Q3 2021 Under Armour Inc Earnings Call

November 2, 2021

Good day, everyone and welcome to the under Armour, Inc. Third quarter earnings webcast and conference call. At this time all participants are in a listen only mode. Following management's prepared remarks, we will host a question and answer session and our instructions will be given at that time if during their conference. Today you require operator assistance. Please press Star then zero and an operator will be happy to assist.

As a reminder, this conference call is being recorded for replay purposes. It is now my pleasure to hand, the conference over to Lance Omega SVP Investor Relations and corporate development you May proceed.

Thank you and good morning to everyone joining us on our call. This morning front of our third quarter fiscal 2021 earnings conference call.

The information provided on today's call will include forward looking statements that reflect <unk> view of its current business as of November <unk> 2021 statements made are subject to risks and uncertainties that are detailed in documents regularly filed with the SEC and the safe Harbor statement included in this morning's press release, both of which can be found on our website about under armour Dot com.

It is important to note that the ongoing uncertainty related to COVID-19, and its potential effects on the global retail environment could continue to impact our business results moving forward, we may reference non-GAAP financial information on today's call, including adjusted and currency neutral terms, which are defined under SEC rules. In this morning's press release, you May also hear us refer to amounts under U S. GAAP.

Reconciliations of GAAP to non-GAAP measures can be found in our press release, which identify and quantify all excluded items and provides our view about why we believe this information is helpful to investors joining us on today's call will be under our president and CEO Patrik Frisk and CFO, Dave Bergman. Thank you Patrick.

Thank you Lance and good morning in the third quarter higher than expected demand for the under armour brand and outstanding execution from our global team allowed us to drive strong top and bottom line results.

Everything we do at under armour is based on driving sustainable long term growth while at the same time, ensuring we are setting a solid foundation to deliver near term value to our shareholders.

This is the balance you should expect from us and just the commitment we work towards every day.

Strike this balance by leveraging our strategic playbook across key elements of our business, including a consumer centric strategy to drive deep authentic and emotional connections with focused performers innovative products and experiences that advantage and inspire athletes journey.

Constant focus on operational excellence to ensure we manage the marketplace efficiently and steady financial discipline to create meaningful levers to drive greater profitability.

These strengths were evident in our third quarter results with revenue up 8% gross margin up 310 basis points to a record, 51% and solid adjusted EPS performance at 31 cents.

In this spirit as we work to close out 2021, I feel good about the progress. We've made there is sitting to see we've earned and the potential we have to do even better in the future demand for our product and consideration for our brand is growing that gives me confidence that despite potential impacts from near term headwinds the long term opportunities before us and our.

Ability to compete and win in an ever changing global landscape are stronger than ever.

Of course, it all starts with brand so with that let's get into some third quarter highlights starting with the incremental investments, we're making in marketing and how they are translating to improving brand affinity it from our focus on consumer awareness attraction and consideration.

As part of our holistic journey to compete strategy, which centers on goal setting training and what it takes to earn results. We used the team sports lens to focus on the importance of mental strength has been unlocked to realize <unk> full potential.

Through uniquely under armour execution by our social media TV retail and digital Activations. The only way is through and train your mind train. Your game showed up as one global brand and voice across categories channels, and our marketing funnel.

Coming off this effort, we've now shifted gears into fourth quarter activation, which is centered on cold weather training.

Knowing athletes, sometimes see cold as their kryptonite, our human performance research lab is helping equip them and reshape this type of training as an asset to take their performance to new levels validated by the experiences of our most elite athletes, we're aspiring and educating focused performers for the winter ahead with powerful storytelling.

Selling workout routines product reviews, and premium retail capsules, our ecosystem is well set to inspire and capitalize on growing demand.

Turning to product given the third quarter bridged summer and fall, we realize success on both sides of the temperature spectrum, including solid sell through all of our ISO chill apparel products, which cool you and fleece, which saw strength in men's and youth as athletes gear up for the cooler months ahead.

