Q1 2020 Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the under armour Inc. first quarter earnings webcast and conference call.

At this time, all participants are in listen only mode.

After the speaker presentation, there will be a question answer session to ask a question here in a session you would need to press star one on her comes on.

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 have the conference over to your speaker today Mr., Matt I like that you're vice President of Investor Relations and corporate development. Thank you. Please go ahead Sir.

Thank you and good morning, everyone joining us for under Armours first quarter 2020 earnings call you information being made available on todays call includes forward looking statements that reflect under armour view of its current business as of May 11 2020.

Well its considerations for future events that may impact our business moving forward.

These statements are subject to risks and uncertainties that a detailed documents regularly club with the FCC and the Safe Harbor statement included in this mornings press release.

Which can be found on our website.

Got under armour Dot com.

It is important to note that at this time the global coded pandemic has had and continues to have a significant material impact in under Armours business.

Given an extremely high level of uncertainty about the duration and extent of the viruses near and long term impact to the global retail environment.

Content discussed on today's call could change materially anytime.

Accordingly, future results of operations could differ materially from historical practices and results or current descriptions estimates and suggestion.

On today's call, we may reference non-GAAP financial information, including adjusted and currency neutral terms, what's your defined under FCC rules. In this mornings press release you May also if you're actually for two 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.

Quantified all excluded items as well as providing management's view about why we believe this information that's useful to investors.

Joining us on today's call will be under armour, President and CEO, Patrick Chris and CFO, Dave Bergman.

Keep in mind that we're individually each different locations. This morning. So please bear with us as we work through this call and apologies in advance for any glitches should they arise.

During our prepared remarks, we'll open the call for questions with that I'll turn it over to Patrick.

Thanks, Lance good morning, everyone and thank you for joining us any of these unparalleled times before we discuss underarm his first quarter results into significant factors continuing to impact our business I'd start by underscoring how incredibly proud I am of our company and our teammates along with our retail customers and factory and vendor partners around the.

World The extraordinary leadership humanity and collaboration that continues to transpire doing this global health and economic crisis is incredibly humbling and inspiring.

I think two under armour I'd like to highlight a few cobot 19 response efforts that exemplify our priorities and values and this accelerating event, we mobilized to focus on the most immediate needs of our local communities, including healthcare professionals and first responders within days of the pandemic designation, we had we purposely innovation lab at our head.

Quarters to begin producing masks and gallons today, we're on track to produce and provide nearly 5 million face masks and 200000 gallons to Johns Hopkins and nearly 40, other healthcare organizations, including hospitals and senior care facilities on the front lines of this fight.

We've also donated enrollment performance product to numerous health care professionals in certain hard hit regions around the world that are fatigue from long challenging hours fighting this horrible virus.

Well, we've deployed a talented teammates to provide logistics expertise and distribution center space to organizations that needed to scale quickly storing and staging pp and medical supplies to meet demand for their respective fulfillment efforts.

We've also partner with PD America, and local food banks here in Baltimore, including a new delivery mall that ensures food and other critical items are delivered safely and timely to our neighbors struggling with needs in this time of crisis.

These are just a few of the things we've been involved with during this period. All of this of course is a group effort across our universe of teammates partners and communities. We are ordering this together and under armour will continue to respond.

Turning to our business clearly this will be a considerably different earnings call than those of the past and while we will review our first quarter results today's conversation will focus more specifically on this point in time updating you on the actions, we're taking to navigate the uncertainties that we're all consulting.

These uncertainties are what every company is currently facing with respect to Durational the closures, how deep and economic crisis might persist how much agility may be needed for possible permanent changes in consumer behavior shopping preferences, and disposable incomes considerations and ultimately triangulating, what the future state operating environment might look like.

Right.

Given that these variables among many others remain highly uncertain inconclusive, we cannot reasonably estimate the operational impacts of the pandemic on our business at this time, so we're not able to provide a financial outlook on todays call. We can however share insights into the things that we are able to control in this respect would like.

To provide some color on the strategic operational and financial actions, we're taking to adjust and manage our business. During this period.

First and foremost is our strategy we are centered in athletic performance and bring authenticity to the brand by delivering innovative product solutions and experiences that athletes didnt know they needed and once they have them can imagine living without there's no change to this purpose and now even more clearly as the world continues to persevere through these challenging time.

James Health fitness and wellness or even more center stage in fact, the balance between physical and emotional well be and the visceral connection to our capacity to fight thrive and restore the made extraordinary circumstances girls direct mail strengths from these very elements.

So while many things on lockdown inspiration wellness and fitness, our most certainly not corn team.

So as the athletic performance were moves towards social distancing athletes made a term towards working out at home and the outdoors and in the process have activated more digitally than ever before.

By broadening the only way is through brand platform that launched earlier this year into through this together manifesto, our digital social and marketing teams were quickly to activate our robust roster of athletes and key influencers.

For virtual social events curator at home workouts and incredibly successful healthy at home fitness challenge and free content, along with well orchestrated community givebacks, we've seen exceptional increases in usage within our digital lap business. In fact since mid March the record for the number of map my around workout small for us.

Angle day has been broken six times and new uses are up 275%.

The momentum. This also continued to grow in our connected footwear business as well with year over year workouts up over 200% since mid March.

With respect to emerging shifting consumer behavior. This is a unique time to sharpen our digital knowledge by converting real time data and analytics to drive brand interesting consideration within our largest categories of training and running.

From dedicated and casual runners habits have picked up significantly due to Jim closures to devoted fitness and team sport athletes, who are craving opportunities to stay active while their normal routine. So I've been halted our engagement strategies are driving momentum into our digital channels. All positive factors that we believe are helping directly country.

Due to the improvements in ecommerce sales that we've seen since the end of March and although this is still a fairly small part of our business. This validates some of the pre Colvin work coming together with recent strategic adjustments to drive brand consideration.

From an operational perspective, and more specifically business continuity as the virus began to rapidly spread during the first quarter outside of China, which we have already close down we implemented pmeight protocols following government recommendations to increase social distancing avoiding large gatherings.

And requiring our office space teammates around the world to worker, mostly.

Within our global supply chain Coven, 19 continues to cost large impact and disruptions, but only or the meaningful shifts in demand.

But we're also seeing significant swings in supply due to factory closures over the past couple of years, we have made significant changes to our supply chain and how we plan developed source and distribute product.

These changes will certainly help us as we manage through these disruptions. Additionally, as we discussed previously we worked to establish integrated strategic relationships with considerably fewer partners.

This has helped to accelerate our transition to digital sampling and virtual modeling, which is increasing product accuracy, helping to reduce lead times and in turn allows us to quickly evolve how we're selling product into our accounts and customers also because its digital we havent missed a beat working remotely during this time.

Last year, we also stood up a new demand planning function that has allowed us to execute and leverage our go to market process much more efficiently within our operating model. This move has provided us with greater insight into demand and our ability to create product supply solutions to elements were leveraging tremendously during this time.

As an example of this work as the virus gained momentum in China, we recognize the potential impact on global markets and product supply and the needed to pivoted our teams to redesign our product supply plans.

As a result, we quickly adjusted future planned buys to reduce potential impacts on our business.

Nick since the vast majority of owned stores in wholesale locations remained close globally, we've shifted our distribution networks prioritization to E. Commerce. This along with our multiyear investments in our ERP system has provided us with the necessary flexibility to service increased digital demand.

Altogether the previous actions, we've taken and the investments that we've made over the past few years are helping us to be more efficient during the state of suspended animation.

Speaking of which I'd like to take a minute to give some year to date color on the status of store closures around the world to provide better transparency into our current business starting in Asia Pacific, which as a reminder, was 12% of global revenue in 2019, both owned and partner doors began closing in China in late January and.

Remained largely closed through early March when a slow progress and reopening process began.

By the end of March more than 80% of these locations had reopened and as of today substantially all owned and wholesale locations in China have reopened.

That said traffic in these locations, while continuing to see progressive recovery in recent weeks continues to be down year over year.

Outside of China, and South Korea, which combine makes up about two thirds of revenue in APAC. The rest of the region has been effectively closed since mid March and the rest of our regions North America, EMEA and Latin America. The closing timeline was similar with substantially.

All of our own stores and wholesale parking locations shutting down the mid March which as of today is still the case.

In our global E Commerce business. Our sites are active and revenue has continued to show consistent strength since the start of the second quarter, including ecommerce sales, but I'm trying to back to year over year growth in North America in anyway, with outpaced strengthened our women's business.

Although only had low double digit percentage of global revenue, we're encouraged by the emerging strength of our ecommerce business.

Wrapping all of this together means that since mid March about 80% of our global business has been at as fast.

As we look to close out the second quarter, we're continuing to assess the environment on the local basis and have begun opening a very small number of owns doors. So still very early.

Particularly in this time, our brand DNA, which is facing Gritten tenacity is precisely the northstar that will give us.

Power to go through this storm and within this determination, we will continue to drive through the necessary fair changes and now in an even more accelerated manner to make the no regrets decisions necessary to serve our consumers customers and shareholders better over the long term.

So before handing it over to Dave to walk through some of the financials I'd like to close by acknowledging coated 19 has changed our lives and unprecedented ways. A pandemic that has emphasized how the health and safety of our families friends and communities cannot be taken for granted.

Over the past few months.

I've been inspired by countless examples of the resilience witnessing the courage lot ingenuity of a human spirit.

Led by our committed teammates an incredibly talented management team and a fiercely unique brand we are in control well prepared and position to stand strong through this yet we will do more than indoor I believe through all of this we will ultimately emerge stronger Dave.

Thank you Patrick.

In the first quarter through early March we were tracking well against our plan demonstrating that our strategies, we're delivering appropriately against our expectations.

The last two weeks of the quarter as the pandemic accelerated dramatically outside of China, and social distancing shelter in place mandates took place globally.

We experienced an unprecedented decline consumer demand, especially in North America.

For the quarter, our revenue was down 23% to 930 million.

It's important to note and in our February 11 earnings call. We stated that we expected that our revenue would be down 13% to 15% with about five points of the decline attributable to the China only cobot 19 impacts.

About five points due to significantly lower sales to the off price channel and about three points to the service level improvements that allowed us to deliver more product in the fourth quarter last year.

However, as we closed out the first quarter, we ended up with even lower than originally anticipated off price sales and significant unforeseen impacts of cobot 19 on our businesses outside of China.

Which together contributed to about 12 additional points in the first quarter decline.

All in for the quarter, we saw about 15 points of negative impact from Covidien team.

Now taking a look at first quarter revenue by channels, we had a 28% decline in sales to our wholesale customers driven predominantly by our North American business.

A 14% decline in direct to consumer revenue also driven primarily by our North American business.

And an 8% decline in licensing.

