deepen our connection with the consumers.

Looking at what we have accomplished through 2019 against those objectives. We've been successful in many areas at achieving what those restructuring plan set out to do however, they have not necessarily yielded as much benefit in the top line as we expected given demand challenges.

And finally, I'd like to comment on brand marketing. Where we still see opportunities to increase effectiveness to reignite and deepen our connection with the consumers. As a result, we are amplifying our marketing spend in 2020 to maximize the brand platform we launched earlier this year. Further supporting our efforts to drive greater brand strength in North America and around the world. With all of that as a backdrop, we want to make sure we enter 2021 and beyond with greater clarity and focus and in the most cost-effective way possible. To this effect, we're assessing a potential 2020 restructuring plan, which could include approximately 325 to 425 million of pre-tax restructuring-related charges. Approximately $225 million to $250 million of this total is related to potentially foregoing opening a flagship store in New York City. In this regard, our lease obligation remains however, we are considering pursuing sublet options for this space. If these restructuring initiatives were implemented, it could drive approximately 30 to 50 million in pre-tax benefits in 2020.

Where we still see opportunities to increase effectiveness to reignite and deepen our connection with the consumers.

David Bergman: As a result, we are amplifying our marketing spend in 2020 to maximize the brand platform we launched earlier this year, further supporting our efforts to drive greater brand strength in North America and around the world. With all that as a backdrop, we want to make sure we enter 2021 and beyond with greater clarity and focus and in the most cost-effective way possible. To this effect, we are assessing a potential 2020 restructuring plan, which could include approximately $325 to $425 million of pre-tax restructuring-related charges. Approximately $225 to $250 million of this total is related to potentially foregoing opening a flagship store in New York City. In this regard, our lease obligation remains. However, we are considering pursuing sublet options for this space.

Dave Bergman: As a result, we are amplifying our marketing spend in 2020 to maximize the brand platform we launched earlier this year, further supporting our efforts to drive greater brand strength in North America and around the world. With all that as a backdrop, we want to make sure we enter 2021 and beyond with greater clarity and focus and in the most cost-effective way possible. To this effect, we are assessing a potential 2020 restructuring plan, which could include approximately $325 to $425 million of pre-tax restructuring-related charges. Approximately $225 to $250 million of this total is related to potentially foregoing opening a flagship store in New York City. In this regard, our lease obligation remains. However, we are considering pursuing sublet options for this space.

As a result, we are amplifying our marketing spend in 2020 to maximize the brand platform. We launched earlier this year further supporting our efforts to drive greater brand strength in North America and around the world.

With all of that as a backdrop, we want to make sure we enter 2021 and beyond with greater clarity and focus and in the most cost effective way possible.

So this effect, we're assessing a potential 2020 restructuring plan, which could include approximately 325 to 425 million a pretax restructuring related charges.

Approximately $225 million to $250 million of this total is related to potentially foregoing opening a flagship store in New York City.

In this regard our lease obligation remains however, we are considering pursuing sublet options for this space.

If these restructuring initiatives were implemented it could drive approximately 30 to 50 million in pre tax benefits in 2020.

David Bergman: If these restructuring initiatives were implemented, it could drive approximately $30 to 50 million in pre-tax benefits in 2020. We expect to complete our assessment during Q1, subject to Board review and approval, would announce possible restructuring charges upon adoption of any plan. Now, back to our full year outlook. Excluding any potential restructuring initiatives that we are currently exploring and further impacts of the coronavirus, we're expecting operating income to reach approximately $105 to 125 million. Interest and other expense net is planned at approximately $30 million. Diluted EPS is expected to be in the range of $0.10 to 0.13, including $0.01 to 0.02 of negative impact from our equity interest in our Japanese licensee. Finally, we expect our capital expenditures to be approximately $160 million.

Dave Bergman: If these restructuring initiatives were implemented, it could drive approximately $30 to 50 million in pre-tax benefits in 2020. We expect to complete our assessment during Q1, subject to Board review and approval, would announce possible restructuring charges upon adoption of any plan. Now, back to our full year outlook. Excluding any potential restructuring initiatives that we are currently exploring and further impacts of the coronavirus, we're expecting operating income to reach approximately $105 to 125 million. Interest and other expense net is planned at approximately $30 million. Diluted EPS is expected to be in the range of $0.10 to 0.13, including $0.01 to 0.02 of negative impact from our equity interest in our Japanese licensee. Finally, we expect our capital expenditures to be approximately $160 million.

We expect to complete our assessment during the first quarter and subject to board review and approval would announce possible restructuring charges upon adoption of any plan. Now back to our full-year outlook. Excluding any potential restructuring initiatives that we are currently exploring and further impacts of the Coronavirus. We are expecting operating income to reach approximately 105 to 125 million. Interest and other expense net is planned at approximately 30 million. And diluted EPS is expected to be in the range of 10 to 13 cents, including 1 to 2 cents negative impact from our equity interest in our Japanese licensee.

Now back to our full year outlook.

Excluding any potential restructuring initiatives that we are currently exploring and further impacts of the Corona virus.

We are expecting operating income to reach approximately 105 to 125 million.

Interest and other expense net is planned at approximately 30 million.

Diluted EPS is expected to be in the range of 10 to 13 cents, including one to two cents negative impact from our equity interest in our Japanese licensee.

And finally, we expect our capital expenditures to be approximately 160 million. Before opening the call for questions, we'd like to give a little more color on the first quarter. Where due to several factors, we currently anticipate revenue to be down about 13% to 15%. There are four main drivers of this.

David Bergman: Before opening the call for questions, we'd like to give a little more color on Q1, where due to several factors, we currently anticipate revenue to be down about 13% to 15%. There are 4 main drivers of this. First, we're currently expecting the coronavirus outbreak in China to negatively impact us by about 5 points. Second, sales to the off-price channel are planned down significantly against elevated levels in Q1 2019. This, too, is about 5 points of the 13% to 15% decline. Third, as I mentioned earlier, our continued service level improvements throughout 2019 drove our ability to better service our wholesale accounts, which provided an incremental benefit to Q4 2019. We expect this shipment timing to normalize this year.

Dave Bergman: Before opening the call for questions, we'd like to give a little more color on Q1, where due to several factors, we currently anticipate revenue to be down about 13% to 15%. There are 4 main drivers of this. First, we're currently expecting the coronavirus outbreak in China to negatively impact us by about 5 points. Second, sales to the off-price channel are planned down significantly against elevated levels in Q1 2019. This, too, is about 5 points of the 13% to 15% decline. Third, as I mentioned earlier, our continued service level improvements throughout 2019 drove our ability to better service our wholesale accounts, which provided an incremental benefit to Q4 2019. We expect this shipment timing to normalize this year.

Before opening the call for questions, we'd like to give a little more color on the first quarter were due to several factors. We currently anticipate revenue to be down about 13% to 15%.

There are four main drivers of this.

First, we're currently expecting the Coronavirus outbreak in China to negatively impact us by about five points. Second, sales to the off-price channel are planned down significantly against elevated levels in the first quarter of 2019. This too is about five points of the 13% to 15% decline. Third, as I mentioned earlier, our continued service level improvement throughout 2019 drove our ability to better service or wholesale accounts, which provided an incremental benefit to Q4 '19. We expect this shipment timing to normalize this year. On a comparable basis, this was about a three-point shift from Q1 '20 to Q4 '19. And finally, we had softer than expected demand in lower spring-summer bookings in North America full-price wholesale channel.

Second sales to the off price channel, our planned down significantly against elevated levels in the first quarter of 2019. This too is about five points of the 13% to 15% decline.

Third as I mentioned earlier, our continued service level improvement throughout 2019 drove our ability to better service or wholesale accounts, which provided an incremental benefit to Q4 19.

We expect this shipment timing to normalize this year.

David Bergman: On a comparable basis, this was about a three-point shift from Q1 2020 to Q4 2019. Finally, we had softer than expected demand in lower spring/summer bookings in the North America full-price wholesale channel. Moving to gross margin and illustrating the point on quality of revenue. Even with our expected Q1 revenue contraction, we expect gross margin to be up about 120 to 140 basis points compared to the prior year, primarily driven by the significant decrease in year-over-year sales to the off-price channel, along with continued supply chain benefits and related product costing improvements. We anticipate these benefits will be partially offset by higher planned wholesale discounts.

Dave Bergman: On a comparable basis, this was about a three-point shift from Q1 2020 to Q4 2019. Finally, we had softer than expected demand in lower spring/summer bookings in the North America full-price wholesale channel. Moving to gross margin and illustrating the point on quality of revenue. Even with our expected Q1 revenue contraction, we expect gross margin to be up about 120 to 140 basis points compared to the prior year, primarily driven by the significant decrease in year-over-year sales to the off-price channel, along with continued supply chain benefits and related product costing improvements. We anticipate these benefits will be partially offset by higher planned wholesale discounts.

On a comparable basis. This was about a three point shift from Q1 20 to Q4 19.

And finally, we had softer than expected demand in lower spring summer bookings in in North America full price wholesale channel.

Moving to gross margin and illustrating the point on the quality of revenue. Even with our expected first-quarter revenue contraction, we expect gross margin to be up about 120 to 140 basis points compared to the prior year. Primarily driven by the significant decrease in year over year unit sales to the off-price channel, along with continued supply chain benefits and related product costing improvements. We anticipate these benefits will be partially offset by higher planned wholesale discounts.

Even with our expected first quarter revenue contraction, we expect gross margin to be up about 120 to 140 basis points compared to the prior year.

Primarily driven by the significant decrease in year over year unit sales to the off price channel.

Along with continued supply chain benefits and related product costing improvements.

We anticipate these benefits will be partially offset by higher planned wholesale discounts.

David Bergman: Within SG&A, as I mentioned earlier, we are continuing to work to balance cost efficiencies with key investment into other areas of our long-term strategy, including our digital infrastructure, our international expansion, and brand marketing.

Dave Bergman: Within SG&A, as I mentioned earlier, we are continuing to work to balance cost efficiencies with key investment into other areas of our long-term strategy, including our digital infrastructure, our international expansion, and brand marketing.

Within SG&A, as I mentioned earlier, we are continuing to work the balance cost efficiencies with key investment into other areas of our long term strategy, including our digital infrastructure, our international expansion and brand marketing. As such, we expect elevated spending in all three of these areas in the first quarter to support our global brand platform. Bringing all of this to the bottom line, we expect an operating loss for the quarter of approximately 75 to 80 million. Which after interest expense and other is approximately 14 to 15 cents of diluted loss per share.

[Analyst] (KeyBanc Capital Markets): As such, we expect elevated spending in all three of these areas in Q1 to support our global brand platform. Bringing all this to the bottom line, we expect an operating loss for the quarter of approximately $75 to 80 million, which after interest expense and other, is approximately $0.14 to 0.15 of diluted loss per share. Before we open the call to questions, I'd like to hand it back over to Patrik for a closing remark.

Dave Bergman: As such, we expect elevated spending in all three of these areas in Q1 to support our global brand platform. Bringing all this to the bottom line, we expect an operating loss for the quarter of approximately $75 to 80 million, which after interest expense and other, is approximately $0.14 to 0.15 of diluted loss per share. Before we open the call to questions, I'd like to hand it back over to Patrik for a closing remark.

As such we expect elevated spending all three of these areas in the first quarter to support our global brand platform.

Bringing all of this to the bottom line, we expect an operating loss for the quarter of approximately 75 to 80 million.

Which after interest expense and other is approximately 14 to 15 cents of diluted loss per share.

Before we open the call to questions, I'd like to hand it back over to Patrick for closing remark. Thanks, Dave. I want to underscore a few points. Under Armour is an operationally better company today following on purpose full three-year transformation. We reengineered our go-to-market, optimized our product innovation engines and focused ourselves on a well understood and well-defined target consumer. We've improved our balance sheet by reducing our debt in inventory and realized significant improvements in our ability to generate cash. That said, we absolutely have more work to do. Work that will require us to make tough decisions, further evaluate our cost structure and sharpen our prioritization to ensure that we continue to put ourselves in the best position possible to achieve sustainable profitable growth over the long term. And now I'll turn it back to the operated for your questions.

Patrik Frisk: Thanks, Dave. I want to underscore a few points. Under Armour is an operationally better company today following our purposeful three-year transformation. We've reengineered our go-to-market, optimized our product and innovation engines, and focused ourselves on a well-understood and well-defined target consumer. We've improved our balance sheet by reducing our debt and inventory and realized significant improvements in our ability to generate cash. That said, we absolutely have more work to do, work that will require us to make tough decisions, further evaluate our cost structure, and sharpen our prioritization to ensure that we continue to put ourselves in the best position possible to achieve sustainable, profitable growth over the long term. Now I'll turn it back to the operator for your questions.

We reengineered our go to market optimized our product innovation engines and focused ourselves on a well understood and well defined target consumer we've improved our balance sheet by reducing our debt in inventory and realized significant improvements in our ability to generate cash that said, we absolutely have more work to do work that will require us to make tough decision.

Since further evaluate our cost structure and sharpen our prioritization to ensure that we continue to put ourselves in the best position possible to achieve sustainable profitable growth over the long term.

And now I'll turn it back to the operated for your questions.

As a reminder, to ask the question you will need to press star one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Matt McClintock with Raymond James. Your line is now open.

Operator: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Matt McClintock with Raymond James. Your line is now open.

Our first question comes from Matt Mcclintock with Raymond James Your line is now open.

[Analyst] (Raymond James): Yeah, good morning, everyone. Patrick, you worked pretty hard the last few years getting the organization to a place where we can start to see growth again in North America, yet it seems like things are actually getting tougher, albeit maybe in a more profitable manner. As you look back, what, what would you have done differently? Can you perhaps talk to the product itself that you expect to sell this year, as it seems like the shorter go-to-market calendar should have helped somewhat? Thank you.

