Q1 2020 Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the under armour.

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 hand, the conference over to your speaker today, Mr and that 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 armour 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, as well as 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 the FCC and the Safe Harbor statement included in this mornings press release.

Which can be found on our website <unk> dot under armour Dot com.

It's important to note that at this time the global coded pandemic has had and continues to have a significant material impact and 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 todays call could change materially anytime.

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

On today's call, we may reference non-GAAP financial information, including adjusted and currency neutral terms, which are defined under FCC rules. In this mornings press release, you May also hear us refer to amounts in accordance with U.S. GAAP reconciliations of GAAP to non-GAAP measures can be found in the supplemental financial tables included in the press release, which identify.

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 are individually each in 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.

Following our prepared remarks, we'll open the call for questions and 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 under Armours first quarter results into significant factors continuing to impact our business.

By underscoring how incredibly proud I am of our company and our teammates.

And with our retail customers and factory and vendor partners around the world. The extraordinary leadership humanity and collaboration that continues to transpired. During this global health and economic crisis is incredibly humbling and inspiring.

Specific to under armour I'd like to highlight a few coded 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 health care professionals and first responders within days of the pandemic designation, we had re purpose the innovation lab at our.

Headquarters 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 buyers in the U.S., we've deployed a talented teammates to provide logistics expertise and distribution center space to organizations that needed to scale quickly store.

Bring us 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. Another 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 a universal 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 an 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.

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 didn't 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.

Times health fitness and wellness or even more center stage in fact, the balance between physical and emotional welby and the visceral connection to our capacity to fight thrive and restore the made extraordinary circumstances girls directly on 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 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 as through brand platform that launched earlier this year into through this together manifesto, our digital social and marketing teams worked 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 AD business. In fact since mid March the record for the number of math my around workouts log for sale.

Good day has been broken six times and new users are up 275%.

Momentum. This also continues 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 the 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 had already close down we implemented teammates protocols totaling government recommendations to increase social distancing, avoiding large gatherings and requiring our office space teammates around.

On the world to work for mostly.

Within our global supply chain Cobot, 19 continues to cost large impacts and disruptions, although 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 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 was 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 immediately pivoted our teams to redefine our product supply plants.

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

Next 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 has reopened and ESL 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.

All of our own stores in 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 at low double digit percentage of global revenue, we're encouraged by the emerging strength of our ecommerce business.

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

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 is precisely the north star that will give us.

Power to go through this storm and within this determination, we will continue to drive through the necessary third 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 love ingenuity of the human spirit led by our committed teammates and incredibly talented management team and a fiercely unique brand we are in control well prepared and positioned to stand strong through this yet 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 distancing shelter in place mandates took place globally.

We experienced an unprecedented decline in 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 11th 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.

In 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 Kobin 19 on our businesses outside of China.

Which together contributed to about 12 additional points to 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 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 channel.

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

In Latin America revenue was up 8% driven by 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.

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 increased 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 coated 19 related pricing and discounting impacts.

30 basis points related to changes in foreign currency.

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

In addition to increase 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 to 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 million 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 of 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 to our Latin American reporting segment.

And a portion of our North American employee 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 recognize a net loss of 590 million or $1.30 cents of diluted loss per share.

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

And adjusted net loss was 152 million.

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 condition 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 are 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 in 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 in 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 on our actions 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 with 959 million of which approximately 600 million was related to borrowings under our revolving credit facility.

In early April we borrowed an additional 100 million and 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 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.

Our 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 that adjustments based on new consideration as warranted.

With all 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're unfortunate unfortunately, not in a position to provide additional quantitative detail on our outlook for 2020.

Operator.

This time, if you like to ask a question press star one on your telephone keypad again, navistar wine for any questions.

Your first question comes from 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 is 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.

Hi, Matt.

We will continue to release, some new product one of the things that we would that we didn't talk specifically about in the and 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 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 that balance you're going to need.

I 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.