There was also continued momentum in men's unstoppable bottoms and women's leggings, including Meridian and are no slip waistband technology and finally, the project rock collection in Pulps, featuring Rush also built on their year to date momentum so consistency in some of our best sellers.

In footwear, our core running products, including pursuit of Aurora in the surf saw strength in all regions globally. Additionally project rock footwear performed well and we had success in our slides business regionally a few of the highlights included the Curry hovers splash in Mega clone in APAC Hover Street in Vanda Trail in EMEA.

And slow velocity ESC included footwear in the Americas, driven by better than expected back to school demand his team sports return.

Let's turn next to our regions, starting with North America, where revenue was up 8% to $1 billion indicative of improving brand health and our largest market, we had stronger than expected back to school and direct consumer demand.

In fact, North America drove the majority of the third quarter over delivery for the company. So encouraging to see continued progress here.

<unk> 2019, North American revenue was up 2% in the third quarter. It is important however to revisit some key differences in these comparable periods 2021, North America versus 2019, including a significant increase in our direct consumer business substantially lower off price sales reduced promotional and markdown activities.

Proactive supply constraints and undifferentiated wholesale exits so all in meaningfully higher quality and more productive dollars going through our P&L now than just two years ago.

Turning to our international business revenue in our Asia Pacific Region was up 19% driven primarily by wholesale growth given some of the recent market trends, particularly in China, where traffic continues to struggle our consumer insights data tells us that our brand health is holding steady in an otherwise dynamic environment. We attribute this to the investments.

We're making into marketing CRM and store expansions, including opening our 1000th store in the region.

Versus 2019 third quarter APAC revenue was up 37% so solid progress on the two year stack.

Next up is EMEA, where revenue was up 15% driven by wholesale which saw continued momentum from our distributor partnerships and a solid direct consumer performance.

Two most prominent countries in this region the U K and Germany, we remain focused on brand development building long term relationships with our key wholesale partners and strengthening our direct consumer team and retail capabilities EMEA.

EMEA wholesale growth was balanced across our full price and distributor businesses versus 2019 third quarter revenue in EMEA was up 50%.

And finally, our Latin America region was up 27% driven by strength in our full price wholesale and distributor businesses versus 2019 third quarter revenue in Latin America was up 8% as previously detailed we are transitioning certain countries in this region to a strategic distributor model of which most of this change takes place in the fourth quarter.

Accordingly, we expect top line pressure in Latin America, as we finish out 2021.

Another highlight is the performance of our direct to consumer business, which was up 12% and although traffic trends were somewhat mixed in our own stores in nerd various COVID-19 restrictions around the world. We continue to see improvements in average selling prices and productivity due to higher than expected demand during the quarter, we further reduced promotions and realized higher price sell through.

Which of course, you'll see in our gross margin results versus 2019 direct consumer was up 31% for the third quarter overall, we're pleased.

It's that our strategies towards improved presentation and experiences in our stores and online are driving better economics throughout this business.

So in summary, we're pleased with our third quarter performance and our ability to close up that will be under armour since split adjusted EPS here in our history.

In the near term however, we remain both confident and cautious with several fluid headwinds continuing to impact nearly every sector. It's important to remember that under armour is battle tested and mission proven I am incredibly proud of our global team and how we've worked to maintain balance and trajectory regardless of whether it's thrown our way we.

To get sharper and smarter and more efficient.

Across our business by channel product or region. There remains constant we obsess the intersection of Undrawn, Ms serving focused performers industry, leading innovations premium experiences heartland, but data driven we empower those who strive for more.

And with that I'll hand, it over to Dave.

All while driving toward a record revenue and earnings in 2021, So let's dive right into our results.

Compared to the prior year revenue was up 8% to $1 5 billion versus our previous outlook. This overdrive was primarily due to higher demand across our full price wholesale and factory house businesses in North America.

Patrick covered our regional performance earlier, so now, let's click down into our channel results on a global basis.