Hi, good morning, everyone. Patrick, you worked pretty hard the last years getting the organization to a place where we can start to see growth again in North America. And it seems like things are actually getting tougher, albeit maybe in a more profitable manner. As you look back, what would you have done differently? And can you perhaps talk to the product itself that you expect to sell this year? As it seems like the shorter or go-to-market calendar should have helped somewhat. Thank you.

Matt McClintock: Yeah, good morning, everyone. Patrick, you worked pretty hard the last few years getting the organization to a place where we can start to see growth again in North America, yet it seems like things are actually getting tougher, albeit maybe in a more profitable manner. As you look back, what, what would you have done differently? Can you perhaps talk to the product itself that you expect to sell this year, as it seems like the shorter go-to-market calendar should have helped somewhat? Thank you.

Lets you worked pretty hard the last year's getting organization to a place where we can start to see growth again in North America and it seems like things are actually getting tougher, albeit maybe in a more profitable manner. As you look back what would you have done differently and can you perhaps talk to the product itself that you expect to sell this year the as it seems like the shorter or go to market calendar. So the.

Helped somewhat thank you.

Patrik Frisk: Thanks, Matt. Yeah, I think, when we, you know, we've had a pretty long call here this morning, and part of that reason for that, of course, is to try to unpack some, some of the noise that's going on here right now. Yes, it is true that it's taking longer than we anticipated to get back to growth in North America. There are, you know, several different factors there. Part of it is earning our way back on the shelf, at retail is taking a little longer than we thought it would. Some of that actually has to do with the latter part of your, your question, which is around calendar, and our performance in, in, in spring of 2019.

Thanks, Matt. Yes, I think we've had a pretty long call here this morning, and part of that reason for that of course is trying to unpack some of the noise that's going on here right now. Yes. It is true that it's taking longer than we anticipated to get back to growth in North America and there are several different factors there. A part of it is earning our way back on the shelf at retail is taking longer than we thought it would. And some of that actually has to do with the latter part of your question, which is around calendar. And our performance in in spring of '19. We feel though as we go forward, because of the shortened calendar and because of the efforts that we put into not just the front end of the machine, the commercial part, but also the innovation pipeline, that we have a great product line up in in a coordinated manner in our go-to-market this year like we've never had before. But again you got to earn it back and it's taking longer than we thought. When it comes to our own controlled channels, our e-commerce platform is enabling an old one and we had planned to move onto a new platform in 2020.

When we were we've had a pretty long call here. This morning, and part of that reason for that of course is try to unpack saumen. Some of the some of the noise that's going on here right now.

Yes. It is true that it's taking longer than we anticipated to get back to growth in North America and there are several different factors there.

Part of them part of it is earning our way back on the shelf at retail is taking longer than we thought it would and some of that actually has to do with the latter part of your your question, which is around calendar.

And our performance in in spring of 19.

Patrik Frisk: We feel, though, as we go forward, because of the shortened calendar and because of the efforts that we put into not just the front end of the machine, the commercial part, but also the innovation pipeline, that we have great, great, a great product lineup, in, in a coordinated manner in our go-to-market this year like we never had before. Again, you've got to earn it back, and it's taking longer than we thought. When it comes to our own control channels, you know, our e-commerce platform is an ailing and old one, and we had planned to move on to a new platform in 2020. We've worked hard to make sure that that is the most state-of-the-art platform. Not only that, we're also supporting that with loyalty, with CRM, with personalization.

We feel though as we go forward.

Because of the shortened calendar and because of the efforts that we put into not just the front end of the machine. The commercial part, but also the innovation pipeline that we have great great a great product line up in in a coordinated manner in our go to market. This year like we've never had before but again you got to earn it back and it's taking longer.

Than we thought when it comes to our own controlled channels.

our e-commerce platform is enabling an old one and we had planned to move onto a new platform in 2020.

And we've worked hard to make sure that that is the most state of the art platform, but not only that, we're also supporting that with loyalty with CRM personalization. As so you have both the new sites and platform and all of the other things that you need to actually drive that, coming online for us in the second half of the year. We believe that is incredibly important because ultimately we would want to tell the right stories around our beautiful product and our marketing in a coordinated matter at better than we are able to do it today. So the way we think about this is about timing, it's more about timing than anything else. And as we said, we do we did see softer demand in the first half in terms of our wholesale accounts, but we see a stabilization in Q3, but again too early to call the ball of what's going to happen in Q4 because we don't have orders at the hand. So I think for us, it's about a timing issue. I think when it comes to what I've done differently you'd always like to go quicker.

Most state of the our platform, but not only that were also supporting that with loyalty with CRM personalization as so you have both the new sites and platform and all of the other things that you need to actually drive that coming on line for us in the second half of the year. We believe that is incredibly important because ultimately we would.

Patrik Frisk: You have both the new site and platform and all of the other things that you need to actually drive that coming online for us in the second half of the year. We believe that is incredibly important because ultimately, we would wanna tell the right stories around our beautiful product and our marketing in a coordinated manner, better than we are able to do it today. The way we think about this is, it's about a timing. It's more about timing than anything else. As we said, we did see softer demand in the first half in terms of our wholesale accounts, but we see a stabilization in Q3. Again, too early to call the ball on what's gonna happen in Q4 because we don't have orders at hand.

want to tell the right stories around our beautiful product and our marketing in a coordinated matter at better than we are able to do it today. So the way we think about this is about timing, it's more about timing than anything else and as we said.

we do we did see softer demand in the first half in terms of our wholesale accounts, but we see a stabilization in Q3, but again too early to call the ball of what's going to happen in Q4 because we don't have orders at the hand. So I think

Patrik Frisk: I think, for us, it's, it's, it's about a timing issue. I think when it comes to what would I have done differently, you'd always like to go quicker. You always would like to go quicker. The reality is also, you know, you have to take into consideration the, the cultural aspect of change management when you go through these things. It's sometimes hard to call the ball on the exact timing of, of a transformation because there's so much work that needs to happen across the entire organization. What we see playing out here now for Under Armour is a little bit of a delayed effect in North America, unfortunately.

For us, it's about a timing issue. I think when it comes to what I've done differently you'd always like to go quicker.

You always would like to go quicker, but the reality is also you have to take into consideration the cultural aspect of change management when you go through these things. And it's sometimes hard to call the ball on exact timing of all the transformation because there's so much work that needs to happen across the entire organization. And what we see playing out here now for Under Armour is a little bit of a delayed effect in North America, unfortunately.

You know you have to take into consideration the cultural aspect of change management. When you go through these things and it's sometimes hard to call. The ball on exact timing of all the transformation because there's so much work that needs to happen across the entire organization.

And what we see playing out here now for under armour.

As a little bit of a delayed effect in North America. Unfortunately.

Thanks for the color. Best of luck. Thank you. Our next question comes from Edward [Yruma] with Keybanc capital markets. Your line is now.

[Analyst] (Raymond James): Thanks for the color. Best of luck.

Matt McClintock: Thanks for the color. Best of luck.

Thank you. Our next question comes from Edward Room, with Keybanc capital markets. Your line is now.

Operator: Thank you. Our next question comes from Edward Ruma with KeyBanc Capital Markets. Your line is now open.

[Analyst] (KeyBanc Capital Markets): Hey, good morning. Thanks for taking the questions. I guess first on off-price, you know, this has been kind of a constant narrative for the past couple of quarters. I guess, at what point do you think you'll get comfortable with the mix of full price to off-price, and when will it stop being a drag? Secondly, I don't know, maybe this is just the chicken and egg, but are you comfortable at this stage with the existing product lineup to amplify marketing, given some of the challenges that you've outlined in your script? Thank you.

Edward Yruma: Hey, good morning. Thanks for taking the questions. I guess first on off-price, you know, this has been kind of a constant narrative for the past couple of quarters. I guess, at what point do you think you'll get comfortable with the mix of full price to off-price, and when will it stop being a drag? Secondly, I don't know, maybe this is just the chicken and egg, but are you comfortable at this stage with the existing product lineup to amplify marketing, given some of the challenges that you've outlined in your script? Thank you.

Hey, good morning. Thanks for taking my questions. I guess first on off-price. This has been kind of a constant narrative for the past couple of quarters. I guess at what point do you think you'll get comfortable with the mix of full price to off-price in one of stopping a drag? And then secondly, maybe this is just the chicken and egg, but are you comfortable at this stage with existing product lineup to amplify marketing given some of the challenges that you've outlined in your script? Thank you.

The challenge Steve outlined in your script. Thank you.

This is Dave, you know, we have talked a lot relative to kind of discounting promotion and the off-price channel. And quite frankly, it is a journey for us and we've taken a lot of good steps in that journey in '18 and '19 with kind of walk walking down the third party liquidation channel. And some of that's been enable just by a much improved supply chain process, and not actually creating as much excess and therefore, not having enough even move through that channel, which is also a good thing.

Patrik Frisk: Hey, Edward, this is Dave. Yeah, you know, we have talked a lot relative to kind of discounting promotion and the off-price channel, and quite frankly, it is a journey for us. You know, we've taken a lot of good steps in that journey in 2018 and 2019 with kind of walking down the third-party liquidation channel, and some of that's been enabled just by a much improved supply chain process and not actually creating as much excess, and therefore, not having enough to even move through that channel, which is also a good thing. We're also starting to take steps this year to take that further into our own DTC channels.

Dave Bergman: Hey, Edward, this is Dave. Yeah, you know, we have talked a lot relative to kind of discounting promotion and the off-price channel, and quite frankly, it is a journey for us. You know, we've taken a lot of good steps in that journey in 2018 and 2019 with kind of walking down the third-party liquidation channel, and some of that's been enabled just by a much improved supply chain process and not actually creating as much excess, and therefore, not having enough to even move through that channel, which is also a good thing. We're also starting to take steps this year to take that further into our own DTC channels.

A much improved supply chain process, and not actually creating as much excess and therefore, not having enough even move through that channel, which is also a good thing.

But we're also starting to take steps this year to take that further into our own DTC channels. We did some of that in '18 and '19, but in '20, especially the back half of the year in North America, we want to start walking off more from promotional and discount activity that we're doing in our factory house stores and also on our e-com site. So we're pretty excited about the combination of being able to launch a new site, being able to build in the personalization, the CRM and stepping off kind of promotional and discount cadence there on the e-com platform, but we do have to be careful any site transition as risk around that and we got to be prudent around our planning for that. So we feel good about where we are in that journey, we're kind of about where we expected to be in that step off process.

Patrik Frisk: We did some of that in 2018 and 2019. In 2020, especially the back half of the year in North America, we wanna start walking off more of the promotional and discount activity that we're doing, you know, in our Factory House stores and also on our e-com site.

David Bergman: We're pretty excited about the combination of being able to launch a new site, being able to build in the personalization, the CRM, and stepping off kind of the promotional and discount cadence there on the e-com platform. You know, we do have to be careful. Any site transition, there's risk around that, and we got to be prudent around our planning for that. You know, we feel good about where we are in that journey. We're, we're kind of about where we expected to be in that, in that step-off process. Is there more that we can do next year and beyond? Probably a little bit more, and we'll, we'll continue that journey.

Dave Bergman: We're pretty excited about the combination of being able to launch a new site, being able to build in the personalization, the CRM, and stepping off kind of the promotional and discount cadence there on the e-com platform. You know, we do have to be careful. Any site transition, there's risk around that, and we got to be prudent around our planning for that. You know, we feel good about where we are in that journey. We're, we're kind of about where we expected to be in that, in that step-off process. Is there more that we can do next year and beyond? Probably a little bit more, and we'll, we'll continue that journey.

Combination of being able to launch a new site being able to build in the personalization, the CRM and stepping off kind of promotional and discount cadence there on the E com platform, but we do have be careful any site transition as risk around that and we got to be prudent around our planning for that so.

We feel good about where we are in that journey, we're kind of about where we expected to be in that in that step off process.

Is there more that we can do next year and beyond? Probably a little bit more and we'll continue that journey, but we want to make sure we're doing a prudently and that is backed up by the right brand campaign and brand voice at the same time to make sure we're really compelling those consumers. So to stay with the brand and want to stay with us as a premium brand and a full-price brand. And so that's another reason why we're so excited about the marketing campaign that we recently launched and kind of doubling down on the investment there as we go through this year. And I'll take the second part of that question as it relates to product and the go to market.

David Bergman: We wanna make sure we're doing it prudently and that it's backed up by the right brand campaign and brand voice at the same time, to make sure we're really compelling those consumers, you know, to stay with the brand and wanna stay with us as a premium brand and a full price brand. That's another reason why we're so excited about the marketing campaign that we recently launched and kinda doubling down on the investment there as we go through this year.

Dave Bergman: We wanna make sure we're doing it prudently and that it's backed up by the right brand campaign and brand voice at the same time, to make sure we're really compelling those consumers, you know, to stay with the brand and wanna stay with us as a premium brand and a full price brand. That's another reason why we're so excited about the marketing campaign that we recently launched and kinda doubling down on the investment there as we go through this year.

So to stay with the brand and want to stay with us as a premium brand and a full price brand and so that's another reason why we're so excited about the marketing campaign that we recently launched and kind of doubling down on the investment there as we go through this year and one of the I'll take the second part of that.

Patrik Frisk: Yeah, one of the, I'll, I'll take the second part of that question, and as it relates to product and the go-to-market. spring 2020, we, we're now... Fall 2020, the entire year of 2020, we're now truly running a coordinated play across product marketing. We're doing that with, we believe, a better product lineup than we've had ever. I'm thinking now specifically around Russian Recover, you know, that metabolic fabric that we have that helps you recover. ISOChill, which we're driving now hard into golf, which is a new, an innovation that we've had before, but we're now actually expanding it to make sure that we're, we're covering more styles with that.

question as it relates to product and the go to market.