Amount of freshness that you might be looking at as it relates to spring 2021 is 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, you know 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 are still close 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 the year and continue to provide freshness into the marketplace to we need to incentivize the customer to come in and binders 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 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 plants to trying to get off your channel mix correcting it how should we think about the off price channel.

In general on as we go to the backup issue. Thank you.

Hey, Matt.

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

I think the 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 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 just step off its back because we wanted but we're still on the right track.

Thank you very much best of luck us.

Thanks, Matt.

Your next question assuming lineup Edwin when that with Keybanc capital Mark.

Hey, good morning, and I hope that you and your teams are staying healthy at this time I guess just 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 you're gonna have to help them a 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 reopen their doors and I think in general you are seeing a a balance between the inventory that's already in the channel and then future demand.

One other things, though 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 direct 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 to reopen again, but again you know it we're about two months into what could be.

You know a are of course, they have a longer.

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 brand. 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 to this is that it's taken 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 Oh, we do business with and well, where we feel that we're in a.

We're in Atlanta 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 in line of soundtrack losses with augments tax.

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

So my first question was around E. Commerce, I'm wondering you could talk us through a little bit more detail the cadence and skill E commerce growth.

For the first quarter and into the to second quarter.

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

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

In mid March there was probably a little bit of a delayed reaction before consumers really realize what they needed and how they were going to have to get it from E. Com until the real ramp up for us on E com, especially in North American and in the United was coming in as we started to kick into April and we've seen it all the way through April and 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 and then two follow up questions on the same theme 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.

Yeah, I mean E commerce 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 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 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.

That's been going pretty well also mainly in April and into May here.

Thank you I appreciate you don't isn't a little bass.

Thank you Alex.

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

Hey, Paul Lessray City.

Curious what you're hearing from your larger retail partnerships 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 first with the larger more world.

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 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 and this is both the goes for.

North America, as well as Europe or in the same situation that we're in there 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 happened 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.

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 mobile 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 overturn that I would say that.

And we think about it in terms of rebalancing as you're thinking about the back half of the year because you have inventory.

In different places and you have the unknown of the speed of ability to reopen and to see build recovery in terms of the consumer coming back shopping and the type of behavior that will show doing that shopping coming back in terms of conversion. Another thing so lot of variables there in terms of hardware 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 long standing relationships with most of them and in general you know a lot of them are hanging in there fairly well and Ah.

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 koby 19, but we're continuing to monitor that.

And we'll work with them 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 is certainly going to be winners and losers in this in this environment going forward, though.

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

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

This is coming from you on a single shopper maybe couple of 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 gonna be would the medium partners in a larger partners.

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

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 was a little bit of a 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 S.G. M&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 is 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 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 a lot of those assets, obviously, and we had been moving I'm kind of our non inventory.

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

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

It 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 when you're 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 a to Patrick's point you know we expect.

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

Bound, 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 thoughts on their business. It's also really important to recognize what's going on the back you know in the back end so to speak in terms of our vendor partners. We've done a lot of work as 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.

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

For 2020 in terms of full demand, but also thinking ahead to 2021 demand and making sure that we're trying to help our vendors as much as we can also to two level load and do other things because ultimately we want to make sure. We come out of this with a strong vendor base are able to act.

Celebrate the as we go into 21 deal and so there's a lot of lot of work happening there where davis working on it from the financial perspective, and that kind of the fall down number 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 going online Michael Binetti with credit Suisse.

Hey, guys. Good morning, Thanks for taking my questions here I'm just.

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

330 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 and discounting is generally what brought it down more relative to our original expectation.

Okay.

I think that.

Dave I think he said I want to ask why you comment that off price in North America will be above plan above your initial plan. Obviously before so you have pandemic now, but but not not to revenue growth rate. This year won't be bigger in revenue dollars and 29 teams still is that a fair. That's what you said right in the guardrail and then.

I know you told us about inventory, maybe you could just speak through where where we'll see that inventory clearing European wholesale channel or will 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 a mix of business. This year, but we're definitely going to see a continued decrease relative to what we're expecting.