Third quarter wholesale revenue was up 10% driven by higher than expected demand in our full price business, particularly in North American wholesale which was tempered by a reduction in sales to the off price channel as we continue to work to elevate our brand positioning.

Our direct to consumer business increased 12% led by 21% growth in our owned and operated retail stores, partially offset by a 4% decline in e-commerce, which faced a difficult comparison to last year's third quarter.

But I would also note that when compared to the third quarter of 2019, our E Commerce business was up over 50%.

And licensing revenue was up 24% driven by improving strength within our north American partner businesses.

By product type.

Apparel revenue was up 14% with strength across all categories, particularly in training and golf.

Footwear was up 10% driven primarily by strength in running.

And our accessories business was down 13% due to lower sales of our sports masks compared to last year's third quarter.

Relative to gross margin, our third quarter improved 310 basis points over last year landing at 51%. This.

This expansion was driven by 400 basis points of pricing improvements due primarily to lower promotional activity within our DTC channel.

Along with lower promotions and markdowns within our wholesale business.

And 120 basis points of benefit due to channel mix, primarily related to lower mix of off price sales versus last year's third quarter.

Partially offsetting these improvements was about 100 basis points of negative impact related to the absence of my fitness Pal.

And 90 basis points of negative impacts from higher freight and logistics costs due to COVID-19 related supply chain pressures.

Versus our previous expectation our higher than expected Q3 gross margin improvement was primarily due to lower than planned promotional activity within our DTC business and more favorable pricing related to sales to our off price partners.

SG&A expenses were up 8% to $599 million due to increased marketing investments incentive compensation and non salaried workforce wages.

Relative to our 2020 restructuring plan, we recorded $17 million of charges in the third quarter.

In this morning's press release, we noted that we have reduced our planned expectations by $25 million. So we now expect to recognize total planned charges ranging from $525 million to $575 million.

Thus far we've realized $500 million of pre tax restructuring and related charges.

As a reminder, all remaining charges are related to initiatives outlined in 2020, meaning nothing new has been added in 2021.

We expect to recognize any remaining charges related to this plan by the first calendar quarter of 2022.

Moving on our third quarter operating income was $172 million.

Excluding restructuring and impairment charges adjusted operating income was $189 million.

After tax we realized a net income of $113 million or 24 of diluted earnings per share during the quarter.

Excluding restructuring charges loss on extinguishment of $169 million and principal amount of senior convertible notes.

And the noncash amortization of debt discount on our senior convertible notes.

Our adjusted net income was 145 billion or 31 of adjusted diluted earnings per share.

In this respect we are excited to report that the 71 of adjusted diluted earnings per share that we have realized year to date has surpassed our highest previous full year split adjusted earnings.

Solid traction in excellent progress.

Inventory was down 21% to $838 million driven by improvements in our operating model and inbound shipping delays due to COVID-19 related supply chain pressures.

Our cash and cash equivalents were $1 3 billion at the end of the quarter and we had no borrowings under our $1 $1 billion revolving credit facility.

Okay.

With respect to debt during the third quarter, we entered into exchange agreements with certain convertible bondholders for $169 million and principal amount of our outstanding convertible notes and terminated certain related capped call transactions.

We utilized net $168 million in cash and issued seven 7 million shares of our class C stock and recorded a related loss of approximately $24 million, which is captured in other income and expenses.

Following this transaction and our actions in the second quarter $81 million of convertible notes remain outstanding.

Now moving on to the balance of the year.

As we noted earlier in this call the current global retail environment remains varied.

With some markets realizing a steadier returned to growth like in the Americas, albeit with continued weak traffic trends.

Somewhat mixed environments across different regions in EMEA.

And conservative assumptions about APAC as it navigates ongoing phases of closures reopening and restrictions.

Factoring in the current supply chain challenges emanating from southeast Asia, and logistics challenges being experienced worldwide, we're staying appropriately cautious in the near term.