Spring 2020, and we are now and fall 2020, the entire year of 2020 we're now truly running a coordinated play across product marketing and we're doing that with, we believe a better product lineup than we've had ever. And I'm thinking now specifically around Russian recovered that metabolic fabric that we have that helps you recover ISO channel, which we're driving now hard into goal, which is an innovation that we've had before but we now actually expanding it to make sure that were recovering more styles with that. An infinity bra for women, which is a new bra that we're launching which we believe is absolutely the number one bra for any woman that wants to be active and stay active our continued driving into project rock and some of the new products that's coming out from his line.

Russian recovered that metabolic fabric that we have that helps you recover ISO channel, which were driving now hard into goal, which is a new.

An innovation that we've had before but we now actually expanding it to make sure that were recovering more styles with that are infinity brawl for women, which is a new broad that we're launching which we believe is absolutely. The number one brawl for anyone that wants to be active and stay active our continued driving into project rock and some of the the new prop.

Patrik Frisk: Our Infinity bra for women, which is a new bra that we're launching, which we believe is absolutely the number one bra for any woman that wants to be active and stay active. Our continued driving into Project Rock and some of the new product that's coming out from his line. In footwear, continuing to build on something that we've worked hard to do over the last few years as a brand, which is starting to build franchises around our footwear. You know, our Hover running, we just launched a new Machina on Friday, and we're very happy with how that launch has gone across the world. This was the first time we were able to actually launch a product simultaneously across all of our countries globally.

Success coming out for from his line.

And in footwear, continuing to build on something that we've worked hard to do over the last few years as a brand which is starting to build franchises around our footwear. Our hovered running, we just launched a new Makana on Friday, and we're very happy with how that launches going across the world. This was the first time we were able to actually launch a product simultaneously across all of our countries globally.

Our hovered running we just launched a new makana on on Friday, and we're very happy with how that launches going across the world. This was the first time, we were able to actually launch a product simultaneously across all of our countries globally.

Patrik Frisk: The, and the big news there is, is that's real live coaching, right? You, you can wear a watch and you can be coached as you run. Has had great reception, but that's just one of the things that we now have on the Hover platform. We also have the Phantom SC, the Sonic, the Infinite, the Mega, the Velocity 2, the Guardian. And, and that platform itself has been a real accomplishment for, for the brand and in our ability to, to drive, you know, newness in terms of footwear. You also now start to see that playing out in our sales. The difference is, we're not just doing the product better, we're also doing the messaging better, and we're now able to actually read and react real time.

And the big news there is that is realized coaching right. You can wear a watch, [and you can be coach as you run.] Has had great reception, but that just one other things that we now have on the Alber platform. We also have the Phantom SC, the Sonic, the Infinite, the HOVR Sonic 2, the Guardian. And that platform itself has been a real accomplishment for the brand in our ability to drive newness in terms of footwear and you also now start to see that playing out in our sales. The difference is we're not just doing the product better. We're also doing the messaging better and we're now able to actually read and react in real-time.

Has had great reception, but that just one other things that we now have on the alber platform. We also have the fact, the messy the solnick the infinite the magnitude of and also the to the Guardian and that platform itself has been a real accomplishment for for the brand in our ability to drive.

Newness in terms of footwear and you also now start to see that playing out in our sales.

Difference is we're not just doing the product better. We're also doing the messaging better and we're now able to actually read and react real time.

Patrik Frisk: What I mean by that is, we've also built the tools to be able to see the reaction at the consumer level as we start to step on the marketing that Dave talked about. We haven't been able to do that before, but now we're actually monitoring things real, real time, and we're able to read and react much more so than ever before. Ultimately, you are somewhat caught in that calendar warp. We have been, and we're now coming out of that. If you think about spring 2019, fall 2019, lots of the product and stuff that was built for those seasons were built when we were still on the old calendar.

What I mean by that is we've also built the tools to be able to see the reaction at the consumer level as we start to step on the marketing that we talked about. We haven't been able to do that before but now we're actually monitoring things real-time and we're able to read and react much more so than ever before. And ultimately you are somewhat caught in that calendar warp, we have been and we are now coming out of that. If you think about spring '19, fall '19. Lots of the product and stuff that was built for those seasons were built when we were still on the old calendar and as you look forward now into 2020, both the innovation calendar and the commercial calendar are now coordinated for us to run a better place. So we're very optimistic about what we see and our ability to drive harder and that's one of the reasons why we're working hard to spend more but also to unlock more opportunities to continue to spend more which is incredibly important for us to make sure that we're driving brand consideration specifically in the United States.

Somewhat caught in that calendar warp, we have been and we are now coming out of that.

If you think about spring 19 fall 19.

Lots are though of the product and and stuff that was built for those seasons were built when we were still.

On the old calendar and as you look forward now into 2020, both the innovation calendar and the commercial calendar on now coordinated for us to run a better place. So we're very optimistic about what we see and our ability to drive harder and Thats. One reasons why we're working hard to spend more but also to unlock.

Patrik Frisk: As you look forward now into 2020, both the innovation calendar and the commercial calendar are now coordinated for us to run a better play. We're very optimistic about what we see and our ability to drive harder. That's one of the reasons why we're working hard to spend more, but also to unlock more opportunity to continue to spend more, which is incredibly important for us to make sure that we're driving brand consideration, specifically in the United States.

More opportunity to continue to spend more which is incredibly important for us to make sure that we're driving brand consideration specifically in the United States.

David Bergman: Great. Thanks so much, guys.

Edward Yruma: Great. Thanks so much, guys.

Thanks so much, guys. Hope that helps. Thank you and our next question comes from Erinn Murphy with Piper Sandler Your line is now open.

Patrik Frisk: Hope that helps.

That helps.

Thank you and our next question comes from Erinn Murphy with Piper Sandler Your line is now open.

Operator: Thank you. Our next question comes from Erin Murphy with Piper Sandler. Your line is now open.

[Analyst] (Piper Sandler): Great. Thanks. Good morning. I guess my first question is just around the DTC channel. You guys talked about it being up low single-digit in 2020. Could you just talk a little bit more about what's contemplated in terms of store development in this number, and maybe in that, talk about how some of your smaller format stores have performed?

Erinn Murphy: Great. Thanks. Good morning. I guess my first question is just around the DTC channel. You guys talked about it being up low single-digit in 2020. Could you just talk a little bit more about what's contemplated in terms of store development in this number, and maybe in that, talk about how some of your smaller format stores have performed?

Great. Thanks, good morning. My first question is just around DTC channel you guys talked about it being up low single-digit in 2020. Could you just talk a little bit more about contemplated in terms of store development in this number and maybe in that you talk about how many are smaller format stores have performed?

My question first question just around DTC channel you guys talked about it being up low single digit in 2020 could you just talk a little bit more about contemplated in terms of store development in this number and maybe in that you talk about how many are smaller format stores have performed.

David Bergman: Sure, Erin, this is Dave. I'll start out. Patrick can add a little bit as well. You know, we are excited about global retail for us going into 2020. I think, you know, from a DTC perspective, we mentioned on our prepared remarks, we're a little bit tempered on our e-com outlook, mainly with the site redesign in North America, and also just being a little bit prudent there with a lot of the promotional environment we saw in Q4 of 2019. Relative to retail stores, you know, we're excited about the new Brand House commercial concept we've been launching this year. We're excited about the format for Factory House, and so we're really, you know, getting behind that.

Dave Bergman: Sure, Erin, this is Dave. I'll start out. Patrick can add a little bit as well. You know, we are excited about global retail for us going into 2020. I think, you know, from a DTC perspective, we mentioned on our prepared remarks, we're a little bit tempered on our e-com outlook, mainly with the site redesign in North America, and also just being a little bit prudent there with a lot of the promotional environment we saw in Q4 of 2019. Relative to retail stores, you know, we're excited about the new Brand House commercial concept we've been launching this year. We're excited about the format for Factory House, and so we're really, you know, getting behind that.

Sure, and this is Dave. I'll start out, Patrik can add a little bit as well. But we are excited about global retail for us going into 2020, I think you know from DTC perspective, we mentioned on our prepared remarks were a little bit tempered on our e-com outlook. Mainly with the site redesign in North America. And also just being a little bit prudent there with a lot of the promotional environment we saw in Q4 of '19. But relative to retail stores, we're excited about the new brand house commercial concept, we have been launching this year. We're excited about the format for Factory House, and so we're really getting behind that. When you think about globally,

We are excited about global retail for us going into 2020, I think you know from DTC perspective, we mentioned on our prepared remarks were a little bit tempered on our E com outlook.

Mainly with the site redesign in North America.

I'd also just being a little bit prudent there with a lot of the promotional environment. We saw in Q4 of 19.

But relative to retail stores, we're excited about the new brand house commercial concept, we have been launching.

This year, we're excited about the format for factor House, and so we're really getting behind that when you think about globally.

David Bergman: When you think about globally, you know, we're still planning about 275 doors, globally. About 200 of those, you know, are going to be more partner, and then 75 are going to be more kind of owned and operated. The partner doors are going to be mainly Brand House doors, and the owned and operated are going to be more Factory House doors. You know, I do want to just caveat that with the fact that that plan does not currently anticipate any extended impact from the coronavirus situation in APAC, so we have to keep an eye on that and make sure that we continue to update as we go forward.

Dave Bergman: When you think about globally, you know, we're still planning about 275 doors, globally. About 200 of those, you know, are going to be more partner, and then 75 are going to be more kind of owned and operated. The partner doors are going to be mainly Brand House doors, and the owned and operated are going to be more Factory House doors. You know, I do want to just caveat that with the fact that that plan does not currently anticipate any extended impact from the coronavirus situation in APAC, so we have to keep an eye on that and make sure that we continue to update as we go forward.

we're still planning about 275 doors globally about 200 of those are going to be more partner and then 75 are going to be more kind of owned and operated. The partner doors are going to be mainly brand house doors and the own and operate are going to be more factory house stores. I do want to just caveat that with the fact that that plan does not currently anticipate any extended impact from the current virus situation in APACs, we have to keep an eye on that and make sure that we continue to update as we go forward.

You know are going to be.

More partner and 75 are going to new Moon more kind of owned and operated the partner doors are going to be mainly brand house stores and the own and operate are going to be more factory house stores.

I do want to just caveat that with the fact that that plan.

Is not currently anticipate any extended impact from the current virus situation in apacs, we have to keep an eye on that and make sure that we continue to update as we go forward.

Patrik Frisk: ... but we are excited about the continued progress there. Yeah, we've done a lot of work around the Brand House, and, you know, we're truly moving into an era now for Under Armour, where we're starting to drive true omni-channel through both personalization, BOPIS, and loyalty as well as CRM. As part of that, we've been working to coordinate the efforts that we have, of course, in e-commerce, but also through this new Brand House concept in terms of both experience and activation. We did a lot of work on the 3 stores that we opened in the back half of the year in 2019 to learn from. Those were hybrid stores.

Dave Bergman: ... but we are excited about the continued progress there.

But we are excited about the continued progress there. Yes, we've done a lot of work around the brand house and we're truly moving into an era now for Under Armour, where we're starting to drive true omnichannel through both personalization BOPUS and loyalty as well as CRM. And as part of that, we've been working to coordinate the efforts that we have of course in e-commerce, but also through this new brand house concept in terms of both experience and activation. We did a lot of work on the three stores that we opened in the back half of the year, in '19 to learn from. Those were hybrid stores. We tried a lot on new things in there and we put all of that work also into the stores that were now starting to launch and rollout in 2020. And it's important to us, we are still on track to open somewhere between 1500, and 1700 stores across the world over the next three to four years. So it is absolutely critical initiative for us and we're very encouraged by what we see in terms of how those stores are performing right now.

Patrik Frisk: Yeah, we've done a lot of work around the Brand House, and, you know, we're truly moving into an era now for Under Armour, where we're starting to drive true omni-channel through both personalization, BOPIS, and loyalty as well as CRM. As part of that, we've been working to coordinate the efforts that we have, of course, in e-commerce, but also through this new Brand House concept in terms of both experience and activation. We did a lot of work on the 3 stores that we opened in the back half of the year in 2019 to learn from. Those were hybrid stores.

Loyalty as well as CRM and as part of that we've been working to coordinate the efforts that we have of course in ecommerce, but also through this new brand house concept in terms of both experience and activation.

We did a lot of work on the three stores that we that we opened in the back half of the year 19 to learn from those were hybrid stores. We tried a lot on new things in there and we put all of that work also into the stores that were now starting to launch and rollout in 2020 and it's important to.

Patrik Frisk: We, we tried a lot of new things in there, and, and we've put all of that work also into the stores that we're now starting to launch and roll out in 2020. It's important to us. We still are on track to open somewhere between 1,500 and 1,700 stores across the world over the next 3 to 4 years. It is, it's, it's absolutely a cri- a critical initiative for us, and, and we're very encouraged by what we see in terms of how those stores are performing right now. Dave, do you want to add anymore? You good?

Dave Bergman: We, we tried a lot of new things in there, and, and we've put all of that work also into the stores that we're now starting to launch and roll out in 2020. It's important to us. We still are on track to open somewhere between 1,500 and 1,700 stores across the world over the next 3 to 4 years. It is, it's, it's absolutely a cri- a critical initiative for us, and, and we're very encouraged by what we see in terms of how those stores are performing right now. Dave, do you want to add anymore? You good?

Yes, we still on track to.

Open somewhere between 1500, and 1700 stores across the world over the next three to four years.