We're not expecting that the.

North America decrease in off price is gonna 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 five better to what we think the new demand is for the back half of the year or 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 will have a probably the highest level or 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.

Okay.

Your next question is from Matthew boss with JP Morgan.

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 back end.

Thanks for the question left 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 a 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 lapses what does the ecommerce what your son, 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 their flooded performance I think what you're going to see 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 fifth 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 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 the digital.

It's 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 stored 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 is starting.

The kicked off again.

Very shortly and there's also a lot of talk of course in 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.

But I do believe that what's kind of happening. So once we come on this there's got to be pent up demand I mean, this society loves 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 to 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.

To this and with our new platform for it for E Commerce, and our new sites going live in about a month and a half there's 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 that consumers is resonating because we see that through the new the new consumers that was maybe.

We get onto our various platforms.

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

The sire 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 a stated 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.

You know, 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.

The past and current supply chain initiatives. However, we anticipate those benefits are gonna 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 growth.

Margin.

Basis point decrease since Q2 through Q4, because to be outweighed impact of that 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 does it 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 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 about you know we want to be careful here around not just how we drive through this pandemic, but how we come out in this.

And so could we go deeper than that 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 perspective of the 325, the marketing and the restructuring savings are probably the larger portion.

Then somebody other pieces with incentive comp in U.S. 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 in 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 will come out more towards the back half a 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 word that you what she brought to the table that you're excited about is sort of how you feel about the product team in general.

Head into the back half year.

Yes, Hi, Jay Yes, we're excited about Lisa Lisa has of course been 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 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 that Levi's, but also later in the us as a seal the 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 were that 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.

To a complement the sign aspect with this merchandising capability.

To drive the teams and elevate and elevate both of those things for us. So I think she's a proven leader. She's also got great Global experience you understand the globe I think she's bell worst in transformation something that we're continuing to go through so she has they seem.

The multi dimensional leader.

And I think she's 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 dimension with Lee said, we're very excited about that.

Okay. Thank you so much.

Thanks Jay.

The next question comes from the lineup Paul Trussell, What's your 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.

You know as we look to the Capex is 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 weve.

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

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

We also reduced number of global headquarter office investments I would 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 a REIT 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 important vendors also negotiating better payment terms or inventory vendors working with our landlords as well on the Capex reductions we've talked about.

So a lot of great progress there.

You know when as we thought about relative to our credit facility. You know, 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 in negotiating amendment to our facility. We're literally on the goal line as of today a tick.

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 gold line I mean literally got a 11 out of 11 of our syndicated bank consents 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 may be as or expectations and the 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 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 as we've said a pack is up and running fairly well, especially China and Korea or 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 plans to start reopening sum up actually opened a few stores.

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 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 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.

That 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 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.

You know incredibly encouraging for us so I think that but you're going to see is is a 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 here in 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.

We'll also the last week into account to get into this thing there are lagging a little bit.

In terms so in terms of segments.

I think you I said it a little bit before you know the whole personal training fitness, that's going on right now in terms of working out at home and we've certainly been able to drive that with 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 in the in the drop ship that we have with our wholesale customers. So.

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

Thank you and 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 have reopening have you started raising in shipping to any of them and then and I guess the second question. It's just a pack there's still a number of country that are under locked down I'm curious if you're seeing any current challenges in your supply chain. Thank you so much.

Hi, Eric first first one in terms of shifting yes, we have started to open up shipping again, there are all their customers are starting to to request product again, which we find that 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 you know opportunity, even though we haven't chip that straight to a specific customer.

I think in terms of the disruptions in our supply chain and Asia due to closures there it's been an 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 country might be open, but it's hard to.

Get everything to function properly because you 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 really focus on on stronger partners. Those partners have been able to manage through this crisis.

