Q4 2019 Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the under armour incorporated fourth quarter 2019 earnings webcast and conference call.
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I'd now like to hand, the call every speaker today.
Mr. Lance Allega senior Vice President of Investor Relations and corporate development. Thank you. Please go ahead Sir.
Thank you good morning to everyone, joining us or under Armours fourth quarter and fiscal year 2019 earnings call.
Today's call participants will make forward looking statements 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 mornings press release and documents filed regularly with the FCC, all which can be found on our web site at about that at about not under armour dotcom. They may also reference certain non-GAAP financial information, including adjusted and currency neutral terms, which are defined this in this mornings release, we do use a non-GAAP now I believe.
We have our discussions because we feel that more accurately represent the true operational in nature and performance of underlying results for business.
You May also hear us referred to a mountain 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.
Joining us on today's call will be under armour, President and CEO, Patrick risk and CFO, Dave Bergman.
Following our prepared remarks, well open up the call for questions with that I'll turn over to Patrick Good morning, everyone I.
I want to say something up from last night, we learned a terrible tragedy involving the loss of a member of the under armour family had one of our stores in Orlando.
It goes out to get her teammates to this team made her family into all the teammates affected by this awful incident.
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 all for updates as soon as possible in coordination with local authorities and the teammates family.
Now, let's get into their prepared remarks on my first call to seal I'll start by underscoring several things first and foremost I'm not satisfied with where we are today.
That's a company we've made significant operational progress in the form of better systems and structure and processes. That's why does it 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 else from being able to spend as aggressively as we would like to increase brand consideration.
Next we are affirming our commitment to staying centered in athletic performance and bringing authenticity sort of brand through innovative products solutions and experiences that athletes didn't know they needed and once they have them can't imagine living without and finally to thoroughly execute a strategic operational and cultural transformation of this magnitude takes time and quite soon.
Simply the realization of milestones and progress within certain areas of our business is taking longer than we anticipated.
I mean this journey into 2019 behind us it's important to reflect on the work we've done during the most transformative three year period in Underarms history against a highly competitive and dynamic consumer backdrop, we're fundamentally Ronnie a better company today, one that strives to deliver the right product to the right place the right time in a more consistent than 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.
And I'm proud of this strong management team, we haven't place that is committed to executing our long term goals and objectives operationally and strategically we are in line to ensure we had the best opportunity to succeed as the performance oriented brand.
And with ongoing and robust consumer insights work, we have clearly defined our opportunity set we compete and that's like performance.
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 you better.
Our purpose and strategy are clear to us. However, there are those who believe our focus on our plastic 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.
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 Corona virus outbreak in China.
Along with all companies to do business. There are primary concerns for the health and well being of the Chinese citizens. Our team made some partners and those affected around the world.
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 for 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 second half of the year.
With respect to factories were continuing to see closures changing timelines of when they might reopened and trying to assess what it means for production fulfillment capacity and the prioritization of which products to make.
In logistics, we think it's reasonable to expect industry wide delays in terms of delivery around the world, including potentially Miss 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 on clear 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 divest extent possible.
I'd only five weeks into this situation one that it's clearly not stabilized we're electing to stay appropriately prudent and not prepared to quantify many of these settlements today as events could meaningfully evolve in the coming weeks.
With respect to what we have factored into today's initial 2020 outlook with almost 600 mono branded under armour doors in China critically close.
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 totally USA, but to reiterate at this point, we're only contemplating at first quarter, a APAC revenue impact.
As we gain better clarity and additional events unfold, we will provide updates as appropriate.
Turning to our full year 2020 outlook, including live in more than a point due to the Corona buyers, we are expecting global revenues to be down 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.
To provide some more color in context, there on 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 continue to improve operational discipline had 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.
Looking down in Asia Pacific, We believe our strategy to expand and penetrate key markets. It's working.
The channel perspective, we are seeing outpaced ecommerce growth and plan to invest even more heavily into digital and marketing to continue to increased 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.
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 in scale the business.
Based on the operational improvements we've made we expect our revenue growth to accelerate as our efforts to more cleanly managed the marketplace are yielding stronger bookings among our key wholesale partners from a portfolio perspective, one of our largest channel opportunities lies and expanding our DTC presence, but we believe we can better managed to pace in premium presentation of our brand.
In EMEA E Commerce business, we ran 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, but volumetric impacts price sensitivity and overall brand validation to drive can.
Humor engagement in Latin America was 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.
Finally, as our North American business, where 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, it's Mike materially impacting our business.
These issues are most evident in our full price wholesale an ecommerce businesses, leading to an expected mid to high single digit decline in 2024, our North American business.
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 more optimal mix within our portfolio.