So it is absolutely critical initiative for us and we're very encouraged by what we see in terms of how those stores are performing right now.

Initiative for Us and we're very encouraged by what we see in terms of how those stores are performing right now.

Dan you want to Adam.

Good.

David Bergman: Yep.

Dave Bergman: Yep.

[Analyst] (Piper Sandler): Thank you. Can I just clarify just one thing, Dave, for you on the guidance? For international growing low double, does that include the $50 to $60 million hit that you're taking in Q1 for coronavirus, or is that excluding that?

Erinn Murphy: Thank you. Can I just clarify just one thing, Dave, for you on the guidance? For international growing low double, does that include the $50 to $60 million hit that you're taking in Q1 for coronavirus, or is that excluding that?

Thank you. Can I just clarify just one thing, Dave, for you on the guidance for international growing low double? Does that include that 50 to 60 million hit that you're taking in Q1 for coronavirus or is that excluding that? It does include the hit that we're expecting in Q1, the 50 to 60. It does not include anything after Q1. Got it. Thank you.

David Bergman: It does include the hit that we're expecting in Q1, the $50 to 60 million. It does not include anything after Q1.

Dave Bergman: It does include the hit that we're expecting in Q1, the $50 to 60 million. It does not include anything after Q1.

It does include the hit that we're expecting in Q1, the 50 to 60. It does not include anything after Q1. Got it. Thank you.

[Analyst] (Piper Sandler): Got it. Thank you.

Erinn Murphy: Got it. Thank you.

David Bergman: You're welcome.

Dave Bergman: You're welcome.

Hello.

Operator: Thank you. Our next question comes from Alex Walvis with Goldman Sachs. Your line is now open.

Thank you. Our next question comes from Alex Walvis with Goldman Sachs. Your line is now open.

[Analyst] (Goldman Sachs): Good morning, and thanks so much for taking the questions here. My question's on North America guidance, and specifically on North America wholesale. You know, I wonder if you could share with us what level of decline you're embedding within the wholesale segment of North America, specifically, as you contemplate the down mid to high single revenues in total. You know, is there any color that you can share with us on, you know, the moving pieces within wholesale beyond the declines that you're expecting in off-price? And here, I'm thinking of, you know, whether you're planning to reduce the number of doors that you sell through, and any thoughts that you might have within doors of where, you know, share losses are going to. Is it, you know, other international brands?

Alex Walvis: Good morning, and thanks so much for taking the questions here. My question's on North America guidance, and specifically on North America wholesale. You know, I wonder if you could share with us what level of decline you're embedding within the wholesale segment of North America, specifically, as you contemplate the down mid to high single revenues in total. You know, is there any color that you can share with us on, you know, the moving pieces within wholesale beyond the declines that you're expecting in off-price? And here, I'm thinking of, you know, whether you're planning to reduce the number of doors that you sell through, and any thoughts that you might have within doors of where, you know, share losses are going to. Is it, you know, other international brands?

Good morning, and thanks so much for taking the questions here. My questions on North American guidance, and specifically on North America wholesale. I wonder if you could share with us what level of decline you're embedding within the wholesale segment of North America, specifically as you contemplate down mid to high single revenues in total. Is there any color that you can share with us on the moving pieces within wholesale beyond the declines that you're expecting in off-price and here I am thinking of whether you're planning to reduce the number of stores that you sell through? And any thoughts that you might have within doors, where share losses are going to. Is it in other international brands? Is it private label? Plans or any other thoughts around that. And then my second question is just a quick question on the decision-making process around the New York store and how you'll come to a conclusion on that.

I Wonder if you could share with us what level of decline you're in banking within the wholesale segment of North America, specifically as you contemplate down mid to high single revenues in total.

Is there any color that you can share with us on the moving pieces within wholesale beyond the declines that you're expecting in off price and hearings thinking of whether youre planning to reduce the number of stores that you sell through.

Any thoughts that you might have within doors, where share losses are going to is it in other international brands is it private label.

[Analyst] (Goldman Sachs): Is it private label, players, or any other thoughts around that? My second question is just a quick one on the decision-making process around the New York store and how you'll come to a conclusion on that.

Alex Walvis: Is it private label, players, or any other thoughts around that? My second question is just a quick one on the decision-making process around the New York store and how you'll come to a conclusion on that.

Plans or any other thoughts around that.

And then my second question is just a quick question on the decision-making process around the New York store and how you'll come to a conclusion on that.

Quick question on the decision, making process around the New York store and how you'll come to a conclusion on that.

Sure, Alex, this is Dave. Relative to North America, and kind of what we're expecting for 2020. There are a couple of different puts and takes that are going on there. Most of the decline is attributable to wholesale and then a little bit from DTC, but that's mainly on the e-com side. When you think about on the wholesale side, as Patrick mentioned in his prepared remarks, we did see some softer demand relative to first-half wholesale bookings. Some of that's coming off of some of the performance of our spring-summer '19 product. But then as we look at the Q3 orders that came in, they are actually more flattish. So we're seeing signs of stabilization there which is good.

David Bergman: Sure, Alex. This is Dave. You know, relative to North America and kind of what we're expecting for 2020, there are a couple different puts and takes that are going on there. Most of the decline is attributable to wholesale and then a little bit from DTC, but that's mainly on the e-commerce side. When you think about on the wholesale side, you know, as Patrick mentioned in his prepared remarks, we did see some softer demand relative to first half wholesale bookings. Some of that's coming off of some of the performance of our spring/summer 2019 product. Then as we look at the Q3 orders that came in, they're actually more flattish. We're seeing signs of stabilization there, which is good.

Dave Bergman: Sure, Alex. This is Dave. You know, relative to North America and kind of what we're expecting for 2020, there are a couple different puts and takes that are going on there. Most of the decline is attributable to wholesale and then a little bit from DTC, but that's mainly on the e-commerce side. When you think about on the wholesale side, you know, as Patrick mentioned in his prepared remarks, we did see some softer demand relative to first half wholesale bookings. Some of that's coming off of some of the performance of our spring/summer 2019 product. Then as we look at the Q3 orders that came in, they're actually more flattish. We're seeing signs of stabilization there, which is good.

Relative to North America, and kind of what we're expecting for 2020.

There are couple of different puts and takes that are going on there. Most of the decline is attributable to wholesale and then a little bit from DTC, but thats, mainly on the E. Com side. When you think about on the wholesale side as Patrick mentioned in his prepared remarks, we did see some softer demand relative to first half wholesale bookings.

Some of that's coming off of some of the the.

Performance of our spring summer 19 product.

But then as we look at the Q3 orders that came in they are actually more flattish. So we're seeing signs of stabilization there which is good we.

David Bergman: We don't have Q4 bookings in hand yet, we wanna be careful there, but hopefully that momentum that we're seeing in the stabilization and beyond continues as we get those Q4 bookings in. As we've mentioned on the wholesale side also, we're definitely planning decreased third-party liquidation in 2020 as well. When you look at the DTC side, you know, we are pretty encouraged relative to the Brand House commercial model that I mentioned, and also on the Factory House models. We are stepping off the promotions a little bit on the e-com side and also on the Factory House side. A little bit more detail on North America DTC from a doors perspective. You know, we only have about 19 full price stores as we ended last year.

Dave Bergman: We don't have Q4 bookings in hand yet, we wanna be careful there, but hopefully that momentum that we're seeing in the stabilization and beyond continues as we get those Q4 bookings in. As we've mentioned on the wholesale side also, we're definitely planning decreased third-party liquidation in 2020 as well. When you look at the DTC side, you know, we are pretty encouraged relative to the Brand House commercial model that I mentioned, and also on the Factory House models. We are stepping off the promotions a little bit on the e-com side and also on the Factory House side. A little bit more detail on North America DTC from a doors perspective. You know, we only have about 19 full price stores as we ended last year.

We don't have Q4 bookings in hand, yet so we want to be careful there, but hopefully, that momentum that we're seeing in the stabilization and beyond continues as we get those Q4 bookings in. And then as we've mentioned on the wholesale side also, we're definitely planting decreased third party liquidation in 2020 as well. When you look at the DTC side. We are pretty encouraged relative to the brand house commercial model that I mentioned. And also on the Factory House models, but we are stepping off the promotions a little bit on the e-com side and also on the Factory House side. A little bit more detail in North America DTC for that from a doors perspective, we only have about 19 full-price stores as we ended last year.

We are pretty encouraged relative to the brand house commercial model that I mentioned.

And also on the factory House models, but we are stepping off the promotions a little bit on the E com side and also on the factory House side.

A little bit more detail in North America DTC for that from a doors perspective, we only have about 19 full price stores as we ended last year.

David Bergman: We're going to look to open three more of the new format doors this year. We are being prudent about that expansion. We want to make sure that the profitability of those new models is working the way that we expect before we really amplify that a lot more, but we're excited about the early reads on that. Relative to the question on the Fifth Avenue store, you know, obviously, this is a big conversation for us and a big decision that we have not officially made yet, but that we're anticipating. You know, flagship retail is certainly important to us, in this instance, you know, we would prefer to continue focusing on our smaller, more profitable Brand House commercial concepts that I mentioned, which we're rolling out this year.

Dave Bergman: We're going to look to open three more of the new format doors this year. We are being prudent about that expansion. We want to make sure that the profitability of those new models is working the way that we expect before we really amplify that a lot more, but we're excited about the early reads on that. Relative to the question on the Fifth Avenue store, you know, obviously, this is a big conversation for us and a big decision that we have not officially made yet, but that we're anticipating. You know, flagship retail is certainly important to us, in this instance, you know, we would prefer to continue focusing on our smaller, more profitable Brand House commercial concepts that I mentioned, which we're rolling out this year.

So we're going to look to open three more of the new format doors this year, but we are being prudent about that expansion. We want to make sure that the profitability of those new models is working the way that we expect before we really amplify that a lot more. But we're excited about the early reads on that. Relative to the question on the fifth Avenue store. Obviously, this is a big conversation for us and a big decision that we have not officially made yet but that we're anticipating. Flagship retail is certainly important to us but in this instance, we would prefer to continue focusing on our smaller more profitable brand house commercial concepts that I mentioned. Which we're rolling out this year. In addition, we need to reprioritize and allocate more investments as the digital side of our strategy and including our new e-com platform that I mentioned. CRM and loyalty that Patrick mentioned as well, you know the fifth Avenue location is obviously, a premier retail location, but we're considering whether it may be better suited for someone else at this time.

Relative to the question on the fifth Avenue store.

Obviously this is a big a big conversation for us and a big decision that we have not officially made yet but that we're anticipating.

Flagship retail certainly important to us but in this instance, we would prefer to continue focusing on our smaller more profitable brand house commercial concepts that I mentioned.

Which we're rolling out this year. In addition, we need to Reprioritize and allocate more investments as digital side of our strategy and including our new E Com platform that I mentioned.

David Bergman: You know, in addition, you know, we need to reprioritize and allocate more investment to the digital side of our strategy, and, you know, including our new e-com platform that I mentioned, CRM and loyalty that Patrick mentioned as well. You know, the Fifth Avenue location is obviously a premier retail location, but, you know, we're considering whether it may be better suited for someone else at this time. You know, regardless of whatever decision we make there, you know, our lease obligations remain in place, and we begin paying rent on that later this year, but we're continuing to evaluate that.

Dave Bergman: You know, in addition, you know, we need to reprioritize and allocate more investment to the digital side of our strategy, and, you know, including our new e-com platform that I mentioned, CRM and loyalty that Patrick mentioned as well. You know, the Fifth Avenue location is obviously a premier retail location, but, you know, we're considering whether it may be better suited for someone else at this time. You know, regardless of whatever decision we make there, you know, our lease obligations remain in place, and we begin paying rent on that later this year, but we're continuing to evaluate that.

CRM and loyalty that Patrick mentioned as well you know the fifth Avenue location is obviously, a premier retail location, but we're considering whether it may be better suited for someone else at this time.

Regardless of whatever decision we make there, our lease obligation will remain in place and we again begin paying on that later this year, but we're continuing to evaluate that. And that doesn't. This is Patrik. I just wanted to battle the color around flagship stores in general. We have other flagship stores around the world and we'll continue to look at flagships opportunities into future for sure. But at this point in time, we feel that it's prudent to take this action and I think for us, we need to make sure that we're also now looking not just in North America but beyond in terms of how we support our retail business.

Right on that later this year, but we're continuing to evaluate that and that doesn't this is hi. This is Patrick I just wanted battled the color around flagship stores and in general we have other flagship stores around the world and we'll continue to.

Patrik Frisk: That doesn't. This is Patrick. I just want to add a little bit of color around flagship stores in general. We have other flagship stores around the world, and we'll continue to look at flagships opportunities in the future for sure. At this point in time, we feel that it's prudent to take this action. I think, you know, for us, we need to make sure that we're also now looking not just in North America, but beyond in terms of how we support our retail business.

Look at flagships opportunities into future for sure.

But at this point in time, we feel that it's prudent to take this action and I think.

You know a for us.

We need to make sure that were also now looking not just in North America about beyond in terms of how we support our retail business.

Thank you. Our next question comes from Omar Saad with Evercore. Your line is now open.

David Bergman: ... Fantastic. Thank you.

Alex Walvis: ... Fantastic. Thank you.

Thank you Sir our next question comes from Omar Saad with Evercore. Your line is now open.

Operator: Thank you. Our next question comes from Omar Saad with Evercore. Your line is now open.

[Analyst] (Evercore): Good morning. Thanks for taking my question. 2 quick questions, guys. Number 1, I thought I heard you mention at some point in the prepared remarks, embracing the performance element of the Under Armour brand, really sticking to that kind of knitting and its original DNA. I'd love to hear you era- elaborate on that, especially given kind of the demand for fashion products in the marketplace, and how you see Under Armour's unique performance element fitting into the broader marketplace. Then my 2nd question is, you know, if you can give us a sense of the rise and fall, and now rise again, of marketing spend and ad spend for the brand.