We feel better and the as a consequence, we havent seen any real impact in terms of no major delays or as we think about the rest of the year, even though we've 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 been 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 one of having some of the functionality and the infrastructure lost 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 then we're going to be absolutely. Okay. But of course, there's pandemic is in or an unknown for for all of US right. So everybody is 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 meet demand.

Thank you.

Operator lamps.

Yep.

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

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

Thank you.

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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 the listen only mode.

After the speaker presentation, there will be a question and answer session to ask a question do you understand shouldn't even if the press star one on your telephone.

Please be advised that today's conference is being recorded.

If you require any other assistance. Please press star Zero I would now at the end the copper coverage your speaker today, Mr Lab alike.

Our 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. Its first quarter 2020 earnings call you everybody should be made available on todays call includes forward looking statements.

Robert you that's correct.

2020 wells considerations for future events that may occur businessmen in fourq.

These statements are subject to risks and uncertainties that are detailed documents regularly.

You see a safe Harbor statement included in this mornings press release.

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

It's important to note that at this time the global cold they had done.

It continues to have a significant material impact not Roberts business.

Given an extremely high level of uncertainty about duration next that other viruses near long term in to 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 result, or current description estimates suggestion.

On today's call, we may reference non-GAAP financial information, including adjusted in currency neutral terms, what's your defined under at you see roles. This mornings press release, you May also Jurassic virtual mouse 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 it 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 first.

Yes, though they burden.

The mine we are 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.

Her 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 else there will be on parallel times before we discuss on dramas first quarter salt and the significant factors continues to impact our business I'd start by underscoring how incredibly proud I am of our company and all our teammates all with our retail customers on factory and vendor partners.

Around the world the extraordinary leadership humanity and collaboration that continues to transpire doing that's global health economic crisis is incredibly how big an inspiring.

I think two 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.

10 days of the endemic designation, we had we purposely innovation lab at our 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 nearly 40, other health care organizations, including hospitals in senior care facilities on the fourth lives.

This fight.

We've also donated around all the performance product numerous health care professionals in certain hard hit regions around the world or fatigue from launch LNG hours fighting this horrible virus. The U.S., we've deployed palliative teammates to provide logistics expertise and distribution center space the organization that needed to scale quickly storing it.

Staging p., a medical supplies to meet demand for the respective fulfillment efforts. We've also partner would feeding America local food banks, you in Baltimore, including a new delivering all done in shorts food and other critical items I didn't have it safely and timely door neighbors strike me with needs and this time of crisis. These are just a few of the things we've been able.

All that during this period all of this of course, it's a group after the close or Universal teammates partners and 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 that those are the past, 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 on certain piece that we're all consulting.

These so certainties or what every company is currently facing what respected durational the closures, how deep and 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 inclusive 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 kinda however share insights into the things that we are able to control and this was.

Spec, we'd 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 been no. They needed a once they have them can imagine living without there's no change to this purpose and no 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 this role connection to our capacity to five thrive and restore made extraordinary circumstances girls direct mail strengths from these very elements.

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

So lots of a flattish performance world moves towards social distancing athletes made a tougher towards working out at home and the outdoors and then the process.

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 and key influencers.

For virtual social events, greater hold workouts and incredibly successful healthy at home fitness challenge and free called down along with well orchestrated community give backs, we've seen exceptional increases and usage within our digital lap business. In fact since mid March the record for the number of map My Ron Workouts law enforcement.

Good day has been broken six times and new users are up 275%.

Well nothing has also continued to grow in our connected footwear business as well with year over year workout 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 in Raleigh.

From dedicated in casual runners was habitat picked up significantly due to jump 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 kobin work coming together with recent strategic adjustments to 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 have already closed down we implemented teammates protocols. Following government recommendations to increase social distancing avoiding large gatherings and requiring your office based teammates around.

In the world to work remotely.

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

But we're also seeing significant swings and supply due to factory closures over the past couple of years, we haven't made significant changes to our supply chain and how we plan to develop 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 if your partners.