While overall positive for our brand health and eventual supply demand rebalancing. This reduction should remain 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 account.
And while we are 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 and of course, it takes more than being a great operators 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 empowered touch points 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 glow.
Finally across wholesale E commerce brick and mortar social media grassroot 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.
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 spec that 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 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.
Although only a small percentage of north American DDC, we're very encouraged by some of the stories at 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 has to work portion of the fleet 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 better than 2019 results. So all in stable.
The remainder of direct consumer our E. Commerce business continues to be challenged at is meaningfully behind where we thought would 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 eight you are among those that do purchase on our side continues the volume necessary to offset the impacts to our business declines that we experienced last.
Last year, it's not yet materializing second as a vehicle capable of delivering a premium inspirational brand experience to our consumers, we're working to improve our ecommerce 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 Thats just it theres a tremendous opportunity to write this business and accordingly, we're not sitting idly by this summer we plan to launch and enhanced ecommerce 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.
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 to through a reset rounded both on quality of revenue in 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 it's 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.
So to close out I'd reiterate again that we're not satisfied with where we're at today.
While we've 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.
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.
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 fourth quarter, driven by our licensing and wholesale channels.
Within wholesale service level improvements enabled us to meet demand earlier, providing 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 due to 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.
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.
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.
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 cent 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 a recording a valuation allowance against deferred tax assets, which increased our 2019 tax expense by approximately 23 million 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 two cents 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 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're continuing to monitor any new developments.
Relative to our 2020 outlook, we anticipate an approximate one to two cents negative impact EPS 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 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.
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.
As Patrick detail. This outlook includes an anticipated first quarter negative impact in APAC region stemming from the very unfortunate Corona virus 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.
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 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.
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 SGN a.
The realization of milestones in 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 estimate of revenue relationship in order to continue on our path of realizing our long term objectives.
With respect to the work we've done to drive greater operational efficiencies. The restructuring plans that we've implemented in 2017, and 18 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've 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 topline 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.
So this effect, we're assessing a potential 2020 restructuring plan, which could include approximately 325 to 425 million a 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 the space.
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 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 kroner 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 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 krona virus outbreak in China to negatively impact us by about five points.
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.
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 the North America full price wholesale channel.
Moving to gross margin and illustrating the point on 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.
Within SDMA as I mentioned earlier, we're 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.
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 million 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've re engineered 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.
It's 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 operator for your questions.
As a reminder to ask the question you will need to press star one on your telephone to withdraw your question press the pound key please standby and while we compile the Q and a roster.
Our first question comes from Matt Mcclintock with Raymond James Your line is now open.
Hi, good morning, everyone.
You look pretty hard to 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 as it seems like the shorter or go to market calendar so that.
Helped somewhat thank you.
Thanks, Matt, Yes, I think.
When we were we've had a pretty long call here. This morning, and part of that reason for that of course has tried to unpack Selman 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 a little 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 and 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 to commercial part, but also the innovation pipeline that we have great great 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 our platform, but not only that were also supporting that with loyalty with CRM with personalization as so you have both the new Saipem 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.
I want to tell the right stories around our beautiful product and 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 a 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 on what's going to happen in Q4 weeks, 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.
You always would like to go quicker, but the reality is also.
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 over 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.
Thanks for the color best of luck.
Thank you. Our next question comes from Edward Room, with Keybanc capital markets. Your line is now.
Hey, good morning, Thanks for taking my questions I guess first 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 I'll stop being a drag and then secondly, maybe this is just the chicken and AG, but are you comfortable at this stage with existing product lineup to amplify marketing give.
When some of the challenge Steve outlined in your script. Thank you.
And with 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 goods steps in that journey in 18, and 19 with kind of walking down the the third party liquidation channel in 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.
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 of the 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.
A 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 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 want to stay with us as a premium brand in the 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 question as it relates to product on the go to market.
22 at Spring 2020, we are now and fall 2020, the entire year of 2020 were now truly running a coordinated play across product marketing and we're doing that with that we believe a better product lineup done than we've had ever and and I'm thinking now specifically around.
Russia recovered that metabolic fabric that we have that helped to recover ISO channel, which were driving now hard into goal, which is a do.
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 any woman that wants to be active and stay active our continued driving into project rock and some of the the new Prada.
Thats coming out for from his line.
And then 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 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.
And the Big news. There is is that is realized coaching right. You can were watching you can be coach as you Ron.
Has had great reception on Thats, just one other things that we now have on the Albert platform. We also have the fast enough seed the sonic the infant if the magnitude of and also be to the Guardian and that platform itself has been the real accomplishment for for the brand and our ability to drive.
Newness in terms of footwear and you also now start to see that playing out in a 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.