Omar Saad: Good morning. Thanks for taking my question. 2 quick questions, guys. Number 1, I thought I heard you mention at some point in the prepared remarks, embracing the performance element of the Under Armour brand, really sticking to that kind of knitting and its original DNA. I'd love to hear you era- elaborate on that, especially given kind of the demand for fashion products in the marketplace, and how you see Under Armour's unique performance element fitting into the broader marketplace. Then my 2nd question is, you know, if you can give us a sense of the rise and fall, and now rise again, of marketing spend and ad spend for the brand.

Good morning. Thanks for taking my question. Two quick questions, guys. So number one, I thought I heard you mentioned at some point in the prepared remarks embracing the performance element of the Under Armour brand really sticking to that kind of knitting and its original DNA. I'd love to hear you elaborate on that especially given kind of the demand for fashion products will marketplace and how you see Under Armour's unique performance element fitting into the broader marketplace. And then my second question is if you can give us a sense of the rise and fall and now rise again of marketing spend an AD spend for the brand. How much on how large and far reaching was that you gave away so that's peak versus 2019, so we can think about what ramping back up the brand voice will be through increased marketing going forward. Thanks.

Two quick questions guys. So number one I thought I heard you mentioned at some point in the prepared remarks.

Facing the performance element of the under armour brand really sticking to that kind of knitting and its original DNA I'd love to hear your Rad.

Elaborate on that especially given kind of the demand for fashion products will marketplace and how you see under Armours unique performance element fitting into the broader marketplace and then my second question is if you can give us a sense of the rise and fall and now rise again of marketing spend an AD spend for the brand how much on how large and far reaching was that you gave away so thats peak versus.

[Analyst] (Evercore): You know, how, how much and how large and far-reaching was the UA voice at its peak versus 2019, so we can think about what ramping back up the brand voice will be through increased marketing going forward? Thanks.

Omar Saad: You know, how, how much and how large and far-reaching was the UA voice at its peak versus 2019, so we can think about what ramping back up the brand voice will be through increased marketing going forward? Thanks.

2019, so we can think about what ramping back up the the brand voice will be through increased marketing going forward. Thanks.

Patrik Frisk: Okay. Well, I'll, I'll start, Omar. Thanks for, thanks for your question. Yes, it's, it's, it's an ongoing conversation, I guess, that we have with investors, and I think also with the media around our decision to play in athletic performance. We don't necessarily think about it in terms of bifurcation between performance and style, right? We don't believe that just because we're focused around what our product does for people means that we're not going to be stylish or on trend. We're expecting our products to be bought because people wanna get better, but ultimately, the way that they choose to wear them might be in other wearing occasions.

Okay, I'll start, Omar. Thanks for your question, Yes, it's an ongoing conversation I guess that we have with investors and I think also with the media around our decision to play in athletic performance. And we don't necessarily think about it in terms of bifurcation between performance on spot. We don't believe that just because we're focused around what our product does for people. This means that we're not going to be stylish or on-trend.

Investors and I think also with the with the media around our decision to play in athletic performance and we don't necessarily think about it in terms of bifurcation between performance on spot right. We don't believe that just because we're focused around what our product does for people.

Means that we're not going to be stylish or on trend.

We're expecting our products to be bought because people want to get better, but ultimately the way that they choose to wear them might be other wearing occasions. So our design team, and as I said in my prepared remarks, truly believes that there is no performance without beauty and that's how we think about it. So we believe we can be absolutely relevant in today's trend that's going on right now with the products that we make going forward. The major difference and why we speak about it so pointedly is because we want to make sure that we're focused as it relates to our innovation engine and ultimately our go to market engine around things that are going to improve people, right, to make them better and we got to start from that sharp point and that's really important to us.

Patrik Frisk: Our design team, and as I said on my prepared remarks, truly believes that there is no, no performance without beauty, and that's how we think about it. We believe we can be absolutely relevant in today's trend that's going on right now with the products that we make going forward. The major difference and why we speak about it so pointedly is because we wanna make sure that we're focused as it relates to our innovation engine, and ultimately, our go-to-market engine, around things that is going to improve people, right? To make them better. We gotta start from that, from that core point, and that's really important to us.

Truly believes that there is no no performance without beauty and and I and Thats, how we think about it. So we believe we can be absolutely relevant in today's trend.

Thats going on right now with the products that we make going forward.

The the major difference and why we speak of audit so pointedly as because we want to make sure that we're focused as it relates to our innovation engine and ultimately our go to market engine around things that is going to improve people's rights to make them better and we got to start from that from that sharp point and thats really important to us.

Patrik Frisk: If you think about footwear, for example, there's no real footwear platform or success story out there in footwear that isn't based on a performance base at some point or another in terms of history. For us, in footwear, it's important to build these franchises so that we can then start to expand them more. In our apparel offering, it's similar, right? For us, it's about making sure that we have products that is actually making you better. They need to be innovative. That's what people are expecting for, from us, but then ultimately, making them so beautiful that you also wanna wear them in different wearing occasions. That's our job.

If you think about footwear for example, there's no real footwear platform more success story out there in footwear that isn't based on a performance-based at some point or another in that time in terms of history. And so for us in footwear. It's important to build these franchises so that we can then start to expand them more. In our apparel offering, it's similar right. For us, it's about making sure that we have products that is actually making you better they need to be innovated, that's where people are expecting for from us, but then ultimately making them so beautiful that you also want to wear them in different wearing locations, that's our job. And I think one thing that's important this is not at the management team and Under Armour sitting in a close at somewhere trying to figure this one out. We've done more extensive consumer insights work around understanding the consumer, the marketplace and the consumers' preferences for this brand.

More in our apparel offering at its similar right way for US it's about making sure that we have products that is actually making you better they need to be innovated, that's where people are expecting for from us, but then ultimately making them. So beautiful that you also want to wear them in different wearing locations, that's our job and I think.

Patrik Frisk: I think one thing that's important here is this is not, you know, the management team at Under Armour sitting in a closet somewhere trying to figure this one out. You know, we've done more extensive consumer insights work around understanding the consumer, the marketplace, and the consumer's preferences for this brand, than I think many other brands have done. We have done close to 50,000 interviews at this point with consumers around the world, and they continue to tell us the same thing. That's why we believe in our strategy, ultimately. It's not just grounded in internal speak. It's grounded solidly also, in the external world, in terms of making sure that we're turning this company into a more consumer-centric company going forward.

One thing Thats important areas. This is not at the management team and under armour sitting in in a close at somewhere trying to figure. This one out we've done more extensive consumer insights work around understanding.

The consumer the marketplace and the consumers preferences for this brand.

That I think many other brands have done and we have done closer to 50000 interviews at this point with consumers around the world. And they continue to tell us the same thing and that's why we believe in our strategy ultimately, it's not just grounded in internal speak, it's grounded solidly also in the external world in terms of making sure that we're turning this company into a more consumer-centric company going forward. So we believe in our strategy and we believe we're heading in the right and down the right path. And we're going to stick to it for now.

that we're turning this company into a more consumer-centric company going forward. So we believe in our strategy and we believe we're heading in the right and down the right path.

Patrik Frisk: We believe in our strategy, and we believe we're heading down the right path, and we're gonna stick to it for now.

And we're going to stick to it for now.

David Bergman: Omar, this is Dave. Relative to the marketing investment, you know, over the last probably five years or so, we kind of fluctuated in that 10% to 11% of revenue range as far as the marketing investment. We kind of hit probably the, the trough in 2018, as we were really trying to manage costs, and we were all the way down towards 10.5%. You know, as we approach 2020 and the amount of confidence we have in our new brand campaign, you know, we're going to be pushing them closer towards 12% of revenue. You know, just over a 2-year period, that's about 150 basis point increase in marketing as a percentage of revenue. We're pretty excited about that.

Dave Bergman: Omar, this is Dave. Relative to the marketing investment, you know, over the last probably five years or so, we kind of fluctuated in that 10% to 11% of revenue range as far as the marketing investment. We kind of hit probably the, the trough in 2018, as we were really trying to manage costs, and we were all the way down towards 10.5%. You know, as we approach 2020 and the amount of confidence we have in our new brand campaign, you know, we're going to be pushing them closer towards 12% of revenue. You know, just over a 2-year period, that's about 150 basis point increase in marketing as a percentage of revenue. We're pretty excited about that.

And Omar, this is Dave. Relative to the marketing investment over the last probably five years or so we kind of fluctuated in that 10% to 11% of revenue range as far as the marketing investment. We kind of hit probably that the trough in 2018 is we're really trying to manage costs were all the way down towards 10.5%. As we approached 2020 and the amount of confidence we have in our new brand campaign. We're going to be pushing them closer towards 12% of revenue. So just over two year period that's about 150 basis point increase in marketing as a percentage of revenue. So we're pretty excited about that and also the mix of that spend has gotten much more powerful as through the past restructuring we were able to step out of some of the committed sports marketing contracts and poor a lot more of that fuel into the brand kind of top of funnel. So we're excited about kind of power of that, not just the increase in the dollars. Yeah. That's a really important point that Dave is making, you know it's not just a month the amount of money that you have, it's how you are able to activate that spend ultimately. We had a lot of committed spend in our more marketing from '16, '17, '18, and that's we stepped out of '18 and start to come into '19 and now into 2020, we're starting to be able to activate more of the money top of funnel and that's incredibly important and mid-funnel, that's incredibly important North America.

10% to 11% of revenue range as far as the marketing investment we kind of hit probably that the trough. In 2018 is we're really trying to manage costs were all the way down towards 10.5%.

As we approached 2020 and the amount of confidence we have in our new brand campaign.

We're going to be pushing them closer towards 12% of revenue. So just over two year period Thats about 150 basis point increase in marketing as a percentage of revenue. So we're pretty excited about that and also the mix of that spend has gotten much more powerful as through the past restructuring, we able to step out of some of the committed sports.

David Bergman: The mix of that spend has gotten much more powerful, as through the past restructuring, we're able to step out of some of the committed sports marketing contracts and pour a lot more of that fuel into the brand, kind of top of funnel. We're excited about kind of the power of that, not just the, the increase in the dollars.

Dave Bergman: The mix of that spend has gotten much more powerful, as through the past restructuring, we're able to step out of some of the committed sports marketing contracts and pour a lot more of that fuel into the brand, kind of top of funnel. We're excited about kind of the power of that, not just the, the increase in the dollars.

marketing contracts and poor a lot more of that fuel into the brand kind of top of funnel. So we're excited about kind of power of that, not just the increase in the dollars. Yeah. That's a really important point that Dave is making, you know it's not just a month the amount of money that you have, it's how you are able to activate that spend ultimately. We had a lot of committed spend in our more marketing

Patrik Frisk: Yeah, it's a really important point that Dave is making. You know, it's, it's not just amount, the, the amount of money that you have, it's how you are able to activate that spend ultimately. We had a lot of committed spend in our marketing from 2016, 2017, 2018, and as we stepped out of 2018 and started coming to 2019 and now into 2020, we're starting to be able to activate more of the money top of funnel, and that's incredibly important. Mid-funnel. That's incredibly important in North America because our issue here in North America isn't brand awareness. You know, people know about this brand. That's why I keep saying that there, there isn't anything wrong with the brand. The problem is consideration. In other words, why should I consider Under Armour?

from '16, '17, '18, and that's we stepped out of '18 and start to come into '19 and now into 2020, we're starting to be able to activate more of the money top of funnel and that's incredibly important and mid-funnel, that's incredibly important North America.

Because our issue here in North America isn't brand awareness. People know about this brand, that's why I keep saying that there isn't anything wrong with the brand. The problem is consideration, in other words, why should I consider Under Armour and to be able to drive consideration you need to spend against the brand. Of course, you need to have great product, innovative product, beautiful product, but you got to do it in combination with spending money the right way and as we move into 2021, one of the big differences for us is we're now able to activate the dollars. Using the assets we have, spend against the assets, but also spend against the brand and I think that is so exciting for us. And to be able to do that in a coordinated way across everything that we do, it's something that we've never been able to do before. And to do it over a 12 month period consistently that is new news. I think that is one of the big unlocks for us as a brand, as an organization and that's also why we firmly believe in our strategy going forward.

Patrik Frisk: To be able to drive consideration, you need to spend against the brand. Of course, you need to have great product, innovative product, beautiful product, but you gotta do it in combination with spending money the right way. As we move into 2020, one of the big differences for us is we're now able to activate the dollars using the assets we have, spend against the assets, but also spend against the brand, and I think that is what's so exciting for us. To be able to do that in a coordinated way, across everything that we do, you know, is something that we've never been able to do before. To do it over a 12-month period consistently. That is new news.

Of course, you need to have great product innovative product beautiful product, but you got to do it in combination with spending money the right way and and as we move into 2021 of the big differences for US is we're now able to activate the dollars using the assets we have spend against the assets, but also spend against the brand and I think that as whatsoever.

Lighting for us and to be able to do that in a coordinated way across everything that we do.

I'll is something that weve never been able to done before due before and to do it over a 12 month period consistently that is new news I think that is that is one of the the big unlocks for us as a brand as an organization and that's also why we firmly believe in our strategy going forward.

Patrik Frisk: I think that is, that is one of the, the big unlocks for us as a brand, as an organization, and that's also why we, we firmly believe in our strategy going forward.

[Analyst] (Raymond James): Thank you. That is very helpful.

Omar Saad: Thank you. That is very helpful.