By product type apparel revenue was down 23% footwear was down 28% and accessories was down 17%.

From a regional and segment perspective.

First quarter revenue in North America was down 28% with nearly half of that declined due to door closures associated with cobot 19 in the last few weeks of March.

Coupled with nearly a quarter of the drop being attributable to lower year over year sales to the off price channel.

In EMEA revenue was up 3%.

Given by timing shift in our wholesale business offset by about 10 points of negative impact from Cobot 19.

In addition to reduce sales to the off price channel.

Revenue in Asia Pacific was down 34%.

Due to our owned and partner doors being substantially close for the majority of the quarter, resulting in about 50 points of negative impact from Cobot 19.

In Latin America revenue was up 8% driven by growth in wholesale and offset by about seven points of negative impact from Kobin 19.

And finally, our connected fitness business was up 9% driven by continued subscription momentum.

Turning to gross margin.

We saw a 110 basis point improvement to 46.3% in the first quarter.

With benefits, including approximately 330 basis points of channel mix, including lower year over year sales to the off price channel and increase DTC mix.

And 20 basis points of product mix due to lower footwear sales, which carry lower gross margin rate.

This was partially offset by about 200 basis points of cobot 19 related pricing and discounting impacts.

30 basis points related to changes in foreign currency.

SGN expense was up 8% to 553 million driven by higher legal expenses.

In addition to increased marketing investments to support the only ways through brand platform that launched in January.

Next I'd like to provide details on the restructuring and impairment charges line item within our income statement.

Which captures both charges associated with our 2020 restructuring plan.

As well as the recognition of non restructuring related impairment of long lived assets and goodwill.

First I'll start with our 2020 restructuring plan.

As detailed on April Threerd, we're expecting to incur total estimated pretax restructuring and related charges in the range of 475 to 525 million, primarily this year consisting of approximately 175 million of cash related restructuring charges.

And $350 million noncash charges.

In the first quarter, we realised 301 billion of restructuring and related impairment charges within our 2020 plan.

Including 298 million in noncash and 3 million cash related charges with nearly all of these Q1 charges related to a New York City flagship store.

The second component is non restructuring related impairments for long lived assets and goodwill.

Through the negative effects of cobot 19 on our business, we perform an interim analysis for long lived assets and goodwill as of March 30, Onest 2020.

Using undiscounted cash flow analyses for our global retail fleet of owned stores, we determined that some of these long lived assets had net carrying values that exceeded their estimated undiscounted future cash flows.

Accordingly, we recognize $84 million impairment charges in the quarter.

Additionally, we also performed interim goodwill impairment analyses for each of our reporting segments.

Following this review we determined that the estimated fair value of our Latin American reporting segment.

And a portion of our North American reporting segment related to our Canadian business.

No longer exceeded their carrying values.

This resulted in a 51 million impairment of goodwill.

All of this translates to a reported first quarter operating loss of 558 million.

From a tax perspective, we recorded $21 million tax expense.

Primarily driven by valuation allowances recorded on certain U.S. and China deferred tax assets.

Partially offset by five year net operating loss Carrybacks benefits provided under the recent cares Act.

After tax we therefore recognized a net loss of 590 million or $1.30 cents of diluted loss per share.

Excluding restructuring and impairment charges, our first quarter adjusted operating loss was 122 million.

And the adjusted net loss was 152 million.

Or 34 cents of adjusted diluted loss per share.

With respect to our 2020 outlook a high level of uncertainty related to an inability to determine the duration and scope of the cobot 19 pandemic and its economic ramifications.

Means that we cannot reasonably estimate impacts on our full year at this time.

We do however expect these conditions to have a significant adverse impact on full year financial and operating results.

Now moving onto some high level color on our second quarter.

With approximately 80% of our global business, having been closed since April 1st.

We currently anticipate that revenue could be down as much as 50% to 60% in our second quarter.

Although we do anticipate that our business will gradually we opened in the coming weeks and months. We believe there will be a number of challenges ahead for us and a greater global retail space.

Including the slow and progressive return and normalization.

A highly promotional environment.

And significant uncertainty in brick and mortar traffic and conversion as consumers returned to stores.

Earlier in the call, we detailed the strategic and operational elements of what we're focused on to manage our business. During this crisis.

To round that out I'd like to discuss the financial part of these efforts.

As we further manage our cost base, we're targeting a reduction of our originally planned 2020 operating expenses by approximately 325 million.

Which includes the operating expense benefits from the $40 million to $60 million expected pre tax restructuring plan savings.

Outside of the expected savings from restructuring efforts I'd like to touch on the other larger expense reductions.

Relative to marketing with limited visibility into the larger impact to the virus on consumer demand and behavior, we're reducing certain marketing efforts. During this interim period and focusing funds predominantly on digital activations.

In mid April we temporarily laid off teammates and our us retail stores and distribution centers.

We are reducing incentive compensation for the year.

We're also tightening our hiring contract services travel and other discretionary variable costs.

And we are reducing planned capital expenditures, which contributes to reduce depreciation.

As a reminder, this targeted 325 million operating expense benefit does not represent a year over year variation, but again is rather a change to our original Twentytwenty annual operating plan.

Next I will touch interactions to prioritize liquidity cash preservation and inventory management to enhance our ability to navigate potential short and mid term challenges and cash flow needs.

Within cash and cash equivalents, we ended the first quarter over 959 million of which approximately 600 million was related to borrowings under our revolving credit facility.

In early April we borrowed an additional 100 billion and now have 700 million outstanding under this facility.

Additionally, we have negotiated an amendment to our credit facility that is on track to close tomorrow.

Given the ongoing disruption throughout our industry. We expect this amendment provide us with improved access to liquidity going forward.

Quarter end inventory was up 7% to 940 million.

Moving forward in anticipation of significant changes in future demand, we are proactively reducing planned inventory receipts to continue to manage this asset as efficiently as possible given expected compounding global factors.

We have also been prudently balancing the negotiation of extended payment terms with our customers and our vendors to mitigate risks.

We're also working with retail lease partners to defer or bait applicable rent during store closure periods.

The deferral of certain investments are planned capital expenditures are now expected to be approximately 100 million compared to our previous expectation of approximately 160 million in 2020.

When more favorable business conditions materialize, we would expect to resume many of these investments with adjustments based on new considerations as warranted.

With all of these measures we believe that we will be in a solid position to manage our business throughout this pandemic.

With that I'll turn it back to the operator for your questions and I do want to reiterate that we are unfortunate unfortunately, not in a position to provide additional quantitative detail on our outlook for 2020.

Operator.

At this time, if you like to ask a question press Star one on your telephone keypad again, Navistar wind for any questions.

Your first question kind of come Matt Mcclintock with Raymond James.

Hi, Yes, good morning, everyone I guess high level, Patrick could you maybe give us your thoughts about launching new products into this type of environment clearly, there's an inventory overhang that needs to be works through not only yourself, but through through your competitors at retail in general, but how should we think about fresh new product.

And your merchandising plans going forward given this environment. Thanks.

Hi, Matt or we will continue to release and new product one of the things that we would that we didn't talk specifically about in the in the script here was a well for example, our women's business is doing right now and and that's attributable to new product I think the.

The balance of or thinking through the inventories you will come out of especially Q2 with and and how you're thinking about at the introductions that you're currently planning to do in the back half of this year and I would say even leading into early 2021 is going to be exactly just at a balance you're going to.

Need to work through through rebalancing the remainder of the year. The current inventory levels as well us of course wanting to give freshness onto the short we're intending to continue to give freshness in every category, where we compete.

I think the.

The amount of freshness that you might be looking at as it relates to spring 2021, it's something we're still working through but in terms of the back half of this year, we'll still have freshness on the floor.

Especially as you think about categories like footwear and running as well as in our training category. There will be there'll be a lot of freshness. There I think you know having said that we are actually in terms of inventories coming out of Q1 with only 7% of inventory I think that is.

At the lower end of what the market has seen so far and and of course will have inventories building in Q2 us as 80% of our stores around the world our sale closed, but ultimately because we came in with but with a well managed inventory position.

We think that we're going to be able to rebalance the rest of although over the year and continued to provide freshness into the marketplace to we need to incentivize the customer to come in and find new stuff for sure.

Thanks for that and just as a quick follow up just the off price channel. You spent several years cleaning up that that that channel on reducing sales into that channel. This. This does this environment just push push back another year in terms of your plans your broader plans to trying to get off your channel mix correcting it how should we think about the off price gena.

In general on as we go to the back half of this year. Thank you.

Hey, Matt.

We definitely are continuing down the road of trying to work kind of back off of that channel.

I think the impact to covert 19 are going to make that a little bit harder to take it as far as we wanted to take it obviously in 2020.

But we will continue to step off of that we're not expecting too to grow that channel between beside you know due to covert 19, but it will take a little bit longer this year than we originally wanted to potentially to step off its back because we wanted but we're still on the right track.

Thank you very much vessel walk us.

Thanks, Matt.

Your next question isn't a line of Edwin when that with Keybanc capital markets.

Hey, good morning, and and I hope that you and your teams are staying healthy at this time I guess just a a broader question. Historically you don't really participate a lot in markdown support, but I guess given the environment. What are your initial conversations with your retail partners like do you think that you're gonna have to help them clear existing inventory that they.

Having a channel and would you consider taking back inventory. Thank you.

Hi, everybody. This is Patrick Yeah, it's an interesting time and and we.

We are.

Dealing with reopening our home stores of course, and and we're trying to do our very best to be good partners to our big wholesale accounts out. There that are also trying to re opened their doors and I think in general you are seeing aid a balance between the inventory that's already in the channel and then future demand.

One other thing so that I called out in my script as the work that we've been doing under armour, specifically on building out a very strong demand planning function functionality over the last 18 months and we think that we've been benefited from that as we think about the back half of this year and also going into 2021 working with.

Our accounts and with our own internal threats consumer teams to ensure we're trying to balance you know how much we take back versus how much more reorder and how people are going to be able to reopen again, but again you know is we're about two months into what could be.

Of course, a longer a slower trajectory here in the in opening and also in terms of their consumer coming back were little bit advantage, we field because were global brands. So we've had the opportunity of seeing what's happened in China and.

The good news is I guess that consumer is coming back I think that this is that it's taking a little longer than we would wish and I think this this whole balance between future demand and current inventory levels and how that plays out is something that we're working on day to day in and day out, but we're trying to be good partners here because.

Ultimately, we need everybody to to win and Oh, we do business with and well, where we feel that we're in a.

And that we're in a situation right now where we have control of the situation in terms of understanding all of those components at the next.

Three quarters are gonna be about re balancing all of that and before we turn into 2021. So there's a lot of work ahead of us, but we feel that we have a pretty good handle on things at this point.