What I mean by that as we've also built the tools to be able to see the reaction at the consumer level as we drive as we start to step on the marketing that Dave talked about we havent been able to do that before but now we're actually monitoring things real real time and were able to read and react.
Such more so than ever before and ultimately you or somewhat hawk and 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 are now coordinated for us and run a better place. So we're very optimistic about what we see and our ability to drive harder and Thats. 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.
Great. Thanks, so much guys.
I hope that helps.
Thank you and our next question comes from Erinn Murphy with Piper Sandler Your line is now open.
Great. Thanks, good morning.
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 talk about how familiar smaller format stores have performed.
Sure. Aaron This is Dave I'll start out Patrick 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 her 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.
We're still planning about $275 odd globally about 200 of those.
You know are going to be.
More partner and 75 are going to be moved 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 plan.
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.
But we are excited about the continued progress there yeah. We've done a lot of work around around the brand house and we're truly moving into an era now for under armour, where we're starting to drive true omni channel through both personalization BOPUS and 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 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.
Yes, we still are on track to.
Open somewhere between 1500, and 1700 stores across the world over the next three to four years.
So it is it's absolutely accrue critical.
Initiative for Us and we're very encouraged by what we see in terms of how those stores are performing right now.
Thank you want to Adam.
Good.
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 corona virus or is that excluding that.
It does include the hit that we're expecting Q1, the 50 to 60. It does not include anything after Q1 got it. Thank you.
Hello.
Thank you. Our next question comes from Alex All this with Goldman Sachs. Your line is now open.
Good morning, Thanks, so much for taking the questions here.
My questions on North America guidance, and specifically on North America wholesale.
I Wonder if you could share with us what level of declined year end banging within the wholesale segment of North America, specifically as you contemplate the 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 hearing 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 other international brands is it private label.
Plans or any other thoughts around that.
And then my second question is just.
Quick question on the decision, making process around the New York store.
And how you'll come to conclusion on that.
Sure Alex this is Dave.
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 there are actually more flattish. So we're seeing signs of stabilization there which is good we.
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 this Q4 bookings in.
And then as we've mentioned on the wholesale side also were 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.
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.
So we're going to look to opened 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 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 you know in addition, we need to Reprioritize and allocate more investments in digital side of our strategy, 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.
Regardless of whatever decision, we make their you know our lease obligation will remain in place and we again begin.
Paying rent on that later this year, but we're continuing to evaluate that and that doesn't this is high. This is Patrick I, just want to battle, but any color around flagship stores and 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.
You know for us.
We need to make sure that were also now looking not just in North America, but beyond in terms of how we support our retail business.
Okay. Thank thank you.
Thank you Sir our next question comes from Omar Saad with Evercore. Your line is now open.
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 your Rad.
Elaborate on that especially given kind of the demand for fashion products in marketplace and how you see under Armours unique performance element fitting into the broader marketplace and then my second question is if you'd give us a sense of the rise and fall and now rise again of marketing spend an AD spend for the brand how much how large and far reaching was the UAE voice of the as peak versus.
2019, so we can think about what ramping back up the the brand voice will be through increased marketing going forward. Thanks.
Okay, well I'll start Omar. Thanks. Thanks for your question, Yes, it's a it's an ongoing conversation I guess that we have with with the.
Investors and I think also with with of 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 slide 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 where there might be another wearing occasions. So our design team and as I said on my prepared remarks.
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.
That's going on right now with the products that we make going forward.
The 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 is going to improve people right to make them better and we got to start from that from that sharp point and thats really important to us.
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 a performance base at some point or another in India in terms of history and so for us in footwear, it's important to build these franchises that we condemn start to expand them.
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 both 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 Thats important areas. This is not at the management team at under armour sitting in a loss 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.
And then 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.
For the we're turning this company into more consumer centric company going forward. So we believe in our strategy and we believe we're having the right and down the right path and.
We're going to stick to it for now.
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 pride at the trough. In 2018 is we're really trying to manage costs were all the way down towards 10.5%.
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 either 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 marketing contracts and poor a lot more of that fuel into the brand kind of top of funnel Asps were excited about kind of the power of that not just the increase in the dollars. Yeah. It's a really important point that Dave is making you know it's 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 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 because.
Our issue here in North America isn't a brand awareness people know about this brown is then thats why I keep saying that there isn't anything wrong with the brand. The problem is consideration in other words, why should I considered 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've got to do it in combination with spending money that 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 is what so access.
I think for us and to be able to do that in a coordinated way across everything that we do.
It is something that we never been able to done before due before and to do it over a 12 month period consistently that as new news I think that is that as one of the the big on loss for us as a brand as an organization and that's also why we firmly believe in our strategy going forward.