However, it is important to note that today's revised outlook assumes no additional shutdowns of manufacturing partners or further retail sector disruptions as we close out 2021.

Now turning to our updated 2021 outlook, let's start with revenue, which we now expect to be up approximately 25% for the full year.

This reflects a high twenties percentage rate increase in North America and.

And our mid thirties increase in our international business.

From a channel perspective wholesale is expected to be up at a mid thirties right.

And our DTC business up at a mid twenties rate with e-commerce up at a low single digit rate for the full year against 2020.

Concerning our top line expectation for the fourth quarter, the same significant headwinds from our last call remain in play in.

In addition to the developing COVID-19 related supply chain issues currently facing the sector.

Turning to gross margin.

On a GAAP basis, we expect a full year rate to be up approximately 130 basis points against our 2020 adjusted gross margin of 48, 6%.

With benefits from pricing and changes in foreign currency being partially offset by higher expected freight expenses and the sale of my fitness Pal, which carried a high gross margin rate.

The gross margin improvement relative to our previous outlook is primarily due to pricing benefits, partially offset by increased freight expenses related to supply chain challenges, which we continue to monitor.

Versus 2020, we now expect that full year, SG&A will be up 6% to 7%.

As laid out previously specific to 2021, we have taken advantage of our improved results and proactively made incremental investments, particularly in marketing to build even deeper connections with our consumers.

We also expect higher incentive compensation, which is up against 2020, when we had significant reductions against target levels.

As well as higher non salaried wages.

With that we now expect operating income to reach approximately $425 million this year.

Or $475 million on an adjusted basis.

Related to rate, we expect to deliver an operating margin of just under 8%.

For an adjusted operating margin of approximately eight 5% in 2021.

All of this takes us to an expected diluted earnings per share of approximately 55.

For adjusted diluted earnings per share of approximately <unk> 70, <unk> in 2021 with an average weighted diluted share count of approximately 46 468 million shares.

And finally from a balance sheet perspective, we expect to end the year with inventory relatively flat against 2000 Twenty's year end.

And we expect to close the year with approximately $1 5 billion in cash and cash equivalents.

Looking forward.

A reminder, that we are changing our fiscal reporting year in 2022 <unk>.

Mechanically the first calendar quarter will serve as a transition period until we begin our new fiscal year 2023 on April one.

Accordingly, we are not providing color for next year on today's call.

That said there are supply chain pressures that are challenging the industry in the near term and while we believe the impact to our P&L in 2021 are expected to be relatively minimal we are taking precautions to navigate some of the volatility and anticipated business disruption in the first half of 2022.

Including the.

The work we began in the second quarter of 2021 to adjust orders and shipping with our factory partners and logistics suppliers.

Working with wholesale customers to narrow and edit our spring summer 2022 order book.

And assessing various mitigation offsets for inflationary pressures, including elevated logistics costs and higher wages.

Given the situation is still fluid it is difficult to estimate the full extent of potential effects on our business at this point. However on what we know based on what we know today, we are forecasting material impacts to the first half of 2022.

And therefore with respect to the first calendar quarter, we expect revenue to be up at a low single digit rate.

Concerning our longer term view as of this week nearly all factories that under armour does business with including those in Vietnam are open so definitely encouraging news.

Of course full capacity will take some time to ramp back up and this is only one part of the equation.

Over the next several quarters, we expect longer than usual transit times as backlogs and congestion fine balance. So this may create some variability in our results.

That said the proactive strategies, we're employing.

Greater operational agility and overall demand for the under armour brand give us confidence in our ability to navigate effectively through the coming environment.

With that I'd like to close today's call by returning to Patrick's opening thoughts and the balance we are committed to striking between driving sustainable long term growth, while delivering near term value to our shareholders.

All global companies operate in a constantly changing environment.

And over the past few years through our transformation and the pandemic under armour has demonstrated its ability to effectively manage our business under a range of conditions.

Lastly, as we look to close out the strongest top and Bottomline performance in our history.