Thank you.

Your next question is from line of Sandra losses with augments tax.

Good morning, Thanks for all the commentary this morning, and thank you for taking my questions here.

So my first questions around E Commerce, I Wonder if you could talk us through a little bit more detail the cadence and fuel E commerce growth.

Through the first quarter and into the to second quarter.

Did you see immediate acceleration in E Commerce system suppose closed in North America role I must have a little bit of the like that.

Yeah, I think that you know as we saw the stores closing down in North America in India.

In mid March there was probably a little bit of a delayed reaction before consumers really realize what they needed and how they're going to have to get it from E com and so the real ramp up for us on E com, especially in North American and M&A was coming in as we started to kick into April and we've seen it all the way through April and into marriage. So we're really excited about that.

We're not quantifying that right now but.

Definitely very favorable trends there.

Especially on the women's side too from a product perspective, which were excited to see as well.

Fantastic and then two follow up questions on the same team in one any comment on E commerce trends within China, and how that's performing and then to any comment on how E. Commerce is performing at key wholesale partners. Thank you.

Yes, I mean E commerce in China.

Continues do pretty well for us I would say the more dramatic increases in April has been in EMEA in North America, which we're really excited to see.

But a pack is doing well also.

And from a wholesale perspective that has been a nice.

Benefit as well that a lot of our larger wholesale partners that have pretty good ecommerce sites have been driving good business as well. So we've been doing more kind of our drop ship revenue supplying them to be able to fuel their E com side. So.

Thats been going pretty well also mainly in April and into May here.

Thank you I appreciate the answers and all of us.

Thank you Alex.

Your next question is from the line Afinion awareness with Citigroup.

Hey, Paul Lessray City.

Im curious what you're hearing from your larger retail partners just in terms of how they're planning the back half of 20 even into 21.

Also curious if you could remind us a frame for us, perhaps who your largest retail retail partners or what percentage of sales they make up and I guess along similar lines what percent of your retail partners are smaller in size, maybe what might be described as mom and pops versus the larger more well cap.

Utilize retailers thanks.

Yeah, maybe I'll start off here, Dave and just talk a little bit about you know how we're thinking about.

The back half an early next year in terms of.

The the business that we're doing with our retailers I think.

As I said before.

2020 is going to be a year of rebalancing and not just for US I think our larger retail partners as well as our smaller retail partners and the this is both goes for.

North America, as well as Europe or in the same situation that we're and they're trying to figure out how fast they can open and how fast the consumers going to come back and again, we've had the advantage of which certainly share. This with our partners will we have seen happening in China in terms on the.

The return of the consumer and holiday or.

Thinking about shopping at this point in time and and for the for the very few.

Stores that have been opened in the.

In the U.S. with some of our retail partners you certainly see a similar pattern in the U.S. I think over the next two three weeks as you get into the back half of May that will give us a better indication of the appetite of and the speed of recovery that say in terms of both traffic and conversion.

In the U. us.

But I do but I do think that again.

It is there's so much uncertainty and in terms of the the timing and trajectory of or return, but I would say that.

And we think about it in terms of rebalancing has your thinking about the back half of the year because you have inventory.

In different places and you had the unknown of the speed of ability to reopen and to see the recovery in terms of the consumer coming back shopping and and the type of behavior that will show during that shopping coming back in terms of conversion. Another thing so lot of variables. There in terms of how we're Howard.

Looking at more than they are back half of the yen, Dave I don't know if you want to give any anymore color there on on any of the financials.

Yeah, you Paul we don't normally disclose the names of our wholesale partners, but I will say that we have monitoring all of our medium to larger ones and the pretty extensive basis around the world. We had we have good longstanding relationships with most of them.

And in General you know a lot of them are hanging in there fairly well and we're continuing to.

Kind of works through when they're opening their doors and what that means for business in the future.

You know right now, we don't see any significant medium or larger sized customers.

That are having any you know larger than average challenges based on what everybody is dealing with Coca 19, but we're continuing to monitor that.

And we'll work within going forward.

Yeah, and I would say in over the next 24 to 36 months will be I think what you could perhaps color, forcing mechanism for many retailers, especially in the U.S., where there's still a lot of stores and there's still a lot of square footage. So there's certainly going to be winners and losers in this in this environment going forward, though.

And I think thats not just in our sector I think that's in general in retail and they will also be of course as everybody is is predicting right now a distortion to digital.

Thanks, and just to follow Dave on the smaller shops size, just <unk> percent, perhaps if you could share is coming from you on a single shop or maybe a couple shop.

Sort of change out there if you could share that.

We don't normally give exact percentages on that but I would say it is a smaller portion of our business. The lions share of our dollars are going to be the medium partners in the larger partners.

One thing that I was going to mention too that I think plays in a little bit through our distribution is.

We are seeing that that those stores that are opening more stores that are in opening or freestanding locations are seeming to do fairly a little bit better as far as returning traffic than some of those that are maybe in malls and we don't have a lot of small business. So there is a little bit of a ER and advantage there that we were seeing.

So far as well as stores start to open.

Great. Thanks, guys. Good luck.

Thanks, Paul.

Your next question is from the lineup Bob true.

With that Guggenheim.

Hi, Good morning, just a couple of questions on the SGN a opportunities in terms of demand creation or endorsement contraction that sort of thing or are there clauses that you can sort of pulled back on payments required some of your athletes and I guess as this also wondering on.

The inventory side.

Can you talk a little more just like how far out you made adjustments to the receipts exactly what you've been successful sort of canceling are delaying just maybe a little bit more color on sort of how you are adapting to sort of them factory situation. Thanks.

Yeah. This is Bob Bob This is Dave a couple of things you know relative to sports marketing contracts and endorsements you know we've got pretty good relationships with lot of those assets, obviously and we have been moving I'm kind of our non inventory.

Vendors and relationships out a little bit further and payment terms.

And then sports marketing contracts are part of that so we've been negotiating working with them and we've been able to.

Gets an extended payment terms, there which are helpful.

Just in general with our overall capital preservation efforts.

Relative to inventory, we were able to jump in pretty quickly and start to reassess demand and be able to adjust our buys in our strategy there with production.

For the back half of the year. So lot of the the fall winter 20 product, we've been able to get ahead of that pretty well wasn't as easy to adjust some of this spring summer 20, because a lot of that was already in production or inbound and to to Patrick's point. You know, we expect a you know a higher inventory level as we round out Q2 was historically.

Users in knowing all that spring summer 20 products is still in now, but we've been able to effect and adjust a lot of our fall winter 20 back half.

Inbound, which is really helpful relative to the capital preservation efforts.

I think it's important to note here to that.

As you think about what's happening to the Fontainebleau dismiss it's also really important to recognize what's going on the back.

In the back end so to speak in terms of our vendor partners. We've done a lot of work as we kept you guys informed about over the last three years to really.

Work with with what we feel would be considered better parkers stronger partners. It's incredibly important to US also of course at these partners survive.

There's a lot of hardship and the into vendor base right now as there is all this fluctuation and and the kind of distress.

And people counseling kind of mid way through and stuff like that so we're being very thoughtful about how this also plays into 2021, so not only rebalancing the back half of 2020 in terms of old fold demand, but also thinking ahead to 2021.

And and making sure that we're trying to help our vendors as much as we can also to level load and do other things because ultimately we want to make sure that may come out of this with a strong vendor base are able to accelerate as we go into 21 and deal and so there's a lot of though to work happening there where Dave is working on it from.

The financial perspective, and that kind of the farm down and we're also.

Working hard in the back end, making sure that we're keeping our vendor base alive.

Thank you very much.

Yeah.

Your next question is from the line as Michael Binetti with Credit Suisse.

Hey, guys. Good morning, Thanks for taking my questions here I'm just a quick modeling question or two here can ask you said I think you set off price lower off price sales a 300.

30 basis point lift to gross margin encoded was about a 200 basis point drag.

Around those zones I think your previously guiding for the total gross margins for the quarter to be up 120 to 140 was there. Some other larger headwind you were initially thinking about before we knew about corona that didnt happen in the quarter any anything on that the trend there.

Michael This is Dave the off price came in a little bit less even than we originally expected.

But then that was offset by the code 19 related pricing in discounting. So there was a little bit of an offset going on there.

But the cobot impact on pricing in discounting is generally what brought it down more relative to our original expectation.

Okay.

And then I think that.

Dave I think he said I want ask why you comment that off price in North America will be above plan above your initial plan, obviously before we have pandemic now, but but not not to revenue growth rate. This year won't be bigger in revenue dollars. In 2019 still is that a fair. That's what you said right in that guardrail and then.

I know you throw that about inventory, maybe you could just speak through where where we'll see that inventory clearing would be in the wholesale channel or what skew more to your factory doors in your website.

Yeah, Michael let me clear up a few things relative to the off price channel, we are going to see that being significantly down year over year.

But what I was trying to get at is as a mix of business because we know our overall business will be down year over year that mix of business, we're not going to make as much progress as far as reducing the off price channel with the mix of business. This year.

Well, we are definitely going to see a continued decrease relative to what we're expecting there we're not expecting that the.

North America decrease in off price is going to be all that different from the overall North America decrease so again, just the mix isn't going to change as much as we originally probably intended.

But we're going to continue down that journey.

Relative to inventory levels again, we're not giving you know detailed quantitative guidance, but.

Based on the work we've been able to do in managing our by better to what we think the new demand is for the back half of the year.

We don't think that will be creating as much excess in the back half through the year relative to fall winter 20 et cetera.

But obviously for springs from a 20 in the impact of the closures.

Late March and through April et cetera.

We'll have the probably the highest level of our inventory growth will be Q2 that Q3, we get a little bit better in Q4 would be better than that but at this point, that's probably about as much colors were going to be able to provide on that.

Okay. Thanks for taking the color.

No problem.

Your next question is from Matthew boss with Jpmorgan.

Great. Thanks, Patrick and maybe higher level, how do you how do you see the demand for athletic product and the overall health and wellness changing post crisis and any initiatives are actions that you're taking to put it to position the brand out of this on the backend.

Thanks for the question left there I think.

You know, it's an interesting time, well, we did well I think again and you know we currently see that in some of our digital.

Engagement then also sales.

No versus if we were able to switch from what had been originally a 360 degree campaign into a more of the manifesto approach and what we saw was actually an amazing response from our former athletes and our influencers joining us in that.

We've had over and over 60% of our over a roster help us drive engagement online through our various digital apps as well as our ecommerce which has been which has been phenomenal I think in terms of demand you know our strategy hasn't shifted and I said that in my script in terms of being full.

Focused on athletic performance I think what you're gonna see and this is our take on it.

Yeah, that's coming out of this is pandemic.