Thank you. That's very helpful. Thank you and our next question comes from Randy Konik with Jefferies. Your line is now open.

Thank you and our next question comes from Randy Konik with Jefferies. Your line is now open.

Operator: Thank you. Our next question comes from Randy Konan with Jeffrey. Your line is now open.

[Analyst] (Jeffries): Yeah, thanks a lot. I, I guess, Patrick, got 2 questions. I guess the first one is: when you think about, you know, the, the beauty quotient you're speaking to, you've, you've made some clear progress on the footwear side, and talked to, you know, improved kind of demand, resulting from, you know, the, the stuff looking better. How do you kinda think about that, that beauty journey across the apparel and broader footwear platforms for the company? You know, where are we today? Where will we be in 6 months and 2 years out from now? Just kinda get your perspective of where we've come from, where we are today, and where we're going.

Randy Konik: Yeah, thanks a lot. I, I guess, Patrick, got 2 questions. I guess the first one is: when you think about, you know, the, the beauty quotient you're speaking to, you've, you've made some clear progress on the footwear side, and talked to, you know, improved kind of demand, resulting from, you know, the, the stuff looking better. How do you kinda think about that, that beauty journey across the apparel and broader footwear platforms for the company? You know, where are we today? Where will we be in 6 months and 2 years out from now? Just kinda get your perspective of where we've come from, where we are today, and where we're going.

Thanks a lot. I just got two questions. I guess the first one is when you think about the beauty quotient you're speaking to, you've made some clear progress on the footwear side. And talk to improved kind of as demand, resulting from stuff looking better. How do you kind of think about that beauty journey across the apparel and broader footwear platforms for the company? Where are we today, where will we be in six months and a couple of years out from now? Just kind of get your perspective of where we come from, where we are today and where we're going.

Yes, the beauty quotient years, you're speaking to you if you've made some clear progress on the footwear side.

And talk to.

You know improved kind of as demand, resulting from Eustace looking better how do you kind of think about that beauty journey across the apparel and broader footwear platforms for the company.

Where are we today, where will we be in six months and a couple of years out from now? Just kind of get your perspective of where we come from, where we are today and where we're going.

Patrik Frisk: Yeah, it's great. First of all, I think in footwear, we are now really turning the corner in terms of what the composition is of our footwear proposition to the consumer. You know, as we went through 2019, we still were, you know, taking some products out that we felt were not necessarily going to be with us going forward. As we're putting new products in, you know, we're taking old products out. That rejuvenation, if you like, of the line, started to really happen in 2019, and is starting to play out in a major way in 2020.

Yes, great and first of all I think in footwear, we are now really turning the corner in terms of what the composition is of our footwear proposition to the consumer. As we went through '19, we still taking some products out that we felt were not necessarily going to be with us going forward. And as we're putting new products and we're taking old products out so that rejuvenation, if you like, of the line and started to really happen to 19 is and the starting to play out in a major way in 2020. In terms of apparel, a lot of the effort that we're doing now going into 2020 is really around a reinvention of where we began our journey around the base layer. And how we think about marketing ourselves as a kind of part of the equipment as it comes to base layer. We think we have a lot to say there and we think that consumer still looks to Under Armour for that first layer.

We are we are now really turning the corner in terms of what the composition is of our footwear proposition to the consumer we you know as we went through 19, we still were.

Putting taking some products out that we felt were not necessarily going to be with us going forward, then and as we're putting new products and we're taking old products out so that that.

Rejuvenation, if you like over the line and started to really happen to 19 is and the starting to play out in a major way in 2020 in terms of apparel.

Patrik Frisk: In terms of apparel, you know, a lot of the effort that we're doing now going into 2020 is really around a reinvention of, you know, where we began our journey around the base layer, and how we think about marketing ourselves as part of the equipment as it comes to base layer. We think we have a lot to say there, and we think that the consumer still looks to Under Armour for that first layer. What we're also doing a much better job of now is actually continuing to build out our fleece program for both men and women, and adding on top of that, much better outerwear as we go into 2020. We're taking a little bit of a different slant on the outerwear.

a lot of the effort that we're doing now going into 2020 is really around a reinvention of where we began our journey around the base layer.

And how we think about marketing ourselves as a kind of part of the equipment as it comes to base layer. We think we have a lot to say there and we think that consumer still looks to Under Armour for that first layer.

Looks to under armour for for that first layer.

But what we're also doing a much better job of now, it's actually continuing to build out our fleece program for both men and women. And adding on top of that much better outerwear as we go into 2020, and we're taking a little bit of a different slant on the outerwear. It's not just outerwear for outerwear sake, so to speak. It's actually functional outerwear that is done together with the performance base that we have and the idea is really around active outerwear that is merchandise together back into our categories of train and run and so forth. In combination of course with some cold-weather gear coming in the back half of the year. All of those different things we believe are incredibly exciting. We then layer on top additional types of mid-layer. We have, for example, our intelliknit sweaters.

Patrik Frisk: It's not just outerwear for outerwear sake, so to speak. It's actually functional outerwear that is, that is done together with, you know, the performance base that we have. The idea is really around, you know, active outerwear that is merchandised together back into our categories of train and run, and so forth. In combination, of course, with some, some colder weather gear coming in the back half of the year. All of those different things, we believe are, are incredibly exciting. We then layer on top additional types of mid-layer. We have, for example, our IntelliKnit sweaters, which is a new way for us to showing people of how to run in something different than, than just a normal mid-layer.

It's actually functional outerwear that is that is done together with the performance.

Base that we have and the idea is really around active outerwear and that is merchandise together back into our categories of train and run and so forth in.

In combination of course with some some cold weather gear coming in the back half of the year all of those different things.

we believe are incredibly exciting. We then layer on top additional types of mid-layer. We have, for example, our intelliknit sweaters.

Which is a new wave for us to show people how to run in something different than just a normal middle layer. This is a very specific product, the intelliknit sweater, that does the cool thing of actually being able to maintain body warms without overheating, while you're running. And we're doing that with these new delta-shaped fibers step that are able to move moisture extraordinarily good or well away from the body, while you're keeping air in and it's almost like kind of magic. And we're seeing traction for that type of product too. So we're also introducing these new ideas and new segments, if you like, into the performance world and the reality is a lot of that stuff looks so darn good. You'd want to where it day to day right and I think that as that is kind of the way to think about what underarm is trying to do. And I think that's also really important because we believe that that is a longevity play for us to make sure that we're grounded in product doing something for you. And then it's going to look so good that actually, you know what, I might just where it because it looks good. And I think that as you know they don't need to be different, they don't need to be bifurcated and we continue to get into this conversation about two different things, we don't think they're two different things. We think they're one and the same.

Patrik Frisk: This is a very specific product, the IntelliKnit sweater, that does the cool thing of actually being able to maintaining body warmth without overheating, right? While you're running-

Cool thing of actually being able to maintaining body warms without overheating right, while you're running what kind of switching and we're doing that with these new delta shaped fibers step and are able to. Move moisture extraordinarily good or well away from the body, while you're keeping you know air in and it's almost like kind of magic and we're seeing traction for that type of product too. So we're also introducing these new. Ideas in view segments, if you like into the performance World and the reality is you know a lot of that stuff looks so darn good Neal you'd want to where it day to day right and I think that as that is kind of the way to think about what underarm is trying to do and I think thats. That's also really important because we believe that that is a longevity play for. For us to make sure that we're we're grounded in product doing something for you and then it's going to look so good that actually you know what I might just where it because it looks good and I think that as you know they don't need to be different they don't need to be bifurcated and we continue to get into this conversation about two different things, we don't think they're two different.

[Analyst] (Jeffries): Right

Patrik Frisk: Right

Patrik Frisk: We're doing that with these new delta-shaped fibers that they're able to move moisture extraordinarily good or well away from the body while you're keeping, you know, air in, and it's almost like kinda magic. We're seeing traction for that type of product, too. We're also introducing, you know, these new ideas and new segments, if you like, into the performance world. The reality is, you know, a lot of that stuff looks so darn good, you know, you'd wanna wear it day-to-day, right? I think that is, that is kinda the way to think about what Under Armour is trying to do.

Move moisture extraordinarily good or well away from the body, while you're keeping you know air in and it's almost like kind of magic and we're seeing traction for that type of product too. So we're also introducing these new.

Ideas in view segments, if you like into the performance World and the reality is you know a lot of that stuff looks so darn good Neal you'd want to where it day to day right and I think that as that is kind of the way to think about what underarm is trying to do and I think thats. That's also really important because we believe that that is a longevity play for.

Patrik Frisk: I think that's also really important because we believe that that is a longevity play for us, to make sure that we're grounded in product doing something for you, and then it's gonna look so good that actually, you know what, I might just wear it because it looks good. I think that is. You know, they don't need to be different. They don't need to be bifurcated. We continue to get into this conversation about two different things. We don't think they're two different things. We think they're one and the same.

For us to make sure that we're we're grounded in product doing something for you and then it's going to look so good that actually you know what I might just where it because it looks good and I think that as you know they don't need to be different they don't need to be bifurcated and we continue to get into this conversation about two different things, we don't think they're two different.

Yes, we think they're wanting the same.

[Analyst] (Jeffries): Yeah, then can I just follow up? You know, if we all can agree on the call that the performance has always been there with the products, and you know, the beauty side of the product story is getting better, you know, seen the first, most in footwear, you know, over time in apparel as well.

Randy Konik: Yeah, then can I just follow up? You know, if we all can agree on the call that the performance has always been there with the products, and you know, the beauty side of the product story is getting better, you know, seen the first, most in footwear, you know, over time in apparel as well.

Yeah, and then can just follow up. If we all can agree on the call that the performance has always been there with the products. The beauty side of the product story is getting better. The first most in footwear over time in apparel as well. On the consumer work you've done, and then talk is your wholesale channel partners. What's the kind of response or perception you're getting on the pricing side from how the products are priced in the market? And that perception of the consumer as it relates to them thinking about do I purchase an Under Armour product or not given these price points. I'm just curious about how you're thinking about price architecture.

The the beauty cited as of the product boss story.

Is getting better.

The first most in footwear.

Over time in apparel as well.

[Analyst] (Jeffries): You know, how did on the consumer work you've done, and then talking to your wholesale channel partners, you know, what's the kind of response or perception you're getting on the pricing side from a, you know, from a, how the products are priced in the market, and that perception of the consumer as it relates to them, thinking about, Do I purchase an Under Armour product or not, you know, given this price point? I'm just curious on how you're thinking about price architecture.

Randy Konik: You know, how did on the consumer work you've done, and then talking to your wholesale channel partners, you know, what's the kind of response or perception you're getting on the pricing side from a, you know, from a, how the products are priced in the market, and that perception of the consumer as it relates to them, thinking about, Do I purchase an Under Armour product or not, you know, given this price point? I'm just curious on how you're thinking about price architecture.

On the consumer work you've done.

And then talk is your wholesale channel partners.

What's the kind of response or perception you're getting on the pricing side from how the products are priced in the market? And that perception of the consumer as it relates to them thinking about do I purchase an Under Armour product or not given these price points. I'm just curious about how you're thinking about price architecture.

Patrik Frisk: Yeah, it's a great question. I think that is what gives us a lot of encouragement, too, and Dave kind of alluded to it here a little bit earlier. That's one of the reasons why we're feeling a little bit more bullish in terms of turning off how we think about promotional activity, you know, in the back half of 2020. We've been doing some tests in Europe on this as well, and we've seen great results from some of the turning off the discounting button, if you like. The willingness from the consumer to pay full price. When they are willing to pay full price is when we get the formula of SPF, you know, the style, performance, and fit right.

Yeah. It's a great question. I think that is what gives us a lot of encouragement to and Dave kind of alluded to it here a little bit earlier, that's one of the reasons why we're feeling a little bit more bullish in terms of turning off of how we think about promotional activity in the back half of 2020. We've been doing some tests in Europe on this as well and we've seen great results from some of the turning off the discounting button, if you like on the and the willingness from the consumer to pay full price. And when they are willing to pay full prices and when we get the formula of SPF the style performance in fit right. Then the consumer does not have a problem paying full price for Under Armour, because the reality is we're well-positioned from a price perspective compared to some of our competitors, right, that are out there right now in terms of some of the categories that we play and whether it's tights or base layer and so forth. Of course, we're not as well priced as a private label loan you come to our competition, we feel that we're competitive there and the great news is we're competitive there and we've done great work in the back end of the machine to make sure that our margins are better. So as we scale the business, there should be a great benefit there.

A little bit more bullish in terms of turning off of how we think about promotional activity.

In the back half of 2020, we've been doing some tests in in Europe on this as well and we've seen great results from.

Some of the turning off the discounting button, if you like on on the and the willingness from the consumer to pay full price and when they are willing to pay full prices when we get the formula of SPF style performance in fit right.

Patrik Frisk: The consumer does not have a problem to pay full price for Under Armour. Because the reality is, you know, we're well-positioned from a price perspective, compared to some of our competitors, right? That are out there right now, in terms of some of the categories that we play in, whether it's tights or base layer, and so forth. Of course, we're not as well priced as a private label, but when you come to our competition, we feel that we're competitive there. The great news is we're competitive there, and we've done great work in the back end of the machine to make sure that our margins are better, right? As we scale the business, you know, there should be a great benefit there.

Then the consumer does not have a problem to pay full price for Under Armour, because the reality is we're well-positioned from a price perspective compared to some of our competitors, right, that are out there right now in terms of some of the categories that we play and whether its tights or base layer and so forth. Of course, we're not as well priced as a private label loan you come to our competition,

we feel that we're competitive there and the great news is we're competitive there and we've done great work in the back end of the machine to make sure that our margins are better. So as we scale the business, there should be a great benefit there.