The work we've done to re architect our strategy operations and financial discipline sets us up well to leverage this balance and thus create improved value for our shareholders over the long term.

With that I will turn it back to the operator for your questions operator.

Thank you everyone. At this time, if you would like to ask a question over the phone. Please press Star then one on your telephone keypad. If your question has been answered you wish to remove yourself like you simply press the pound key again to ask a question that is star then one.

And our first question will come from Erinn Murphy with Piper Sandler Your line is now open.

Great. Thank you good morning, and really nice to see that strong performance to date.

Steve I wanted to follow up with something you were just talking about as it relates to the supply chain challenges can you share a little bit more about your ability to get product to the north American and the European market here in the fourth quarter as we think about holiday and then with your guidance or your preliminary look for the first calendar quarter up low single digits is that again just.

To get product or have you really just seeing the impact of the curtailed.

Manufacturing as it relates to your ability to just even produce spring summer. Thank you.

Sure Eric relative to the supply chain impacts in Q4 as.

As I had mentioned almost all of our partners.

The vaccination rates across Asia continued to trend up.

It's really kind of now pushing down the line a little bit where there is congestion and container availability ingestion and container availability.

At the origin ports have improved but the local ports of entry is where the bigger challenges are developing that we're that we're monitoring.

To date, we have seen some timing changes and inbound product and how we can get that out to our partners.

But we haven't seen any cancellations and so the forecast and the outlook that we've given for the rest of the year in Q4, we feel good about but.

But it is definitely a very fluid situation.

Relative to calendar Q1.

This really relates to the.

The factory is getting up and running but not at full capacity and that creating.

A challenge to be able to produce all the orders needed to meet our demand. So we've actually had to cancel some of our purchase orders relative to spring summer 'twenty two product to be able to alleviate some of that pressure on the factories and based on that and therefore the change in inbound product to be able to go out that's where we're saying the impact is driving us towards.

What we see as of today is it low single digit growth rate for calendar Q1.

Got it that's Super helpful. And then just if I can follow up on the North American segment. It looked like in the first nine months of this year you are up about 3% versus 2019, so squarely in line with your long range plan I'm curious if you can talk a little bit more about how you think about the go forward trajectory. It seems like the fourth quarter, even got it nicely ahead of <unk>.

So would love to hear about the brand momentum that Youre seeing currently in the North American market. Thanks, So much.

Yeah Erinn. This is Dave we are excited about the momentum and again I think the the.

The biggest thing that I would point out is the health of that revenue. So not only are we growing again, but and even against 2019, but it is at a much healthier mix a much smaller percentage of off price sales to third party.

Less promotions and discounting so just overall a much healthier revenue stream at the same time that we're returning to growth, which is I think the exciting part and I think it's all about who were kind of doubling down with the bigger partners that really support our brand and really understand the focus performer and that's where we're driving most but.

We can't really give any details yet as far as next year on growth rates, but we are excited about the momentum Patrick.

Patrick I don't know if you want to add anything there, yes, I also want to just.

Great Dave I just wanted to highlight also the fact that some of the demand constraints.

Now fully in play for us as well in terms of exiting.

3000 doors or so in North America and of course, Thats, taking full effect into next year. So all of these things together really is giving us great confidence that we have now established a new platform or new level. If you like for the brand in terms of driving it towards a more premium position again.

Feel very good about that.

Great. Thank you and all the best Thanks.

Thanks Erin.

Thank you and our next question will come from the line of Matthew Boss with Jpmorgan. Your line is now open.

Great Thanks, and congrats on a really nice quarter.

Thanks Matthew.

So Patrick with nearly two years now at the helm I guess, how would you characterize larger picture, maybe the brand heat that youre seeing in men's and women's apparel today and do you believe we've seen the tipping point for footwear expansion just trying to think about maybe ranking opportunities on tap from here.

Yes. Thank you Matthew first of all I'm comp.

Confident that we've now gone through what I would characterize us as the majority of our transformational work. We're now in the new operating model.