We believe that health and fitness.

It's going to continue, especially they know they that staying fit the aspect.

It's going to be incredibly important going forward, maybe more so than going into the crisis. So I think we're positioned really well be able to capitalize on that.

I think what we're we're excited about right now is the fact that we're making good progress with women digitally which has been an area that we've talked to you guys a lot about being an initiative.

So I believe that for us, we're going to be better position from a strategic perspective, I think the investments we've made to distort to digital is certainly going to help us.

Ultimately will also grounded and team sports and I think that as the the one area, where there's a little bit of an unknown right now in terms. So when this all that start up again, we've seen certainly some activations happening lately here with you have seen starting up last weekend and now a you know the abundance ligand, Germany study.

The kicked off again, a very shortly and there's also a lot of talk of course in a in our various leagues around you know what when when and how it's going to happen in North America, but ultimately I don't think anybody really knows yet exactly how that's going to two happened and there's a big question around back to school.

We're right in terms of over that.

I do believe that what's going to happen is that once we come on this is gonna be pent up demand I mean, this society love sports, that's not going to go away with a pandemic I do think we're we're really well position as the fact that were grounded in team sports, but we also manifest ourselves through making people better throughout.

Our mission and subsequently the penetration that we haven't training.

And in fitness is going to position us well coming out of this and with our new platform for it for E Commerce, and our new sites going live in about a month and a half they're certainly going to be able to tell better stories and that's one of the things that we have learned during this crisis is how to tell better stories and clearly the consumers is resonating because.

So we see that through the new the new consumers that was been able to get onto our various platforms.

So there's a there's a bit of unknown there in terms of the team sports aspect and the startup phase of that but the individual a desire to become more fit at the become better positions under armour, we believe really well for what comes next.

Great and then Dave maybe on a gross margin as we think about the first quarter components of mix discounting and foreign exchange, how best to think about the magnitude of discounting headwind. If we were to think about the second quarter versus the back half a year or even maybe just higher level, how how would you best instruct us to think.

About the headwinds first as Tailwinds on the gross margin line as the year progressing to the best that you can.

Yeah, I mean, I would definitely say that we believe the second quarter will be the most challenging quarter for us and that would be on a revenue front end and on a gross margin front as well you know, we're not providing detailed outlook between 20, but.

You know, we do expect significant Q2 through Q4 impacts from a very discounted marketplace across the globe. So although we anticipate continued benefits from higher DTC mix continued benefits from product costing improvements from all of the past and current supply chain initiatives.

However, we anticipate those benefits are going to be significantly outweighed by having to navigate a very promotional environment through the rest of the year, along with what we'd expected some rising inbound logistics costs. So unfortunately, you're going to we would expect to see some pretty significant gross margin.

Basis point decreases Q2 through Q4, because of the outweighed impact of the promotional environment.

Thanks for the how best of luck.

Thank you.

Your next question comes from the line of James So.

Yes.

Great. Thanks, so much I just want to follow up on the comment on a 325 billion operating expense benefit.

And it doesn't represent a year over year variation, but it's a change to the original 2020 annual operating plan I think if I remember the guidance.

Was for estimated to be flat as a percent of revenue and the revenue guys was down low single digit. So should we think about the 325 is sort of in addition.

To the three Ari downed plan that you had or how should we just think about a year over year change for US you know this year.

Yeah. Jay This is Dave you know I appreciate trying to understand the year over year change, but again, we're not providing quantitative outlook for 2020 at this time so.

What we're trying to identify here is that we are digging deep we are trying to make sure that we can pull out right amount you know to be able to preserve like cash flow for this year, but it is a balance you know we want to be careful here around not just how we drive through this pandemic, but how we come out of this.

And so could we go deeper than that you know do we have flexibility good deeper yes, we could.

But we want to be careful as far as protecting brand investments in other areas that we come out in the right way.

From a magnitude perspectives of the 325, the marketing and the restructuring savings are probably the larger portions.

And then some of the other pieces would incentive comp and us retail IDH temporary lay off those are pretty reasonable size benefits as well, but when you add it all up its all meaningful you know as we continue to drive through.

From a timing perspective, you know the restructuring and the marketing related initiatives. Those are mainly back half weighted so when you think about that 325 coming out of our original planned expenses, probably about two thirds of that 325 have come out more towards the back half of the year.

Got it and then maybe Patrick.

You hired Lisa Collier to be the new Chief product officer, He just talk about what.

The reason is worried that you what she brought to the table that you're excited about his sort of how you feel about the product team in general as we head into the back half year.

Yes, Hi, Jay Yes, we're excited about Lisa Lisa has of course bit Onboarding digitally which is which is an interesting exercise in itself, but the reason we felt that Lisa is going to be able to contribute further to the team.

A couple of different things I think first of all she has a wealth of experience and merchandising yeah. She started her career.

In merchandising.

And we think that she can add depth and dimension. There I also believe that you know she has had a great opportunity to to lead the cross functionally it not just at Levi's, but also later as a C. Older smaller companies. So she truly understands end to end and in our.

In our world of go to market today, that's that's incredibly important to ensure that we're we're driving through an understanding the process for men trend I also believe that in terms of the work that we've done over the past here with our or a new head of the sign a lease I will be able to.

To a complement the design aspect with this merchandising capability.

To drive the teams and elevate and elevate to both of those things for us. So I think she is a proven leader She's also got great global experience he understands the globe.

I think she's bell worse than transformation something that we're continuing to go through and so she has a seems a multi dimensional leader.

And I think.

She is also proven leader.

So we're set of course to see a previous CPL leave us, but I think that we will add a new Diane mentioned with lease that we're very excited about that.

Okay. Thank you so much.

Thanks Jay.

Your next question comes from the line that Paul Trussell with Deutsche Bank.

Thank you and good morning.

Well you mention yes. Thank you for taking my question you know you outlined earlier, how you are reducing.

Capex understandably so in this environment, maybe just talk a little bit bigger picture about how you're thinking about balancing strategic investments versus cash.

Preservation and also is there anything else that we need to be mindful of as it relates to your balance sheet.

Covenants in other kind of liquidity.

Actions. Thank you.

Sure as this call I'm, sorry caused Dave.

As we look to the Capex is one of the components for the capital preservation, we we felt that the reduction from the Onesixty down a 100 million for this year I was prudent and was well balanced to be able to protect the key investment areas. So you know weve.

Expected slower DTC expansion around the world, obviously with Cobot 19, so some of this store build than openings are pushing out.

We reduced wholesale fixtures in shop in shop, Capex, especially in North America.

We also do somewhere global headquarter office investments, what all those things are helping with lower depreciation as well, but we're definitely protecting the digital side relative to the new E com platform that we're launching.

Protecting the work, we're doing with CRM loyalty and also continued international support so.

You know within that revised 100 billion.

Almost 75% of it is aimed a solely a digital and international so I think we're protecting right areas relative to continued growth and strategic areas for us.

Relative to you know the overall liquidity management.

We really worked well together and with our partners.

Really from late March all the way through today.

And negotiating better payment terms with our non and where it vendors also negotiating better payment terms or inventory vendors working with our landlords as well.

The capex reductions we've talked about.

So a lot of great progress there.

We thought about relative to our credit facility, we closed 331, well within our covenants, but looking forward we knew there could be pressure in the future with all the unknowns that are out there. So we've been working with our bank group and negotiate an amendment to our facility where literally on the goal line as of today to close.

The the amendment will favorably modify the financial covenants all the way through the end of next year and you'll see the details of that when it comes out the K, which will probably come out a few days.

But we believe the revised covenants or give us a lot more so.

Sufficient liquidity to manage our business through the pandemic and when I say that were at the goal line I mean literally got a 11, Adam 11 of our syndicated bank consensus and as of this morning.

So we're in a good spot to be able to close probably tomorrow.

That's very helpful color I appreciate that.

Then as it relates to the business going forward, obviously, you're not giving guidance and visibility is quite low in general but just.

I'm curious if there is any detail or things that we should keep in mind as it relates to the various regions.

In terms of what maybe as for expectations and and M&A you know a pack Latin am as well as you know anything you can discuss from a segment standpoint.

In terms of product type as wireless we should.

Think about you know first half in second half views. Thank you.

Well again, we're not giving.

I was just going to say again, unfortunately, when they're going to be providing quantitative outlook for the rest of the year, but you know as we've said a pack is up and running fairly well, especially China and Korea, the countries outside of China, and Korea or little bit behind as far as reopening of stores.

But then in the North American Latin America are somewhat on similar trajectory is right now as far as planned to start reopening. Some if actually opened a few stores, we're continuing to kind of feel that out but Patrick I don't know if you wanted to give anymore color on that.

Yeah, I would say probably out of the EMEA and that and and North America picture I would say EMEA is probably a little bit just a tiny bit. Further ahead. We've started open we have started opening stores in EMEA last week.

And.

What's really interesting for us is that we've seen a similar trajectory and our E Commerce business in North America and EMEA. Both in terms of the performance of our wholesale accounts in the Gulf shipments.

We've been able to do with them as well as our own E commerce acceleration, both and it's not just the D. E. Commerce points also on our digital platforms. I'm you know map my run was one of the top three apps in the UK for several weeks running here at the at the end of April which we felt from was incredibly.

In closing for us so I think that what you're going to see as is very similar picture in Europe that you're seeing in the U.S. right now, where it's kind of a country by country play in terms of reopening.

And he had the use of course, it's going to very much the country by country play I think Latin America for US as the is the reason that's that's actually for this behind that they were also the last week into account to get into this thing were lagging a little bit.

In terms so in terms of segments.

I think I said, it a little bit before you know the whole personal cleaning.

Fitness, that's going on right now in terms of working out at home and we've certainly been able to drive that with a higher engagement and better content.

And new fresh product. So so we've been we've been doing very well there on online or in our own E Commerce and also into in the drop ship that we have with our wholesale customer so.

I will tell I think we're in very early stages of reopening both in EMEA in North America, and Ah if China's any indication it's going to be a gradual.

Held back in terms of consumer confidence.

Thank you best of luck.

Thanks, Bob.

And your final question comes from the lineup Erinn Murphy with Piper Sandler.

Great. Thanks for sneaking me and I guess, Patrick just for you on that last question do you think about reopening as your retail partners. Every opening have you started raising a shipping to any of them and then I guess the second question. It check in Asia Pac there's still a number of country that are under locked down I'm curious, if you're seeing and.

Current challenges in your supply chain. Thank you can match.

Hi, Eric first first one in terms of shifting yes, we have started to open up shipping again, there are all the customers are starting to ER to request product again, which we find it really encouraging and actually we have shipped a little bit due to the fact that we've been drop shipping so there's been some some additional.