[Analyst] (Stifel): Helpful. Thank you.

Randy Konik: Helpful. Thank you.

Helpful. Thank you. Thank you. Our next question comes from [Matthew Boss] with JPMorgan. Your line is now open. Great. Thanks, maybe, Patrick, just to put this all together, what's the timeline you see at this point where the product innovation in the assortment mary the louder marketing message to drive a return to growth in North America?

Thank you. Our next question comes from Matthew Boss with Jpmorgan. Your line is now open.

Operator: Thank you. Our next question comes from Matthew Boss with JP Morgan. Your line is now open.

Great. Thanks, maybe, Patrick, just to put this all together, what's the timeline you see at this point where the product innovation in the assortment mary the louder marketing message to drive a return to growth in North America?

[Analyst] (JP Morgan): Great, thanks. Maybe Patrick, just to put this all together, what's the timeline you see at this point where the product innovation in the assortment marries the louder marketing message to drive a return to growth in North America?

Matthew Boss: Great, thanks. Maybe Patrick, just to put this all together, what's the timeline you see at this point where the product innovation in the assortment marries the louder marketing message to drive a return to growth in North America?

Mary the louder marketing message to drive a return to growth in North America.

Patrik Frisk: Well, thank, thank you for that question, Matthew. I think for us, it will be a gradual improvement from here going out. You know, I think that's how we think about it. What we tried to depict here today is a timing issue for us more than anything, and, and, you know, part of this is taking a little longer than we thought. You know, some of that is just simply earning it back. Earning it back, you don't get to do that in a vacuum, right? Everybody else is also out there trying to make sure that they maintain their position. We believe now that we've put the, the, the play together, so to speak, you know, with the product and the marketing and, and our ability to service the business.

Thank you for that question, Matt. I think for us it will be a gradual improvement from here going out. I think that's how we're thinking about it. What we tried to depict here today it's a timing issue for us more than anything and. Part of this is taking a little longer than we thought. And some of that is just simply earning it back and earning it back you don't to get to do that in a vacuum right, everybody else is also out there trying to make sure they maintain their position. We believe now that we've put the play together so to speak with the product and the marketing and our ability to service the business. I mean, our service levels are the best they've ever been as a company. All of those things playing in unison is giving us the optimism to say that growth will return to North America.

For us it will be a gradual improvement from here going out into I think that's how we're thinking about it what we tried to depict here today is a.

It's a timing issue for us more than anything and.

Part of this taking a little longer than we thought and know what some of that is just simply earning it back and earning it back you don't to get to do that in a vacuum right everybody else is also out there trying to make sure they maintain their position so we.

We believe now that we've put the play together so to speak with the product and the marketing and our ability to service the business I mean, our service levels or the best they've ever been as a company all of those things playing in unison is giving us the optimism to say that growth will return to North America.

Patrik Frisk: I mean, our service levels are the best they've ever been as a company. All of those things playing in unison is, is giving us, you know, the optimism to say that, you know, growth will return to North America. It is a little bit of a delay, but ultimately, it will, and we're gonna earn our way back. Dave mentioned it in North America, specifically, that we see a stabilization in Q3. I think that's, that's good. I think we're choosing to stay prudent here as we look out into the Q4. We believe we have the product, we believe we have the marketing assets, we believe we have the plan in place to return this brand to growth and the right strategy.

And it is a little bit of a delay, but ultimately it will. Then we're going to or in our way back. Dave mentioned in North America, specifically that we see a stabilization in Q3. I think that's good. I think we are choosing to stay prudent here as we look out into Q4, but we believe we have the product. We believe we have the marketing assets. We believe we have the plan in place to return this brand to growth and the right strategy. It's about consistency, it's about being persistent, it's about spending against the brand at this point in time and executing the playbook. So we see it as a gradual improvement as we go into the future in the second half of all 2020 going forward.

Dave mentioned it in North America, specifically that we see a stabilization in Q3.

I think thats. That's good I think we wish we choosing to stay prudent here as we look out into the Q4, but we believe we have the product. We believe we have the marketing assets. We believe we have the plan in place to return this brand to growth and the right strategy.

Patrik Frisk: It's about consistency, it's about being persistent, it's about spending against the brand at this point in time and executing the playbook. We see it as a gradual improvement as we go into the future, you know, in second half of 2020 going forward.

It's about consistency, it's about being persistent it's about spending against the brand at this point in time and executing the playbook.

So we see it as a gradual improvement as we go into the future in second half of all the 2020 going forward.

[Analyst] (JP Morgan): Great. Then maybe just on the gross margin. Inventory exits the year down double digits, and you've outlined an effort to be less promotional in the back half of the year. Maybe what drivers of this past year's gross margin expansion moderate, if you could just un- help unpack your gross margin guidance for this year?

Matthew Boss: Great. Then maybe just on the gross margin. Inventory exits the year down double digits, and you've outlined an effort to be less promotional in the back half of the year. Maybe what drivers of this past year's gross margin expansion moderate, if you could just un- help unpack your gross margin guidance for this year?

Great, and then maybe just on the gross margin so inventory exits the year down double digits. And you've outlined in an effort to be less promotional in the back half of the year, maybe what drivers of this past year's gross margin expansion moderate? If you could just help unpack your gross margin guidance for this year.

And you've outlined in an effort to be less promotional in the back half of the year, maybe what drivers of this past years gross margin expansion moderate if you could just on help unpack your gross margin guidance for this year.

Yes, Matthew, this is Dave. When we step back and look at 2020, you know there's a lot of great progress we've made on gross margin in the last few years and a lot of that's come from the supply chain side with all the consolidation of vendors and SKU rationalization, costing transparency and everything else. And so we've been seeing a lot of those benefits starting to come in and '18 and then full year '19.

David Bergman: Yeah, Matthew, this is Dave. You know, when we step back and look at 2020, you know, there's a lot of great progress we've made on gross margin in the last 2 years, and a lot of that's come from the supply chain side with all the consolidation of vendors and SKU rationalization, costing transparency and everything else. We've been seeing a lot of those benefits starting to come in in 2018 and then full year 2019. We are starting to comp some of those benefits, but we see them continuing. When you're comping a lot of that 2019, it's not as much of an incremental benefit year-over-year. You couple that with the fact that we are, you know, continuing to step off the off-price channel, so that helps a little bit as well.

Dave Bergman: Yeah, Matthew, this is Dave. You know, when we step back and look at 2020, you know, there's a lot of great progress we've made on gross margin in the last 2 years, and a lot of that's come from the supply chain side with all the consolidation of vendors and SKU rationalization, costing transparency and everything else. We've been seeing a lot of those benefits starting to come in in 2018 and then full year 2019. We are starting to comp some of those benefits, but we see them continuing. When you're comping a lot of that 2019, it's not as much of an incremental benefit year-over-year. You couple that with the fact that we are, you know, continuing to step off the off-price channel, so that helps a little bit as well.

When we step back and look at 2020, you know there's a lot of great progress. We've made on gross margin in the last few years in a lot of that's come from the supply chain side with all the consolidation of vendors and SKU rationalization costing transparency and everything else and so we've been seeing a lot of those benefits starting to come in and 18 in full year 19.

So we are starting to comp some of those benefits. But we see them continuing but when you're comping a lot of that 19th is not as much of an incremental benefit year over year. You couple that with the fact that we are continuing to step off the off-price channel, so that helps a little bit as well. But then there's a couple of things that temper us a little bit this year on gross margin and that's when you think about the APAC region. We've tempered our royalty revenue a little bit with some of the challenges in Japan, and we've also talked about the impact with the coronavirus that we're expecting in Q1, so that takes the APAC growth down a little bit for us, which is our highest gross profit region.

But we see them continuing but when you're comping a lot of that 19th not as much of an incremental benefit year over year.

You couple that with the fact that we are.

Turning to step off the off price channel, so that helps a little bit as well.

David Bergman: There's a couple things that temper us a little bit this year on gross margin. When you think about the APAC region, we've tempered our royalty revenue a little bit with some of the challenges in Japan, and we've also talked about the impact of the coronavirus that we're expecting in Q1. That takes the APAC growth down a little bit for us, which is our highest gross profit region. We don't have as much of a tailwind this year that we normally would have with the APAC growth there, that we would be expecting that to continue more so in 2021 and beyond. A couple different things going on there.

But then there's a couple of things that Tempur us a little bit this year on gross margin and that's when you think about the APAC region.

Dave Bergman: There's a couple things that temper us a little bit this year on gross margin. When you think about the APAC region, we've tempered our royalty revenue a little bit with some of the challenges in Japan, and we've also talked about the impact of the coronavirus that we're expecting in Q1. That takes the APAC growth down a little bit for us, which is our highest gross profit region. We don't have as much of a tailwind this year that we normally would have with the APAC growth there, that we would be expecting that to continue more so in 2021 and beyond. A couple different things going on there.

We've tempered our royalty revenue a little bit with some of the challenges in Japan, and we've also talked about the impact with the coronavirus that we're expecting in Q1, so that takes the APAC growth down a little bit for us, which is our highest gross profit region.

Impact with the krona virus that we're expecting in Q1, so that takes the Asia Pac growth down a little bit for us, which is our highest gross profit region.

So we don't have as much of a tailwind this year that we normally would have with the growth there. That we would be expecting that to continue more so in '21 and beyond. So a couple of different things going on there and when you think about channel mix, which would normally be a little bit of a tailwind more for us as we go into 2020, it's actually going to look a little bit neutral this year. Because we do have the benefits of the reduction in the third-party off-price channel, but we also have a decrease in our licensing revenue that we talked about. Some of that is related to Japan somebody that's related to onetime settlements in '19, and some of that is also stepping away from a couple of partners that we don't think is in line with the focus performer. So that license revenue is obviously, an extremely high gross margin business as well so that kind of offset the off-price channel benefit so there's some puts and takes going on as to why our progression in 2020 might not be as much as what you've seen in '19 prior but we feel good about the direction in the continued supply chain improvements.

So a couple of different things going on there and when you think about channel mix.

David Bergman: When you think about channel mix, which would normally be a little bit of a tailwind more for us as we go into 2020, it's actually gonna look a little bit neutral this year, because, you know, we do have the benefits of the reduction in the third-party off-price channel, but we also have a decrease in our licensing revenue that we talked about. Some of that is related to Japan, some of that is related to one-time settlements in 2019, and some of that is also stepping away from a couple partners that we don't think are as in line with the focus performer. That license revenue is obviously an extremely high gross margin business as well, so that kind of offsets the off-price channel benefit.

Dave Bergman: When you think about channel mix, which would normally be a little bit of a tailwind more for us as we go into 2020, it's actually gonna look a little bit neutral this year, because, you know, we do have the benefits of the reduction in the third-party off-price channel, but we also have a decrease in our licensing revenue that we talked about. Some of that is related to Japan, some of that is related to one-time settlements in 2019, and some of that is also stepping away from a couple partners that we don't think are as in line with the focus performer. That license revenue is obviously an extremely high gross margin business as well, so that kind of offsets the off-price channel benefit.

Which would normally be a little bit of a tailwind more for us as we go into 2020, it's actually going to look a little bit neutral this year.

Because we do have the benefits of the reduction in the third party off price channel, but we also have a decrease in our licensing revenue that we talked about.

Some of that is related to Japan somebody that's related to onetime settlements in '19, and some of that is also stepping away from a couple of partners that we don't think is in line with the focus performer. So that license revenue is obviously, an extremely high gross margin business as well so that kind of offset the off-price channel benefit so there's some puts and takes going on as to why our progression in 2020 might not be as much as what you've seen in '19 prior but we feel good about the direction in the continued supply chain improvements.

David Bergman: There's some puts and takes going on as to why our progression in 2020 might not be as much as what you've seen in 2019 prior, but we feel good about the direction and the continued supply chain improvements.

Dave Bergman: There's some puts and takes going on as to why our progression in 2020 might not be as much as what you've seen in 2019 prior, but we feel good about the direction and the continued supply chain improvements.

going on as to why our progression in 2020 might not be as much as what you've seen in '19 prior but we feel good about the direction in the continued supply chain improvements.

[Analyst] (JP Morgan): Great. Best of luck.

Matthew Boss: Great. Best of luck.

Great. Best of luck. Thank you. Our next question comes from Jim Duffy with Stifel. Your line is now open.

Thank you. Our next question comes from Jim Duffy with Stifel. Your line is now open.

Operator: Thank you. Our next question comes from Jim Duffy with Stifel. Your line is now open.

Thank you. Guys, just thinking big picture, you've made great progress operationally, quality of sales have improved. You remain confident in the consumer positioning. Can you talk more about how you're thinking about distribution strategies in North America? Give us an update on the segmentation efforts, specifically, I'm curious versus the plan outlined in December '18, are there notable changes in go to market thought process or channel strategy or is North America decline simply share loss and just less volume through channels that remains strategic?

[Analyst] (Stifel): Thank you. Guys, just thinking big picture, you've made great progress operationally, quality of sales have improved, you remain confident in the consumer positioning. Can you talk more about how you're thinking about distribution strategies in North America? Give us an update on the segmentation efforts. Specifically, I'm curious, versus the plan outlined in December 2018, are there notable changes in go-to-market thought process or channel strategy, or is North America decline simply share loss and just less volume through channels that remain strategic?

Jim Duffy: Thank you. Guys, just thinking big picture, you've made great progress operationally, quality of sales have improved, you remain confident in the consumer positioning. Can you talk more about how you're thinking about distribution strategies in North America? Give us an update on the segmentation efforts. Specifically, I'm curious, versus the plan outlined in December 2018, are there notable changes in go-to-market thought process or channel strategy, or is North America decline simply share loss and just less volume through channels that remain strategic?