But not just the operating model. We've also gone through at the same time.

Reset for our product engines, and our marketing engine. So our go to market has really.

Doing a great job of driving the brand to a more premium position what you see now in our numbers Theres a lot of balance here right, you'll see a balance between wholesale and DTC.

You see also a balance across the categories in terms of footwear and apparel.

And.

We also now so specifically here in the third quarter back to school happening again in a more normal fashion I guess, you could say in terms of team sports being played and.

Under armour really coming into its own with the performance. We saw now in things like <unk> product and team team product as well so across the board, whether it's team sports train or run mens or womens.

We are able to.

Really drive our brand in all of those different categories and areas.

And that's really what I feel really good about is the holistic win for the brand right now in the marketplace and we really feel like we have.

Proven that out now and now for US, it's all about driving forward and continuing to fuel the brand, which we've been able to do here in the back half as we reinvested some of the.

Some of the money here into marketing and really been able to activate full funnel.

And Youll see the results.

Great and then maybe a follow up for Dave can you speak to pricing power that youre seeing for the brands, maybe both across apparel and footwear and if we tie the AUR opportunity to gross margin is there any ceiling to think about is your gross margin exit this year I think around the 50% level.

Yes, I guess Theres a couple of aspects there.

We do continue to see pretty strong benefits that we're able to drive by.

Holding price higher not doing much promotions or discounts.

Sell through has been good with wholesale partners, so not having to discount or give as many markdown dollars. So that is definitely contributing a lot to some of the pricing benefits. We're seeing in some of the gross margin benefits and that all ties into our longer term strategy of continuing to drive the brand to a more premium position. So we're definitely.

Cited about the momentum to be able to do that and the sell through that is allowing for that as well.

We are also looking at.

Ticket pricing also when you think about some of the inflationary pressures.

<unk> pressures et cetera.

So we have a team that's been looking at that and we're going to be very strategic.

And targeted in how we might do that but we do think that there is some.

MSRP opportunities for us as well.

On our premium positioning and the quality of certain groups of our products versus others. So we're going to we're going to keep driving on that front as well.

Great Best of luck.

Thank you.

Thank you and our next question will come from line of John Kernan with Cowen. Your line is now open.

Excellent. Thanks for taking my question Congrats on a really strong nine months.

Thanks, Sean.

Patrick.

If we look at the first nine months of this year Youre at a double digit operating margin I know that was.

The long term target.

Can you give us any update in terms of the timing of reaching those targets on a full year basis.

Certainly tremendous progress made towards those targets this year.

Regardless of what happens in the fourth quarter this year than you've done in the face of a lot of disruption just curious.

Maybe pulled forward the timing of reaching those doubled that double digit operating margin target.

John This is Dave I'm actually going to jump in here because Patrick it's pretty excited about this topic.

Yes, we're obviously.

Very pleased with the progress, we're making on overall margins and being able to leverage the cost structure better.

And to your point I think that.

Our ability to drive the double digit operating margins is something we feel very very good.

Good about and probably better about than even even previous based on the momentum that we're having.

But at this point, we're not ready to be able to share.

Details for the upcoming years, but we are excited about the progress. We do think there are continued opportunities on gross margin and SG&A leverage.

And you can be sure that we're going to be driving towards that.

Understood.

One quick follow up PTC, obviously, it had an outsized contribution to growth this year.

That pre Covid base, you've made some adjustments for wholesale distribution.

Yes.

Any comment on DTC profitability and how that has changed is E. Commerce has become a bigger portion of the mix.

Your overall view of the direct consumer channel.

What we can anticipate for a normalized growth in that channel as we go into your new fits.

Fiscal year end.

Yes.

Yes, John this is Dave Great question.

As you know, we don't necessarily give channel profitability.

But what I would say is that we have been focusing a lot on DTC, we've been making a lot of investments there and we're starting to see some of the benefits of that pay off I think one of the areas that we've also put a lot of work and it's just to our retail full priced commercial concept and so we are seeing continued.