Oh opportunity, even though we haven't chip it straight to a specific customer I think in terms of these disruptions in our supply chain in Asia and due to closures there it's been on and off saying, Yeah. You know we've had countries.

Closing down opening up and it's been a little bit challenging also because in some cases, you have certain countries actually having management.

Coming from China. So so you have you had this this interesting dynamic where the company might be open, but it's hard to get everything to function properly because we don't have necessarily the management in place as an example, so.

Right now we feel really good and I think part of that is because of the work that we've done over the last three years to really focus on on stronger partners. Those partners have been able to manage through this crisis.

We feel better and as a consequence, we haven't seen any real impact in terms of no major delays or as we think about the rest of the year, even though we had been shifting you know product around and it's been a little bit of a moving target.

And the law that has to do with the great work our supply chain is doing in terms of partnering with with our vendor base.

But it's it's going to continue to be I think a.

Challenging.

Situation, because a lot of those countries so still.

In in that so when those old.

Having some of the functionality and the infrastructure locked down.

And hopefully it doesn't get any worse and it gets better from here and if if that's the case then we're going to be done we're going to be absolutely. Okay. But of course. This pandemic is in or an unknown for for all of US right. So everybody's trying to work through it but I feel that were in control right now and and we feel good about the back half of the.

In terms of what we're seeing in terms of our ability to.

To make them.

Thank you.

Operator, Laos.

Yep.

Now, we'll conclude our prepared remarks, where our Q1 20 earnings call today I'll turn it back over an operator in real close out. Thank you.

Ladies and gentlemen, this does conclude today's conference call. Thank you for participating you may now disconnect.

Thank you.

[noise].

[music].

[music].

[music].

Ladies and gentlemen, thank you for standing by and welcome to the under armour Inc. first quarter earnings webcast and conference call.

At this time, all participants are in listen only mode.

After they speak your presentation, there will be a question and answer session to ask a question. During this session you would 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 will now at the hand, the copper get richer speaker today, Mr Lab allege that you're vice President of Investor Relations and corporate development. Thank you. Please go ahead Sir.

Thank you and good morning, everyone joining us for under armour first quarter 2020 earnings call you ever Mason being made available. They constitute forward looking statements reflect an Robert you that's correct.

2020.

Well its considerations for future events that man that's better for.

These statements are subject to risks and uncertainties the detail document regularly.

You see the Safe Harbor statement included in this mornings press release.

Which can be done at our website <unk> dot under armour Dot com.

It's important to note that at this time a global coated.

It continues to have significant material impact.

Yes.

Given an extremely high level of uncertainty about the duration and extended the virus is near long term in the global retail environment.

Content discussed on today's call could change materially anytime.

Accordingly, future results of operation could differ materially from historical practices and results or current description estimates and suggestion.

On today's call, we may reference non-GAAP financial information, including adjusted in currency neutral terms, what's your define that or at least the roles. In this mornings press release, you may also you're actually virtu amounts in accordance with U.S. GAAP reconciliations of GAAP to non-GAAP measures can be found the supplemental financial tables included in the press release, which identify.

I want, but all excluded items as well as providing management's view about why we believe this information that's useful to investors.

Joining us on today's call will be under armour, President and CEO Patrick for Us.

CFO, Dave Bergman.

The mine we are individually each different locations. This morning. So please bear with us as we work through this call and all you said it that's pretty glitches should they arise.

Following our prepared remarks, well open the call for questions with that I'll turn it over to Patrick.

Thanks, Ralph Good morning, everyone and thank you for joining elster movies on parallel times.

Let me discuss I'm dramas first quarter salt and the significant factors continue to impact our business.

Talk by underscoring, how incredibly proud I am of our company and our teammates.

Along with our retail customers in factory and under partners around the world. The extraordinary leadership humanity and collaboration that continues to transpire doing this global health and economic crisis is incredibly humbling and inspiring.

Specific to under armour I'd like to highlight a few covert 19 response efforts that exemplify our priorities and values and then just accelerating about we mobilized to focus on the most immediate needs of our local communities, including health care professionals and first responders within days of good endemic designation, we had we purposely innovation lab at all.

Headquarters to begin producing masks and gallons today, we're on track to produce a provide nearly 5 million face masks and 200000 gallons to Johns Hopkins and nearly 40 other health care organizations, including hospitals in senior care facilities on the fault lines of its flight.

We've also don't need around all the performance product numerous health care professionals in certain hard hit regions around the world that are fatigue to launch algae hours fighting this horrible virus in the U.S., we've deployed a talented teammates to provide logistics expertise and distribution center space the organization that needed to scale quickly store.

During that staging p. and medical supplies to meet demand for the respective fulfillment assets. We've also partner with PD America local food banks here in Baltimore, including a new delivering all done in shorts food and other critical items I didn't have it safely and timely door neighbor strike me what needs in this pilot crisis. These are just a few of the things we have.

Been involved with during this period all of this of course is a group after the close or Universal teammates Parkers nine communities. We are all in this together an undrawn that we'll continue to respond.

Turning to our business clearly this will be a considerably different earnings call and also the past and while we will review our first quarter results today's conversation will focus more specifically on this point in time updating you on the actions, we're taking to navigate the uncertainties that we're all consulting.

Yeah, so certain dates or what every company is currently facing with respect to durational the closures, how deep an economic crisis might persist how much agility, maybe needed for possible permanent changes in consumer behavior shopping preferences, and disposable incomes considerations and ultimately triangulating, what the future state operating environment might look.

Like.

Given that these variables among many others remain highly uncertain, an eco inclusive we cannot reasonably estimate the operational impact of that pandemic on our business. At this time, so we're not able to provide a financial outlook on todays call. We can't however share insights into the things that we are able to control in this respect but.

To provide some color on the strategic operational and financial actions, we're taking to adjust and manage our business. During this period.

First and foremost is our strategy we are centered in Atlantic performance and bring authenticity to the brand by delivering innovative product solutions and experiences that athletes didn't know they needed a once they have them can imagine living without there's no change to this purpose and now even more clearly as the world continues to persevere through these challenging.

Times health fitness and wellness or even more sound of stage in fact, the balance between physical and emotional well be there's real connection to our capacity to fight thrive and restore made extraordinary circumstances goals direct mail strengths from these very elements.

Well, many things all locked down inspiration wellness and fitness almost certainly not corn team.

So at the athletic performance World moves towards social distancing athletes made a term towards working out at home and the outdoors and in the process have activated more digitally than ever before.

By broadening the only way through brand platform that launched earlier this year into through this together manifesto, our digital social marketing teams worked quickly to activate our robust roster of athletes like key influencers.

For virtual social abouts, greater hold workouts and incredibly successful healthy at home fitness challenge Amsthree called down along with well orchestrated can you give backs, we've seen exceptional increases and usage within our digital lap business.

Factors mid March the record for the number of map my Ron Workouts long for a single day has been broken six times and new users are up 275%.

Well, let them as also continues to grow in our collective footwear business as well with year over year workouts up over 200% since mid March.

With respect to emerging shifting consumer behavior. This is a unique time to sharpen our digital knowledge by converting real time data and analytics to drive brand interesting consideration within our largest categories of training and Raleigh.

I'm dedicated in casual runners was habits have picked up significantly due to Jim closures to devoted fitness and team sport athletes, who are craving opportunities to stay active while the normal routine southern halted our engagement strategies are driving momentum into our digital channels. All positive factors that we believe are helping directly country.

Due to the improvements in ecommerce sales that we've seen since the end of March and although this is still a fairly small part of our business. This validates some of the pre cobot work coming together with recent strategic adjustments you drive Brad consideration.

From an operational perspective, and more specifically business continuity as the virus began to rapidly spread during the first quarter outside of China, which we had already close down we implemented teammates protocols following government recommendations to increase social disposing avoiding large gatherings.

On requiring your office space teammates around the world work remotely.

With our global supply chain over 19 continues to cost large impact and disruptions, although only or the meaningful shifts in demand.

Well, we're also seeing significant swings and supply due to factory closures over the past couple of years, we have made significant changes to our supply chain and how we plan developed source and distribute product.

These changes will certainly help us as we manage through these disruptions. Additionally, as we discussed previously we work to establish integrated strategic relationships with considerably fewer partners.

This has helped to accelerate our transition to digital sampling and virtual modeling, which is increasing product accuracy, helping to reduce lead times and in turn allows us to quickly evolve how we're selling product into our accounts and customers also because its digital we haven't missed a beat working remotely during this time.

Last year, we also stood up a new demand planning function that has allowed us to execute and leverage our go to market process much more efficiently within our operating model. This move has provided us with greater insight into demand and our ability to create product supply solutions to elements were leveraging tremendously during this time.

As an example of this work as the virus gained momentum in China, we recognize the potential impact on global markets and product supply and immediately pivoted our teams to redesign our product supply plants.

As a result, we quickly adjusted future plan buys to reduce potential impacts on our business.

Nick since the vast majority of old stores and wholesale locations remained close globally, we've shifted our distribution networks prioritization to E. Commerce. This along with our multiyear investments in our ERP system has provided us with the necessary flexibility that service increased digital demand.

Altogether the previous actions, we've taken out of the investments that we've made over the past few years or helping us to be more efficient during the state of suspended animation.

Speaking of which I'd like to take a minute to give some year to date color on the status of store closures around the world to provide better transparency into our current business starting in Asia Pacific, which as a reminder, was 12% of global revenue in 2019, both owned and partner doors began closing in China in late January.

I think largely close through early March one is slow progressive reopening process began.

By the end of March more than 80% of these locations I'd reopened and that's what today substantially all owned and wholesale locations in China have reopened.

That said traffic in these locations, while continuing to see progressive recovery in recent weeks continues to be down year over year.

Outside of China, and South Korea, which combined makes up about two thirds of revenue in APAC. The rest of the region has been effectively closed since mid March and the rest of our regions North America, EMEA and Latin America, the closing timeline with similar would substantially.

All of our own stores in wholesale parking locations shutting down the mid March which as of today is still the case.

And our global ecommerce business. Our sites are active and revenue has continued to show consistent strength at the start of the second quarter, including ecommerce sales, but I'm trying to back to year over year growth in North America anyway, with outpaced strengthened our women's business.

Although only had low double digit percentage of global revenue, we're encouraged by the emerging strength of our ecommerce business.

Wrapping all of US together means that since mid March about 80% of our global business has been out as fast.

As we look to close out the second quarter, we're continuing to assess the environment on the local basis and have begun opening a very small number of all doors. So still very early.

Particularly in this time, our brand DNA, which is based in Gritten tenacity, it's precisely the Northstar that will give us.

Power to go through this store and within this determination we will continue to drive through the next this third changes and now in an even more accelerated math to make the no regrets decisions necessary to serve our consumers customers and shareholders better over the long term.