Thank you that's very helpful.
Thank you and our next question comes from Randy Konik with Jefferies. Your line is now open.
Yes, Thanks, a lot I guess, Patrick got two questions I guess the first one is when you think about.
Yes, the beauty quotient years, you're speaking to you made some clear progress on the footwear side and talk to.
You know improved kind of demand resulting from.
This does 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 getting your perspective of where we've come from where we are today and where we're going.
Yes, great and yeah first of all I think in footwear.
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 happened in 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 or reinvention of the where we began our journey around the base layer.
And how we think about marketing ourselves as as kind of pocket part of the equipment as it comes to base layer. We think we have a lot to say there and we think that consumers still.
Looks to under armour for for that first layer and but what we're also doing a much better job 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 into the 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 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 or incredibly exciting we then layer on Paul additional types of mid layer. We have for example, our intent knit sweaters.
Which is a new wave for us to showing people of how to run in something different than done and just a normal amid layer. This is a very specific product the intelligence sweater that does the.
Cool thing of actually being able to maintaining body warms without overheating right, while you're running with which 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 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 you know 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 is that is kind of way to think about what under armours 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 kind of looked 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 thing.
So we think the one in the same.
Yeah, and then can just follow up you know if we all can agree on the call that the performance has always been there with the products and.
The beauty side of the product plus story.
He is getting better.
The first most in footwear.
Over time in apparel as well, yeah, hi on the consumer work you've done.
And then talking to your wholesale channel partners, what's the kind of response or perception, you're getting on the pricing side from a from a how the products are priced in the market and that perception of the consumer as they as it relates to then thinking about July purchased an under armour product or not given this price points Im just curious on.
How you're thinking about price architecture.
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 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 than we've seen great.
Results from.
Some of the turning off the discounting button, if you like on on a and 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.
That's done 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 in whether its types or base layer and so forth of course, we're not as well priced as as a private label only come to our competition.
We feel that were 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 right. So as we scale the business there should be a great benefit there.
Helpful. Thank you.
Thank you. Our next question comes from Matthew Boss with Jpmorgan. Your line is now.
Great. Thank 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.
Oh. Thanks. Thank you for that question, Matt I think.
For us it wouldn't be a gradual improvement from here going out I think thats, how we think about it what we try 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 in order to get 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 divest they've ever been as a company all of those things playing in units on is giving us the optimism to say that growth will return to North America.
And it is it little bit of a delay, but ultimately it will then we're going to on 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 wished we are 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.
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.
Great and then maybe just on the gross margin so 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 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.
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 in 18, and then 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 19, if 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 channels, so that helps a little bit as well.
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 APAC region.
We've 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 krona virus that we're expecting in Q1, so that takes the impact 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 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 as it 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 or 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 the off price channel benefit. So there's some puts and.
Thanks 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.
Great. That's good luck.
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 we 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.
Yes, thanks, Thanks, very much Jim.
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 worked through 19 and into 20.
Also validate a lot of that right in other words, especially us as as we think about footwear, where we have been driving a lot of the run initiative in hardware for example, it into the endemic channel run specialty channel. The challenge that we were not in before you know asset positioning vehicle for example for the Brad.
And.
So so we see our distribution footprint.
Currently and going forward being fairly stable in North America, I would think but theres going to certainly in pockets be some contraction we're estimating.
That 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 have a learning our way back into the winters. So part of our strategy going forward is definitely when with the winners right. So and we believe there are going to be winners in the in this market too and we're going to make sure that were on the shelf.
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 two.
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. There's no change where we're going to continue to make sure that we do a better job and we've continuously and made sure that as we've rolled through 18 and 19, we've gotten better and better at segmentation not just in terms of price segmentation, but also a categories.
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.
I see in bookings in the first half.
Yeah, I think its 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.
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.
Also so I think thats part of 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.
Oh, Hey, guys. Thanks for getting me in here.
Thanks for all the detail today, it's 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 of the 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.
I don't 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, we're purposely appropriately comp 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 still have the business margins surpassed 10%.
2023 at this point, knowing what we know now.
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 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 and accelerate.
And because we are actually right now believes 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.
And spending with the same kind of percentage spend going into next year as well to continue to drive will be now believe is a much smarter engine and more and better well defined engine. If you like in terms of understanding how to spend so we are all in as it relates to spending against the brand.
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 longer term outlook. Yeah. I mean, I think you know this year, obviously, we're taking a little bit of pause on on.
Operating margin rate expansion, but.
Through all the different things that we've been laying out in 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 going to be working through as we continue to update our long term plans and assess that.
But there is still absolutely you know the plan that we want to drive towards that.
Okay. Thanks, a lot guys.
Thank you ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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