This has helped to accelerate our transition to digital sampling in virtual modeling, which is increasing product accuracy, helping to reduce lead times and in turn allows us to quickly evolve how was 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 mall. 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 at 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 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 or helping us to get 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.

Remained largely close through early March one is slow progress in reopening process began.

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

All of our own stores in wholesale partner 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 this 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 is 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 unprecedented 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 their sylvio's witnessing the courage lot of humidity able to 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 yes, 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 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 11th earnings call. We stated that we expected that our revenue would be down 13% to 15%.

About five points of the decline attributable to the China only code at 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 of 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 a businesses outside of China.

Which together contributed to about 12 additional points of 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%.

Where 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.

In addition to reduced sales to the off price Chow.

Revenue in Asia Pacific was down 34%.

And finally are connected fitness business was up nine per cent driven by continued subscription momentum.

Turning to gross margin.

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

<unk> benefits, including approximately 330 basis points of channel mix, including lower your V. yourself, the off 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 impact.

30 basis points related to changes in foreign currency.

S. G.N.A. expense was up eight per cent 553 million driven by higher legal expenses.

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

That's.

Back 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 to recognition up now I'm restructuring related impairments long lived assets and goodwill.

First I'll start with like 2020 restructuring plan.

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.

Including 298 million and non cash and 3 million and cash related charges nearly all of these Q1 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 cash flow analyses for our global retail fleet owned stores, we determined that some of these long lived assets had net carrying values that exceeded their estimated on this kind of feature cash flows.

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

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 America Moot point 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 reported first quarter operating loss of 558 million.

For my tax perspective, we recorded 21 million attacks expense, primarily driven by valuation 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 recognize the net loss of 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 work 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 reopen into coming weeks and months. We believe that will be a number of challenges ahead for us and a greater global retail space.

Including the slow and progressive returning normalization.

Highly promotional environment.

Significant uncertainty in brick and mortar traffic and conversion that's consumers return to stores.

Earlier in the call, we detail the strategic and operational elements.

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

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

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

Maximally 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 in the virus on consumer demand and behavior.

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

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

We're reducing incentive compensation for the year.

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

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

As a reminder, this targeted 325 million and operating expense benefits is not represent a year over year variation, but again is rather chain store original 2020 annual operating plan.

Next I will touch interactions to prioritize liquidity cash preservation and inventory management.

That's our ability to navigate potential short and mid term challenges and cash flow needs.

Within cash and cash equivalent we ended the first core with 959 million.

Which approximately 600 million was related to borrowings under a revolving credit facility.

In early April we borrowed an additional 100 million and 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 to liquidity going forward.

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

Moving forward in anticipation of significant changes in future demand there proactively reducing planned inventory receipts to continue to manage this asset as efficiently as possible, even 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 risk.

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

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

Previous expectation of approximately 160 million and 2020.

When more favorable business conditions materialize, we would expect to resume many of these investments that 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.

Would that I'll turn it back to the operator fear questions and 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.

At this time, if you like to ask the question Prestart one on your telephone keypad again that is Taiwan for any questions.

Yes, <unk> from Matt and 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 clearly, there's an inventory overhang that needs to be work through not only yourself, but through through or 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 one of the things that we we didn't talk specifically about and like in in the script here was.

For example, a windows business is doing right now and and that's attributable to new product I think the.

Senior to give freshness in every category, where we compete.

I think the.

Amount of freshness that you might be looking at as it relates to spring 2021 is 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 will be Lawler freshness, there I think.

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 as 80% of our stores around the world are still close, but ultimately because we came in with but within well.

Managed inventory position.

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

Thanks, Thanks for that and just as a quick follow up just the off price channel you spent several years.

Leading up that channel on reducing sales into that channel. This this this environment just push push back another year in terms of your plans your broader plants to trying to get off your channel mix correcting and how should we think about the off price channel in general on as we go to the back half of this year. Thank you.

Hey, Matt.