Guys, just thinking big picture, you've made great progress operationally quality of sales have improved you remain confident in the consumer positioning can you talk more about how you're thinking about distribution strategies in North America give us an update on the segmentation efforts, specifically I'm curious versus the plan outlined in December 18, or they are notable.

Changes in go to market thought process or channel strategy or is North America decline simply share loss and just less volume through channels that remains strategic.

Patrik Frisk: Yeah, thanks very much, Jim. You know, it's interesting, we don't talk about it, but there are certainly, you know, dynamics in terms of distribution that's going on in North America, too, right? Just think about some of the news that came out this week around Macy's and other things, right? We're in some of those channels where contraction is also happening right now, which is another way to think about it as well, right? In terms of what's going on. Essentially, at the core of it, our strategy remains the same as it relates to how we think about segmentation. You know, we've been able to, as we've worked through 2019 and into 2020, also validate a lot of that, right?

Yes, thanks. Thanks very much, Jim. It's interesting we don't talk about it but there are certainly dynamics in terms of distribution that's going on in North America too. Just think about some of the news that came out this week around Macy's and other things right. We're in some of those channels where contraction is also happening right now which is another way to think about it as well in terms of what's going on. But essentially at the core of it, our strategy remains the same as it relates to how we think about segmentation and we've been able to as we work through '19 and into '20, also validate them all of that. In other words, especially us as we think about footwear, where we have been driving a lot of the run initiative and how were, for example, it into the endemic channel run specialty channel. The challenge that we were not in before you know, as a positioning vehicle for example for the brand. So so we see our distribution footprint currently and going forward being fairly stable in North America, I would think but there's going to certainly in pockets be some contraction where we're estimating that there's going to be some stores disappearing as we go into the future and that's kind of calculated into our model as well.

It's interesting we don't talk about it but there are certainly dynamics in terms of distribution that's going on in North America too I, just think about some of the news that came out this week around Macy's and other things right. We're in some of those channels, where contraction is also happening right now which is another way to think about it as well right in terms of what's going on.

But essentially at the core of it our strategy remains the same as it relates to how we think about a segmentation and we've been able to us we work through 19 and into 20.

also validate them all of that. In other words, especially us as we think about footwear, where we have been driving a lot of the run initiative and how were, for example, it into the endemic channel run specialty channel. The challenge that we were not in before you know, as a positioning vehicle for example for the brand. So so we see our distribution footprint

Patrik Frisk: In other words, especially as we think about footwear, where we have been driving a lot of the run initiative in Howard, for example, into the endemic channel, run specialty channel, a channel that we were not in before, you know, as a positioning vehicle for the brand. We see our distribution footprint currently and going forward, being fairly stable in North America. I would think. There's going to certainly in pockets, be some contraction. We're estimating that there's going to be some stores disappearing as we go into the future, and that's calculated into our model as well. We think that despite of that, we're gonna be able to grow the business because we're gonna have earning our way back into the winners.

Around.

So so we see our distribution footprint.

currently and going forward being fairly stable in North America, I would think but there's going to certainly in pockets be some contraction where we're estimating

that there's going to be some stores disappearing as we go into the future and that's kind of calculated into our model as well.

But we think that despite of that, we're going to be able to grow the business because we're going to earn our way back into the winners. So part of our strategy going forward is definitely win with the winners right. So and we believe there are going to be winners in this market too and we're going to make sure that we're on the shelf. So I think from a distribution perspective, it's no change in terms of how we think about our world going forward. There might be a little bit of the pocket here or there. We will find some opportunities to find a new partner, or so. And there might be some areas, where we see contraction with some of our current partners.

Patrik Frisk: Part of our strategy going forward is definitely win with the winners, right? We believe there are gonna be winners in, in that, in this market too, and we're gonna make sure that we're on that shelf. I think from a distribution perspective, it's, it's no change in terms of how we think about our world going forward. There might be a little bit of a pocket here or there, where we find some opportunities to, to find a new partner or so, and there might be some areas where we see contraction with some of our current partners. In terms of segmentation into our distribution, there's no change.

So I think from a distribution perspective.

It's it's a no change in terms of how we think about.

Our world going forward that might be a little bit of the pocket here or there will be find some opportunities to too.

Find a new partner were so and there might be some areas, where we see contraction with some of our current partners.

But in terms of segmentation into our distribution. There is no change. We're going to continue to make sure that we do a better job and we've continuously made sure that as we've rolled through '18 and '19, we've gotten better a better at segmentation, not just in terms of price segmentation, but also a category segmentation. And that's a good that's a global view. Patrick, you mentioned, the 3Qbookings flattish to what do you attribute the improvement in third-quarter versus what you're seeing in bookings in the first half?

Patrik Frisk: You know, we're, we're, we're going to continue to make sure that we do a better job, and we've continuously made sure that as we've rolled through 2018 and 2019, we've gotten better and better at segmentation, not just in terms of price segmentation, but also category segmentation. That's a global, that's a global view.

Segmentation and Thats a global that's a good that's a global view.

In Patrick you mentioned, the Threeq bookings flattish to what do you attribute the improvement in third quarter versus what your.

[Analyst] (Stifel): Patrick, you mentioned the Q3 bookings flattish. To what do you attribute the improvement in Q3 versus what you're seeing in bookings in the first half?

Jim Duffy: Patrick, you mentioned the Q3 bookings flattish. To what do you attribute the improvement in Q3 versus what you're seeing in bookings in the first half?

Seeing in bookings in the first half.

Patrik Frisk: Yeah, I think it's year-over-year. You know, our business with the wholesale channel in North America, and I would say also in Europe, where we had the most wholesale, those two regions improved. Therefore, we're seeing flattish, you know, earn back, if you like. I think part of that is also definitely in terms of our product and our marketing efforts, right? We're able to put together a holistic play for our partners, and the product is getting better. You know, I think that's part of it. Both of those things are playing into it.

Yeah, I think it's year over year, you know, our business with the wholesale channel in North America, and I would say also in Europe, where we had the most wholesale those two to two regions improved. And therefore, we're seeing flattish earn back, so and I think part of that is also definitely in terms of our product. And our marketing efforts. We're able to put together a holistic play for our partners and the product is getting better. So I think that's part of it. And both of those things are playing into it.

And therefore, we're seeing flattish.

You know earnback kitchen hike, so and I think part of that is also definitely in terms of our product.

And our marketing efforts right, we're able to put together a holistic play for our partners and the product is getting better.

So I think that's part of it. And both of those things are playing into it.

And both of those things are playing into it.

Thank you. Thank you, and our last question comes from Michael Binetti with Credit Suisse. Your line is now open.

[Analyst] (Stifel): Thank you.

Jim Duffy: Thank you.

Thank you and our last question comes from Michael Binetti with Credit Suisse. Your line is now.

Operator: Thank you. Our last question comes from Michael Binetti with Credit Suisse. Your line is now open.

[Analyst] (Credit Suisse): Oh, hey, guys. Thanks for getting me in here. Thanks for all the detail today. I guess, Patrick, as you look past 2020, you know, I have to ask about the comments that you're, you know, stepping up the costs on some of the long spending, on some of the long-term drivers like digital and marketing this year, and also the CapEx looks like it's rising a little bit. I guess a few questions. Is 10% to 12% marketing still the right longer-term zone? I know you talked about butting up against the high end of that today. You know, I think you offered some comments, Patrick, that I'd say were appropriately, appropriately cautious, reflecting the longer term algorithm, given today's update.

Michael Binetti: Oh, hey, guys. Thanks for getting me in here. Thanks for all the detail today. I guess, Patrick, as you look past 2020, you know, I have to ask about the comments that you're, you know, stepping up the costs on some of the long spending, on some of the long-term drivers like digital and marketing this year, and also the CapEx looks like it's rising a little bit. I guess a few questions. Is 10% to 12% marketing still the right longer-term zone? I know you talked about butting up against the high end of that today. You know, I think you offered some comments, Patrick, that I'd say were appropriately, appropriately cautious, reflecting the longer term algorithm, given today's update.

Hey, guys. Thanks for getting me in here. Thanks for all the detail today. I guess, Patrick as you look past 2020, I have to ask about the comments that you're stepping up the costs on some of the long spending on some long term drivers like digital and marketing this year. And also the CAPEX looks like it's rising a little bit. So I guess, a few questions is 10% to 12% marketing still the right longer-term zone? I know you talked about budding up against the high end of that today. And I think you offered some comments, Patrick, that I'd say were appropriately cautious reflecting the longer-term algorithm given today's update. As we think about that plan that you gave in 2018, how realistic do you think it is to still has the business margins surpassed 10% by 2023 at this point knowing what we know now?

Well the detail today, it's I guess, Patrick as you look past 2020, I have to ask about the comments the error.

Stepping up the costs on some of the long spending on some long term drivers like digital and marketing this year and also the capex looks like its rising a little bit. So I guess, a few questions is 10% to 12% marketing still the right longer term.

Zone, I know you talked about budding up against the high end of that today.

And I think you offered some comments, Patrick, that I'd say were appropriately cautious reflecting the longer-term algorithm given today's update. As we think about that plan that you gave in 2018, how realistic do you think it is to still has the business margins surpassed 10% by 2023 at this point knowing what we know now?

[Analyst] (Credit Suisse): As we think about that plan that you gave in 2018, how realistic do you think it is to still have the business margins surpass 10% by 2023 at this point, knowing what we know now?

Michael Binetti: As we think about that plan that you gave in 2018, how realistic do you think it is to still have the business margins surpass 10% by 2023 at this point, knowing what we know now?

We know now.

Two things there and thanks very much, Michael. I think two things. First of all, in terms of the marketing spend. We believe that as we have implemented Romeo return on marketing investment practices diligently over the last 14 to 18 months, we are that much more well informed now as we think about how to spend the money. And we believe that and you will see an acceleration because we are actually right now believe that we should continue to spend in the way that we're spending right now in '21 as well. So and what I mean by that is prioritizing North America, and then APACs secondly. And spending with the same kind of percentage spend going into next year as well to continue to drive what we now believe is a much smarter engine and more and better well-defined engine in terms of understanding how to spend. So we are all in as it relates to spending against the brand as we turn a corner into '21, that's the first question I think. Dave, do you want to give a little bit more color around the longer-term outlook? Yes, I mean, I think you know this year, obviously, we're taking a little bit of pause on operating margin rate expansion. But throughout all the different things that we've been laying out and driving, we still see the long term objective of being able to get into that low double digit operating margin rate. The exact year, we're still going to be working through as we continue to update our long term plans and assess that. But there is still absolutely the plan that we want to drive towards that.

Patrik Frisk: Two things there, and thanks. Thanks very much, Michael. I think two things. First of all, in terms of the marketing spend, we believe that as we have implemented, you know, ROMI, or return on marketing investment practices diligently over the last 14 to 18 months, we are that much more well informed now as we think about how to spend the money. We believe that you will see an acceleration, because we are actually right now, believe that we should continue to spend the way that we're spending right now in 2021 as well.

We believe.

That as we have implemented Romeo return on marketing investment practices diligently over the last 14 to 18 months, we are that much more well informed now as we think about how to spend the money and we believe that and you will see an accelerator.

Patient because we are actually right now believe that we should continue to spend and the way that we're spending right now in 21 as well so and what I mean by that as prioritizing North America, and then Apacs secondly.

Patrik Frisk: What I mean by that is prioritizing North America and then APAC, secondly, and spending with the same kind of percentage spend going into next year as well, to continue to drive what we now believe is a much smarter engine and more a better well-defined engine, if you like, in terms of understanding how to spend. We are all in, as it relates to spending against the brand, as we turn the corner into 2021. That's the first question. I think, Dave, do you want to give a little bit more color around the longer term outlook?

And spending with the same kind of percentage spend going into next year as well to continue to drive what we now believe is a much smarter engine and more and better well-defined engine in terms of understanding how to spend. So we are all in as it relates to spending against the brand as we turn a corner into '21, that's the first question I think. Dave, do you want to give a little bit more color around the longer-term outlook? Yes, I mean, I think you know this year, obviously, we're taking a little bit of pause on operating margin rate expansion. But throughout all the different things that we've been laying out and driving, we still see the long term objective of being able to get into that low double digit operating margin rate.

As we turned a corner into 21, that's the first question I think Dave do you want to give a little bit more color around the the longer term outlook, yes, I mean, I think you know this year, obviously, we're taking a little bit of pause on on.

David Bergman: Yeah, I mean, I think, you know, this year, obviously, we're taking a little bit of pause on, on, you know, operating margin rate expansion. Through all the different things that we've been laying out and driving, you know, we still see the long-term objective of being able to get into that low double-digit operating margin rate. You know, the exact year, we're still gonna be working through as we continue to update our long-term plans and assess that. There is still absolutely, you know, the plan that we wanna drive towards that.

Dave Bergman: Yeah, I mean, I think, you know, this year, obviously, we're taking a little bit of pause on, on, you know, operating margin rate expansion. Through all the different things that we've been laying out and driving, you know, we still see the long-term objective of being able to get into that low double-digit operating margin rate. You know, the exact year, we're still gonna be working through as we continue to update our long-term plans and assess that. There is still absolutely, you know, the plan that we wanna drive towards that.

Operating margin rate expansion, but.

But throughout all the different things that we've been laying out and driving, we still see the long term objective of being able to get into that low double digit operating margin rate.

The exact year, we're still going to be working through as we continue to update our long term plans and assess that. But there is still absolutely the plan that we want to drive towards that.

But there is still absolutely you know the plan that we want to drive towards that.

[Analyst] (Credit Suisse): Okay. Thanks a lot, guys.

Michael Binetti: Okay. Thanks a lot, guys.

Okay. Thanks a lot, guys. Thank you, ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.

Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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