Before handing it over to date to walk through some of the financials I'd like to close by acknowledging covert 19 has changed our lives an increase in other ways pandemic that has emphasized how the health and safety of our families friends and communities cannot be taken for granted over.

Over the past few months.

I've been inspired by countless examples of the resilience witnessing the courage lot of humidity of the human spirit led by our committed teammates an incredibly talented management team and a fiercely unique brand we are in control well prepared and positioned to stand strong through this yeah, we will do more than indoor I believe through.

All of this we will ultimately emerged stronger Dave.

Thank you Patrick.

In the first quarter through early March we were tracking well against our plan demonstrating that our strategies, we're delivering appropriately against our expectations.

The last two weeks of the quarter as the pandemic accelerated dramatically outside of China, and social dispensing and shelter in place mandates took place globally.

We experienced an unprecedented decline in consumer demand.

Actually North America.

For the quarter, our revenue was down 23% to 930 million.

It's important to note and then our February 11 earnings call. We stated that we expected that our revenue would be down 13% to 15% with about five points of the decline attributable to the China only cobot 19 impacts.

About five points due to significantly lower sales the off price channel.

And about three points due to service level improvements that allowed us to deliver more product in the fourth quarter last year.

However, as we closed out the first quarter, we ended up with even lower than originally anticipated off price sales and significant unforeseen impacts of coven 19 on our businesses outside of China.

Which together contributed to about 12 additional points in the first quarter decline.

All in for the quarter, we saw about 15 points of negative impact from Cobot 19.

Now taking a look at first quarter revenue by channel, we had a 28% decline in sales to our wholesale customers driven predominantly by our North American business.

A 14% decline in direct to consumer revenue also driven primarily by our North American business.

And an 8% decline in licensing.

By product type apparel revenue was down 23%.

There was down 28% and accessories was down 17%.

From a regional and segment perspective.

First quarter revenue in North America was down 28% with nearly half of that declined due to door closures associated with cobot 19 in the last few weeks of March.

Coupled with nearly a quarter of the drop being attributable to lower year over year sales to the off price Chow.

In EMEA revenue was up 3% driven by timing shift than our wholesale business offset by about 10 points of negative impact from coded 19th.

In addition to reduced sales to the off price Chow.

Revenue in Asia Pacific was down 34%.

Due to our owned and partner doors being substantially close for the majority of the quarter, resulting in about 50 points of negative impact from Cobot 19.

In Latin America revenue was up 8%.

Growth in wholesale and offset by about seven points of negative impact from cobot 19.

And finally, our connected fitness business was up 9% driven by continued subscription momentum.

That's going to channel mix, including lower your view yourself, Yeah price channel and increase D.P.C. mix.

And 20 basis points of product next to the lower footwear sales, which carry a lower gross margin rate.

This was partially offset by about 200 basis points of covert 19 related pricing and discounting impacts.

And 30 basis points related to changes in foreign currency.

S. G.N.A. expense was up eight per cent 553 million.

And by higher legal expenses.

In addition to increase marketing investments to support the only way through brand platform that launched in January.

I'd like to provide details on the restructuring and impairment charges line item within our income statements.

Which captures both charges associated with our 2020 restructuring plan.

As well as the recognition of non restructuring related impairments long lived assets and goodwill.

First I'll start with our 2020 restructuring plan.

As detailed on April 3rd we're expecting to encourage total estimated pretax restructuring and related charges in the range of 475 to 525 million, primarily this year consisting of approximately 175 million of cash related restructuring charges.

And 350 million of noncash charges.

In the first quarter, we realize 301 million of restructuring related impairment charges within our 2020 plan.

<unk> 298 million and non cash and 3 million and cash related charges.

Nearly all of these two one charges relating to a New York City flagship store.

The second component is non restructuring related impairments for long lived assets and goodwill.

Do the negative effects of coven 19 on our business, we perform an interim analysis for long live assets and goodwill as of March 31st 2020.

Using undiscounted Castillo analyses for our global retail fleet owned stores, we determined that some of these long lived assets had met carrying values that exceeded their estimated on this kind of feature cash flows.

Accordingly, we recognize 84 million of impairment charge is in the corner.

Additionally, we also performed interim goodwill impairment analyses for each of our reporting segments.

Following this review we determined that the estimated fair value or Latin American reporting segment.

And they portion of our North American reporting segment related to our Canadian business.

No longer exceeded their carrying values.

This resulted in the 51 million impairment of goodwill.

All of this translates to a recorded first quarter operating loss of 558 million.

For my tax perspective, we recorded 21 million attacks expense, primarily driven by evaluation allowances recorded on certain U.S. and China deferred tax assets.

Offset by five year net operating loss carry back benefits provided under the recent cares Act.

After tax we therefore, recognizing net lost a 590 million or one dollar in 30 cents of diluted loss per share.

Excluding restructuring impairment charges are first quarter adjusted operating loss was 122 million.

And the just the net loss was 152 million.

34 sense of adjusted the within loss per share.

With respect to our 2020 outlook high level of uncertainty related to an inability to determine the duration and scope of the cobin 19 pandemic and its economic ramifications.

Means that we cannot reasonably estimate impacts are full year at this time.

We do however expect these conditions to have a significant adverse impact on for your financial and operating results.

Now moving on to some high level color on our second quarter.

Approximately 80% of our global business, having been closed since April 1st.

We currently anticipate that revenue could be down as much as 50% to 60% in our second quarter.

Although we do anticipate that our business will gradually we open in the coming weeks and months, we believe that will be a number of challenges ahead for us and a greater global retail space.

Including a slow and progressive returning normalization.

Highly promotional environment and significant uncertainty in brick and mortar traffic and conversion that's consumers return to stores.

Earlier in the call with detail the strategic and operational elements.

What we're focused on to manage our business during this crisis.

It's around that out I'd like to discuss the financial part of these efforts.

As we further manage our costs space, we are targeting reduction of our originally planned 2020 operating expenses.

Proximately 325 million.

Which includes the operating expense benefits from the 40 to 60 million of expected pre tax restructuring plan savings.

Outside of the expected savings from restructuring efforts I'd like to touch on the other larger expense productions.

Relative to marketing.

Limited visibility into the larger impact the virus on consumer demand and behavior.

Dusing certain marketing efforts during this interim period and focusing funds predominantly on digital activation.

In mid April we temporarily laid off teammates and R.U.S. retail stores and distribution centers.

We are reducing incentive compensation for the year.

We also tightening are hiring contract services travel and other discretionary variable costs.

And we're reducing plan capital expenditures, which contributes to reduced appreciation.

As a reminder, this targeted 325 million and operating expense benefit not represent a year over year variation, but again is rather I changed to our original 2020 annual operating plan.

Next.

Interactions to prioritize liquidity cash preservation and inventory management.

Enhance our ability to navigate potential short and mid term challenges and password needs.

Within cash in cash equivalent we ended the first core with 959 million of which approximately 600 million was related to borrowings under a revolving credit facility.

In early April we borrowed an additional 100 million.

Now have 700 million outstanding under this facility.

Additionally, we've negotiated an amendment to our credit facility that is on track to close tomorrow.

Given the ongoing disruption throughout our industry. We expect this and then we'll provide us with improved access the liquidity going forward.

Quarter and inventory was up seven per cent to 940 million.

Moving forward and anticipation of significant changes in future demand there proactively reducing planned inventory receipts to continue to manage this asset as efficiently as possible given expected compound and global factors.

We have also been prudently balancing the negotiation of extended payment terms with our customers and our vendors to mitigate risks.

We're also working with retail at least partners to differ or bait applicable rent during store closure periods.

The differ with certain investments are planned capital expenditures are now expected to be approximately 100 million.

Compared to our previous expectation of approximately 160 million and 2020.

When more favorable business conditions materialize.

Would expect to resume many of these investments, but adjustments based on new considerations as warranted.

With all these measures we believe that we will be in a solid position to manage our business throughout this pandemic.

Would that I'll turn it back to the operator for your questions.

I do want to reiterate that we are unfortunately, unfortunately, not in a position to provide additional quantitative detail on our outlook for 2020.

Operator.

This time, if you like to ask the question Prestart one on your telephone keypad again that a style wind for any questions.

Yeah first question from Matt Mcclintock, what's your name in games.

Hi, I guess good morning, everyone.

I guess high level, Patrick could you maybe you could be your thoughts about launching new product into this type of environment.

Nearly there's an inventory overhang that needs to be work through not only yourself, but through through your competitors as we tell general, but but how how should we think about crush new product and your merchandising planes going forward given this environment. Thanks.

Hi, Matt we we will continue to release, the new product why the things that we would that we didn't talk specifically about and like in in the script here was Oh well for example, a windows business is doing right now and and that's attributable to new product I think the.

The balance of or thinking through the employees, you'll come out of especially Q2 with and and how you're thinking about the introductions that you're currently planning to do in in the back half of this year and I would say, even leading into already 2021 is going to be exactly just that a balance.

You gotta needs to work through through rebalancing the remainder of the year. The current inventory levels as well as of course wanting to give freshness onto the floor. We're intending to continue to give freshness in every category would we compete.

I think the amount of freshness that you might be looking at as it relates to spring 2021, it's something we're still working through but in terms of the back half of this year will still have fresh us on the floor, especially if you think about categories like full where you know and running a.

Well us in our training category there'll be there'll be a lot of freshness, there I think or you know having said that we we are actually.

Terms of inventories coming out of Q1 with only 7% of inventory I think that as at the lower end of what the market as seen so far and and of course will have them in towards building into to us as 80% of our stores around the world are still close but ultimately because we came in with with with them well now.

There's been them toward position, we think that we're going to be able to rebalance the rest of although over the year and continued to provide freshness into the marketplace to we need to incentivize the customers to come in and buy new stuff for short.

Thanks for that it just sounds like quick follow up just the off price channel you spent several years cleaning up that that that channel on reducing sales into that channel. This. This this this environment just push push back another year in terms of your plans are bought her plans to trying to get on your channel next correcting it how how should we think about the off price channel.

In general automatically go into the Bakopoulos you. Thank you.

You know, we we definitely are continuing down the road of trying to work kind of back off of that channel I think it impacts of covert 19 are going to make that a little bit harder to take it as far as we wanted to take it obviously in 2020, but we will continue to step off of that we're not expecting to to.

Our next question is from the line of Edward Rumo with Keybanc capital markets.

Hey, good morning, and I hope that you and your teams are staying healthy at this time I guess just a a broader question. Historically, you don't really participate a lot and markdown support but I guess given the environment. What are your initial conversations with your retail partners like do you think that youre going to have to help them clear existing inventory that behalf.

Given the channel.

And would you consider taking back inventory. Thank you.