We definitely are continuing down the road 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 beset due to covert 19, but it will take us 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 from the line of Edwin when that 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 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 back.

Having a channel.

And would you consider taking back inventory. Thank you.

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

We are.

Dealing with reopening our home stores of course on 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 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.

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 direct 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 you know we're about two months into what could be.

Of course, a a longer a slower trajectory here in opening and also in terms of their consumer coming back were little bit advantage, we field, because where 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 this 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 that we do business with and we're where we feel our burn a.

We're in Atlanta 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 your line of Sandra waters with Goldman Sachs.

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

So my first questions around E Commerce, I Wonder if you could talk us through a little bit more detailed 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 mineral.

A little bit of a like that.

Yes, I think that.

As we saw the stores closing down in North America in any.

In the March there was probably a little bit of a delayed reaction before consumers really realize what they needed and how they were going have to get it from E com and so the real ramp up for us on E com, especially in North America, and M&A was coming in as we started to kick into April and we've seen in all the way through April 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 and then two follow up questions on the same team in one any comment on E commerce trends within China.

The plumbing and then to any comment on how E. Commerce is performing at key wholesale partners.

Okay.

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.

That's 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 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 work.

Utilize 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 happened in China in terms on the.

The return of the consumer and holiday or.

Thinking about.

Helping 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 traffic and conversion into you us.

But I do but I do think that again.

You know it 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 Andy.

Hi from behavior that will show during that shopping coming back in terms of conversion and other things so lot of variables. There in terms of how we're how we're looking at modeling our 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.

Yes, 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 at a pretty extensive 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 for 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 Coca 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 where there's 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 thats in general in retail and there will also be of course as everybody.

As 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 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.

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

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.

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

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 I would 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, we expect.

Higher inventory level as we round out Q2 with the store closures and 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 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 partners stronger partners.

It's incredibly important to US also of course at these partners survive and there's a lot of hardship in the into vendor base right now as there is all this fluctuation and on 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 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 davis working on it from the financial perspective, and that kind of the fall 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.

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 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.

David I think you 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 fair. That's what you said right in the guardrail and then.

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

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 on 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 the 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 question left there I think.

You know, it's an interesting time.

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 a 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's coming out of this is pandemic.

We believe that health and fitness.

It's going to continue, especially being able to exhibit 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 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 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 starting.

The kicked off again, a very shortly and there's also a lot of talk of course 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 to happen and there's a big question around back to school, we're right in terms of that.

And I do believe that what's going to happen if that wants to come on this there's got to be pent up demand I mean, this society loves 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 would grounded in team sports, but we also manifest ourselves through making people better through.

Our mission and subsequently the.

The penetration that we haven't training.

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.

We see that through the new the new consumers that was unable 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 as 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 thanks.

About the headwinds versus Tailwinds on the gross margin line as the year progresses 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 decrease since 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 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 down 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 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 on this.

And so could we go deeper than that 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 with incentive comp than us retail DH 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 in 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 or 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 word that you what she brought to the table that you're excited about it 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 been 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 the Levi's, but also later as as a CEO of a 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 them trend I also believe that in terms of.

The work that we've done over the past year with our 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's bell worse than transformation something that we're continuing to go through so she has it 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 mention yes. Thank you for taking our 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 the.

As we look to the Capex was one of the components for the capital preservation. We we felt that the reduction from a 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've.

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

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

We also reduce some of our 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 at Seoul, where digital and international So I think we're protecting a REIT 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 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 one as we thought about relative to our credit facility will.

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 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 coming so give us a lot more so.

Efficient liquidity to manage our business through the pandemic and when I say that were at the goal line I mean literally got 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.

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 well as we should.

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

Well again, we're not giving.

Yeah, 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 EMEA in North American Latin America are somewhat on similar trajectory is right now as far as planned to start reopening some of 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 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 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 and the drop shipments.

We've been able to do with them as well as our own E commerce acceleration both.

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 phone was.

Incredibly encouraging for us so I think there, but you're going to see is is there.