Stability improvements from that output.

Which is going to help overall DTC profitability as well and then obviously our factory house business has been an extremely profitable business.

E com as well so.

We're pushing on all cylinders.

But we're not disclosing the actual percentages, although we do believe they're continuing to improve with the benefits we are driving.

I'll, just add a little bit more color.

We are making great progress, but theres still a lot of work to do so we believe that.

As soon as we go into future years here.

We're going to have an opportunity to continue to get better across both our own retail and our own E. Com. So we're excited about the progress we've made so far but there is more work to do in <unk>.

I'll be updating you accordingly, as we move into the future.

That's great best of luck in the holiday.

Sean.

Thank you and our next question will come from Jim Duffy with Stifel. Your line is now open.

Thank you terrific results guys.

Thanks, Jamie.

I'm, hoping you can speak to your view on product costs into next year and pricing strategies, you mentioned, you've taken some pricing action thats, helping the margins do you expect you can offset the entirety of the inflation that youre seeing or is that yet to be determined.

Dave why don't you take that one yes, Jim Great question.

The the inflationary pressures are real and we are tracking those we are working with our vendors obviously.

But I think Theres a couple of parts there that we're going to be able to help on the topline side of gross margin as well, which is continuing to.

Stay more premium continue with especially on the DTC front being less promotional less discounted which will help offset some of that but then as we mentioned we do have a team that's working in partnership with.

Our product organization and also with our commercial teams around opportunities to increase price for.

For the brand.

I don't know that we would be able to affect too much of that four for.

For spring summer, but when you think more about fall winter of next year, there's probably a bigger opportunity there based on lifecycle and timeline.

We're excited about that we think were earning that in certain areas and that's where we're going to go after it but it will be very strategic very targeted.

And in general we are looking to continue to improve our gross margin percentage as we go forward.

Got it Dave we've heard from some other.

Companies view on product cost environment into next year is there anything you can share specific to your portfolio.

Range of the type of inflation that youre seeing on the product cost side.

To be Frank.

It's continuing to develop and so at this point.

We're going to be cautious and level of detail, we give for that on next year.

Do have another call or two that we can give more detail coming up but we're going to we're going to hold for that and continue to work with our supply chain and our partners to drive through and get the best clarity on that before we give more comments.

Thanks very much.

Thank you.

Thank you. Our next question will come from the line of Randy <unk> with Jefferies. Your line is now open.

Yes. Thanks, Thanks, a lot good morning, everybody. So I just wanted to kind of follow up on <unk> comment earlier in the prepared remarks as it related to the off price channel and you've talked about.

Pricing to the off price partners can you.

Elaborate on that a little bit more.

Is that dynamic changing at all and then maybe give us either some qualitative or quantitative perspective on just how how far you're taking that exposure down to the off price channel, which obviously helps your brand.

And our full price channels of distribution.

Sure.

Relative to the whole.

Third party off price channel.

We have embarked for the last couple of years on continuing to kind of wind that down.

To really get into that 3% to 4% range of revenue. We're excited that this year, we've been able to basically drive it down to a planned level of about 3% this year.

And that obviously creates.

Little bit of a tailwind on gross margin percentage would that mix of business coming down.

And then outside of that we've we've tightened up our supply chain process, we've employed some demand constraints.

All of those things are helping to keep the brand more premium, but they're also helping to reduce the amount of excess that we create so overall just a tighter process based on our new operating model and therefore, we feel better about being able to move a lot of that.

Excess through our own factory house stores and more of a brand wide right way and also in a more profitable way.

I would say that the other piece of it is is that as.

As we have reduced the amount that we're selling to the third party off price channel.

The demand for the brand continues and is strong and so those partners would like more product and when they want more and we don't have as much to give generally that means that they're going to pay a little bit more to us and so we're seeing that benefit even on the smaller amount that we are selling to them, we're getting better prices, which has helped our gross margins as well.