Hi, This is Patrick.

It's an interesting time and.

We or.

Dealing with reopening our home stores of course them and we're trying to do our very best to be good partners to our big wholesale accounts out there that are also trying to reopen their doors and I think in general you are seeing a balance between the inventory that's already in the channel and then future demand.

One of the things, though that I called out in my script as the work that we've been doing under armour, specifically on building up a very strong demand planning function functionality over the last 18 months.

We think that we've been benefited from that as we think about the back half of this year and also going into 2021, working with our accounts and with our own internal growth consumer teams to ensure we're trying to balance.

How much we take back versus how much more reorder and how people are going to be able to to reopen again, but again.

We're about two months into what could be.

Of course, a longer a slower trajectory here in opening and also in terms of their consumer coming back were little bit advantage. We field because we are global brands. So we've had the opportunity of seeing what's happened in China and.

The good news is I guess that consumer is coming back I think the best is is that it's taken a little longer than we would wish and I think this this whole balance between future demand and current inventory levels.

And how that plays out is something that we're working on day to day in day out, but we're trying to be good partners here, because ultimately we need everybody to to win and.

We do business with and we're where we feel our burn a.

We're not we're in a situation right now where we have control of the situation in terms of understanding all of those components. The next.

Three quarters are going to be about re balancing all of that before we turn into 2021. So there's a lot of work ahead of us, but we feel that we have a pretty good handle on things at this point.

Thank you.

Your next question is front line of Sandra losses with Goldman Sachs.

Good morning, Thanks roller commentary this morning, and thank you for taking my questions here.

So my first questions around E Commerce, I Wonder if you could talk us through a little bit more detail the cadence and skill E commerce growth.

Through the first quarter and into the second quarter.

Did you see immediate acceleration in E commerce as those stores closed in North America or was there a little bit of a like that.

Yes, I think that.

As we saw the stores closed down in North America in you mean in.

In mid March there was probably a little bit of a delayed reaction before consumers really realize what they needed and how they're going to have to get it from E com and so the real ramp up for us on E com, especially in North American and M&A was coming in.

As we started to kick into April and we've seen in all the way through April one into May So we're really excited about that.

We're not quantifying that right now but.

Definitely very favorable trends there.

Especially on the women side too from a product perspective, which were excited to see as well.

Fantastic.

Then to follow up questions on the same team in one any comment on E commerce trends within China, and how that's performing and then to any comment on how E. Commerce is performing at key wholesale partners. Thank you.

Yes, I mean ecommerce in China continues to do pretty well for us I would say the more dramatic increases in April has been in EMEA in North America, which we're really excited to see.

But APAC is doing well also.

And from a wholesale perspective that has been a nice.

Benefit as well that a lot of our larger wholesale partners that have pretty good econ sites have been driving good business as well. So we've been doing more kind of our drop ship revenue supplying them to be able to fuel their E com side. So.

Thats been going pretty well also mainly in April and into May here.

Thank you I appreciate the answers and all of us.

Thank you Alex.

Your next question is from the line afternoon awareness with Citigroup.

Hey, Paul Leisure Sydney.

Im curious what you're hearing from your larger retail partners just in terms of have their planning the back half of 20 even into 21.

Also curious if you could remind us a frame for us, perhaps who your largest retail retail partners or what percentage of sales they make up and I guess along similar lines what percent of your retail partners are smaller in size, maybe what might be described as mom and pops versus the larger more well cap.

The large retailers thanks.

Yeah, maybe I'll start off your Dave and just talk a little bit about how we're thinking about.

The back half an early next year in terms of.

The business that we're doing with our retailers I think.

As I said before.

2020 is going to be a year of rebalancing and not just for US I think our larger retail partners as well as a smaller retail partners under this is both goes for.

North America, as well as Europe or in the same situation that we're and they're trying to figure out how fast they can open and how fast the consumers going to come back and again, we've had the advantage of which certainly share this with our partners what we've seen happening in China in terms of the.

The return of the consumer and holiday or.

Thinking about shopping at this point in time and and for the for the very few.

Stores that have been opened in the.

And the U.S. with some of our retail partners you certainly see a similar pattern in the U.S.

I think over the next two three weeks as you get into the back half of May that would give us a better indication of the appetite of and the speed of recovery that say in terms of of traffic and conversion into you us.

But I do but I do think that again.

It is there's so much uncertainty and in terms of the the timing and trajectory of overturn that I would say that.

We think about it in terms of rebalancing as you think about the back half of the year.

Because you have inventory.

In different places and you had the unknown of the speed of ability to reopen and see the recovery in terms of the consumer coming back shopping and the.

Type of behavior that will show during that shopping coming back in terms of conversion. Another thing so lot of variables. There in terms of how we're how we're looking at modeling your back half of the year on Dave I don't know if you want to give any anymore color there on on any of the financials.

Yeah, Paul we don't normally disclose the names of our wholesale partners, but I will say that we're monitoring all of our medium to larger ones and pretty expensive basis around the world. We had we have good long standing relationships with most of them.

And in General you know a lot of them are hanging in there fairly well and we're continuing to.

Kind of works through when they're opening their doors and what that means or business in the future right now, we don't see any significant medium or larger sized customers.

That are having any larger than average challenges based on what everybody is dealing with kobin 19, but we're continuing to monitor that.

And we'll work with them going forward.

Yes, I would say in over the next 24 to 36 months will be I think what you could perhaps color, forcing mechanism for many retailers, especially in the us were.

We're still a lot of stores and there's still a lot of square footage. So there is certainly going to be winners and losers in this in this environment going forward.

And I think thats not just in our sector I think that's in general in retail and there will also be of course as everybody is predicting right now a distortion to digital.

Thanks, and just to follow Dave on the smaller shops size, just what percent, perhaps if you could share.

As is coming from you on a single shopper maybe couple shop.

Sort of change out there if you could share that.

We don't normally give exact percentages on that but I would say it is a smaller portion of our business. The lions share of our dollars are going to be the medium partners in a larger partners.

One thing that I was going to mention too that I think plays going a little bit through our distribution is.

We are seeing that that those stores that are opening more stores that are in opening or freestanding locations are seeming to do fairly.

A little bit better as far as returning traffic than some of those that are maybe in malls and we don't have a lot of small business. So there is a little bit of a advantage. There that we were seeing so far as well as store start to open.

Great. Thanks, guys. Good luck.

Thanks, Paul.

Your next question is from the lineup Bob true.

With Guggenheim.

Hi, good morning.

Just a couple of questions on the SGN a opportunities in terms of demand creation or endorsement contraction that sort of thing or are there clauses that you can sort of pulled back on payments required some of your athletes and I guess as this also wondering on the inventory side.

Can you talk a little more just like how far out you made adjustments to the receipts exactly what you've been successful sort of canceling are delaying just maybe a little bit more color on sort of how you are adapting to sort of the factory situation. Thanks.

Yeah. This is Bob this is Dave a couple of things you know relative to sports marketing contracts and endorsements.

We've got pretty good relationships a lot of those assets, obviously and we have been moving kind of our non inventory.

Vendors and relationships out a little bit further and payment terms.

And then sports marketing contracts are part of that so we've been negotiating working with them and we've been able to.

Gets an extended payment terms, there which are helpful. Just in general with our overall capital preservation efforts.

Relative to inventory.

We were able to jump in pretty quickly and start to reassess demand and be able to adjust our buys in our strategy there with production.

For the back half a year so lot of the the fall winter 20 product, we've been able to get ahead of that pretty well wasn't as easy to adjust some of this spring summer 20, because a lot of that was already in production or inbound intuitive Patrick's point, we expect.

Higher inventory level as we round out Q2 with the store closures and knowing on that spring Summer 20 products is still in now, but we've been able to effect than a just a lot of our fall winter 20 back half.

Inbound, which is really helpful relative to.

The capital preservation efforts.

I think it's important to note here to that.

As you think about what's happening to the Fontainebleau dismiss it's also really important recognize what's going on the back.

In the back end so to speak in terms of our vendor partners. We've done a lot of work as we kept you guys informed about over the last three years to really.

Work with with when we feel would be considered better parkers stronger partners.

It's incredibly important to US also of course at these Porter survive and there's a lot of hardship in the into vendor base right now as there is all this fluctuation and and the kind of distress.

As people counseling kind of mid way through and stuff like that so we're being very thoughtful about how this also plays into 2021, so not only rebalancing the back half of 2020 in terms of full demand, but also thinking ahead to 2021 demand and making sure that we're trying to hedge.

Hope our vendors as much as we can also to level load and do other things because ultimately.

We want to make sure we come out of this with a strong vendor base able to accelerate as we go into 21 and beyond so there's a lot of lot of work happening there where data is working on it from the financial perspective, and that kind of the Frontend and we're also.

Working hard in the back end, making sure that we're keeping our vendor base alive.

Thank you very much.

Yes.

Your next question is from the line of Michael Binetti with Credit Suisse.

Hey, guys. Good morning, Thanks for taking my questions here.

Just.

Modeling question or two here can I ask you said I think you set off price lower off price sales a 300.

330 basis point lift to gross margin in coated was about a 200 basis point drag.

Around those zones I think your previously guiding for the total gross margins for the quarter to be up 120 to 140 was there. Some other larger headwind you were initially thinking about before we knew about corona that didnt happen in the quarter any anything on that the trend there.

Michael This is Dave the off price came in a little bit less even than we originally expected.

But then that was offset by the code 19 related pricing in discounting. So there was a little bit of an offset going on there.

But the cobot impact on pricing in discounting is generally what brought it down more relative to our original expectation.

Okay.

And then I think that.

David I think you said I want to ask why you comment that off price in North America will be above plan above your initial plan. Obviously before you have pandemic now, but but not not to revenue growth rate. This year won't be bigger in revenue dollars than 2019 still is that fair. That's what you said right isn't guardrail and then.

I know you told me about inventory, maybe you could just speak through where we'll see that inventory clearing will be in wholesale channel or what skew more to your factory doors and your website.

Yes, Michael let me clear up a few things relative to the off price channel, we are going to see that being significantly down year over year.

But what I was trying to get at is as a mix of business because we know our overall business will be down year over year. The mix of business, we're not going to make as much progress as far as reducing the off price channel with a mix of business. This year.

But we are definitely when you see a continued decrease relative to what we're expecting there we're not expecting that the.

North America decrease in off price is going to be all that different from the overall North America decrease so again, just the mix isn't going to change as much as we originally probably intended.

But we're going to continue down that journey.

Relative to inventory levels again, we're not giving you know detailed quantitative guidance, but.

Based on the work we've been able to do in managing our by better to what we think the new demand is for the back half of the year.

We don't think that will be creating as much excess in the back half of the year relative to fall winter 20 et cetera.

But obviously for springs from a 20 in the impact of the closures.

Late March improve April et cetera.

We will have a probably the highest level of our inventory growth will be Q2 that Q3, we get a little bit better Q4 would be better than that but at this point, that's probably about as much colors were going to be able to provide on that.

Okay. Thanks for taking the color.

No problem.

Your next question is from Matthew boss with Jpmorgan.

Great. Thanks, Patrick and maybe higher level, how do you how do you see the demand for athletic product and the overall health and wellness changing post crisis and any initiatives are actions that you're taking to position to position the brand out of this on the backend.

Thanks for the question left there I think.

You know, it's an interesting time.

Well, we did well I think again and you know we currently see that in some of our digital.

Engagement and also sales.

Numbers is if we were able to switch from what had been originally a 360 degree campaign into a more of the manifesto approach and what we saw was actually an amazing response from our from our athletes and our influencers joining us in that.

We've had over and over 60% of our over a roster help us drive engagement online through our various digital apps as well as our ecommerce which has been which has been phenomenal I think in terms of demand.

Our strategy hasn't shifted and I said that in my script in terms of being focused on athletic performance I think what you're going to see this is our take on it.

That coming out of this is pandemic.

We believe that health and fitness.

It's going to continue, especially the although the staying fit the aspect.

It's going to be incredibly important going forward, maybe more so than going into the crisis. So I think we're positioned really well to be able to capitalize on that.

I think what we're we're excited about right now is the fact that we're making good progress with women digitally which has been an area that we've talked to you guys lot about being an initiative.

So I believe that for us, we're going to be better position from a strategic perspective, I think the investments we've made to distort the digital is certainly going to help us.

Ultimately will also grounded in team sports and I think that as the the one area, where there's a little bit of an unknown right now in terms. So when this all that start up again, we've seen certainly some activations happening lately here with you have seen starting up last weekend and now you know the abundance ligand, Germany study.

The kicked off again, a very shortly and and there's also a lot of talk of course and in our various leaks around.

Then when and how it's going to happen in North America, but ultimately I don't think anybody really knows yet exactly how that's going to two happen and there's a big question around back to school, we're right in terms of that but I do believe that what's going to happen. If I wanted to come on this there's got to be pent up demand I mean, this society labs.

Sports, that's not going to go away with a pandemic I do think we're we're really well position as the fact that was grounded in team sports, but we also manifest ourselves through making people better through our mission and subsequently.

The penetration that we haven't training.

And in fitness is going to position us well coming out of this and with our new platform for it for E Commerce, and our new sites going live in about a month and a half they're certainly going to be able to tell better stories and that's one of the things that we have learned during this crisis is how to tell better stories and clearly the consumers is resonating because.

So we see that through the new the new consumers that would enable to get onto our various platforms.

So there is there's a bit of unknown there in terms of the team sports aspect on the startup phase on that but the individual.

Desire to become more fit at the become better.

Positions under armour, we believe really well for what comes next.

Great and then Dave maybe on a gross margin as we think about the first quarter components of mix discounting and foreign exchange, how best to think about the magnitude of discounting headwind. If we were to think about the second quarter versus the back half a year or even maybe just higher level, how how would you best instruct us to think about.

The headwinds versus Tailwinds on the gross margin line as the year progressing to the best that you can.

Yeah, I mean I would definitely.

Say that we believe the second quarter will be the most challenging quarter for us and that would be on a revenue front and on a gross margin front as well.

We're not providing detailed outlook for 2020, but we do expect significant Q2 through Q4 impacts from a very discounted marketplace across the globe.

So although we anticipate continued benefits from higher DTC mix continued benefits from product costing improvements from all of the past and current supply chain initiatives. However, we anticipate those benefits are going to be significantly outweighed by having to navigate a very promotional environment through the rest of the year.

Along with what we would expect in some rising inbound logistics costs. So unfortunately, you're going to we would expect to see some pretty significant gross margin.

Basis point decreases Q2 through Q4, because of the outweighed impact of the promotional environment.

Thanks for the help best of luck.

Thank you.

Your next question comes from the line of Jay So yes.

Great. Thanks, so much I just want to follow up on the comment on a 325 million operating expense benefit.

And it doesn't represent a year over year variation, but it's a change to the original 2020 annual operating plan I think if I remember the guidance.

Was for estimated to be flat as a percent of revenue and the revenue guys was down low single digit. So should we think about the 325 is sort of in addition.

To the three Ari down plan that you had or how should we just thinking about a year over year change for US you know this year.

Yeah. Jay This is Dave you know I appreciate trying to understand the year over year change, but again, we're not providing a quantitative outlook for 2020 at this time so.

What we're trying to identify here is that we are digging deep we are trying to make sure that we can pull out right amount its be able to preserve right cash flow for this year, but it is a balance you know we want to be careful here around not just how we drive through this pandemic, but how we come out of this.

And so could we go deeper than that do we have flexibility go deeper yes, we could.

But we want to be careful as far as protecting brand investments in other areas that we come out in the right way.

From a magnitude perspectives of the 325, the marketing and the restructuring savings are probably the larger portion.

And then some of the other pieces with incentive comp in us retail IDH temporary lay off those are pretty reasonable size benefits as well.

But when you add it all up its all meaningful you know as we continue to drive through.

From a timing perspective, you know the restructuring and the marketing related initiatives. Those are mainly back half weighted so when you think about that 325 coming out of our original planned expenses by about two thirds of that 325 have come out more towards the back half of the year.

Got it and then maybe Patrick.

You hired Lisa Collier to be the new Chief product officer, He just talk about.

Well the reasons, where that you what she brought to the table that you're excited about sort of how you feel about the product team in general as we head into the back half year.

Yes, Hi, Jay Yes, we're excited about lease our Lisa has of course, the on boarding digitally which is which is an interesting exercise and itself, but the reason we felt that Lisa is going to be able to contribute further to the team.

A couple of different things I think first of all she has a wealth of experience in merchandising yeah. She started her career.

In merchandising.

And we think that she can add depth and dimension. There I also believe that you know she has had a great opportunity to to lead the cross functionally it not just at Levi's, but also later as a CEO with smaller companies. So she truly understands end to end.

And in our in our World of go to market today, that's that's incredibly important to ensure that we're we're driving through an understanding the process from end to end I also believe that in terms of.

The work that we've done over the past year with our or a new head of the sign a lease I will be able to.

Complement the design aspect with this merchandising capability.

To drive the teams.

Elevate and elevate both of those things for us. So I think she is a proven leader. She's also got great global experience. He understands the globe I think she is better worse than transformation something that we're continuing to go through so she has a seems a multi dimensional leader.

And I think.

She is also proven leader.

So we're set of course to see our previous CPL leave us, but I think that we will add a new Diane mentioned with lease that we're very excited about that.

Okay. Thank you so much.

Thanks Jay.

Your next question comes from the line of Paul Trussell, What's your Deutsche Bank.

Thank you and good morning.

Well you mentioned, yes. Thank you for taking my question you know you outlined earlier, how you are reducing.

Capex understandably so in this environment, maybe just talk a little bit bigger picture about how you're thinking about balancing strategic investments versus cash.

Preservation and also is there anything else that we need to be mindful of as it relates to your balance sheet.

Covenants and other kind of liquidity.

Actions. Thank you.

Sure as this call I'm sorry caused date.

As we look to the Capex was one of the components for the capital preservation, we we felt that the reduction from the 160 down a 100 million for this year I was prudent and was well balanced to be able to protect the key investment areas. So we.

Weve.

Expected slower DTC expansion around the world, obviously with Coca 19, so some of the store build than openings are pushing out.

We reduced wholesale fixtures in shop in shop, Capex, especially in North America.

We also will do something like global headquarter office investments.

All those things are helping with lower depreciation as well.

But we're definitely protecting the digital side relative to the new E com platform that we're launching.

Protecting the work, we're doing with CRM loyalty.

And also continue to international support so.

Within that revised 100 million.

Almost 75% of it is aimed are solely a digital and international so I think we're protecting right areas relative to continued growth and strategic areas for us.

Relative to.

The overall liquidity management.

We really worked well together and with our partners.

Really from late March all the way through today.

And negotiating better payment terms with our non an important vendors also negotiating better payment terms, our inventory vendors working with our landlords as well on the Capex reductions we've talked about so a lot of great progress there and as we thought about relative to our credit facility we.

Closed 331, well within our covenants, but looking forward, we knew there could be pressure in the future with all the unknown that are out there. So we've been working with our bank group in negotiating amendment to our facility. We're literally on the goal line as of today to close.

The the amendment will favorably modify the financial covenants all the way through the end of next year and you'll see the details of that when it comes out the K, which will probably come out a few days.

But we believe the revised comes in so give us a lot more so.

Efficient liquidity to manage our business through the pandemic and when I say that were at the gold line I mean, literally got 11 out of 11 of our syndicated bank consensus and as of this morning.

So we're in a good spot to be able to close probably tomorrow.

That's very helpful color I appreciate that.

Then as it relates to.

The business going forward, obviously, you're not giving guidance and visibility is quite low in general but just.

Curious if there is any detail or things that we should keep in mind.

As it relates to the various regions.

In terms of what maybe as for expectations in in M&A.

You know a pack Latin am as well as you know anything you can discuss from a segment standpoint.

In terms of product type as well as we should.

Think about first half in second half views. Thank you.

Well again, we're not giving.

I was just going to say again unfortunately.

Going to be providing quantitative outlook for the rest of the year, but as we've said a pack is up and running fairly well, especially China and Korea or the countries outside of China, and Korea or little bit behind as far as reopening of stores.

But then in the North American Latin America are somewhat on similar trajectory is right now as far as planned to start reopening sum up actually opened a few stores, we're continuing to kind of feel that out but Patrick I don't know if you wanted to give any more color on that.

Yeah, I would say probably out of the EMEA Lat am and and North America picture I would say EMEA is probably a little bit just a tiny bit. Further ahead. We've started opened we started opening stores in EMEA last week.

And.

What's really interesting for us is that we've seen a similar trajectory and our E Commerce business in North America and EMEA. Both in terms of the performance of our wholesale accounts in the drop shipments.

We've been able to do with them as well as our own E commerce acceleration, both and it's not just the D E Commerce points also on our digital platforms.

You know map my run was one of the top three apps in the UK for several weeks running here at the at the end of April which we fought from was.

Incredibly encouraging for us so I think there, but you're going to see as is very similar picture in Europe that you're seeing in the U.S. right now, where it's kind of a country by country play in terms of reopening.

And he had to use of course, it's going to very much be a country by country play I think Latin America for US is the reason that's that's actually put us behind they were also the last these into account to get into this thing there are lagging a little bit.