And we plan to continue as we go forward to manage it in that 3% to 4% mix of revenue globally. So going forward. It really shouldn't be much of a revenue headwind or tailwind or a gross margin headwind or tailwind in general going forward.

It's just a small piece of <unk>.

Our business that we maintain going forward.

That was very helpful. And then last question would be.

Can you give an update on the.

Progress on the initiatives around SKU, SKU count reduction and improved productivity around that initiative just give some color there on what you've done on both the apparel and footwear side. Thanks guys.

Sure Randy this is patrik.

We did a lot of work around SKU management.

Actually as far back as a starting in 2017 and 2018 and.

We got it down to a reduction of about 50% or so we never we never have expanded from that point. So in other words, we readjusted ourselves to a level that we felt would be able to sustain the growth that we were planning.

And we're still at that at that level.

The way, we think about it going forward is really.

In a balanced way in other words, we will invest in Skus, where we see opportunity, but we're also very diligent about taking things out through our life management cycle.

For our products and ensuring that we're not getting on top of our skis in terms of the balance of this holistically across the company.

The other interesting thing is also the fact that at that point in time in 17, 18, and our first round of transformation. We also took down our trims and our materials, both by about 80% and we've been able to maintain those levels too so coming back a little bit to what Dave talked about previously.

Here in terms of our operating model and our efficiencies because we now have a.

A way to make sure that we are holding ourselves accountable to what differ.

Different products should be doing in our line to help grow the brand and the business.

Teams are doing an excellent job maintaining the discipline and as a consequence, we will grow our skews a little bit as we grow as a brand going forward, but it's always going to be in a controlled way, where we're holding ourselves accountable.

Very helpful. Thanks, guys.

Thank you and our next question will come from line of Sam Poser with Williams trading your line is now open.

Thank you for taking my questions I wanted to follow up on some of the supply chain.

Stuff can you give us some idea of.

It's going to hurt you a bit in the in the March quarter, and maybe it will be on that but could you give us some idea of like sort of where where these problems are happening what's your exposure to southern Vietnam.

Noticed that you had lots of.

Especially on the apparel side, a lot of our products are spread all over the place so as this.

So the issue that is going to face footwear more than apparel can you give us some more color on.

Maybe youre sourcing.

Situations.

Sure. Sam This is Patrick first of all I think in terms of how we are.

Our position from a sourcing perspective, we feel that we are.

Balanced across the globe in other words, we have about 50% of everything that we may coming out of APAC and the rest of it is split between Middle East Europe, and Latin America. So we haven't we have a balanced portfolio in terms of how we think about sourcing first of all.

In terms of what's happening right now in the factories have been closed.

<unk> impacting the industry I would say out of Vietnam, because there is a mix of apparel and footwear, that's coming out of there, especially south Vietnam.

All of those factories are now at least our factories are open however, it's going to take the remainder of this year to really get them ramped up to full capacity and full speed.

So for us in terms of how we think about what's really going to be affecting us going forward more so because we have taken actions already too.

Let's say prune our order books for the beginning of next year to make sure that we're able to deliver against the expectation of our partners and our own direct to consumer what were seeing now is more of a logistics and transportation challenge and the majority we believe in the in the medium term here.

The words from from the end of this coming quarter going forward is going to be inbound.

More so than outbound and that has to do with just congestion at every step of the chain right, whether it's a container or chassis or access to port or unloading at port and then they end.

Tire journey once it Lance.

Inbound so we see the logistics and shipment being the biggest.

Our concern for us, let's say in the in the medium term here as we turned the corner into 'twenty two.

And I guess just to give a little quarterly color I guess, we see some some minimal impacts for Q4 of this year, which is already assumed in the outlook we gave.

Definitely incurring a fair amount more in inbound freight costs to get things here and catch up a little bit in.

And that has an impact for Q4 on gross margin.

Calendar Q1, and calendar Q2 is probably where we see a little bit of a bigger revenue impact because of the canceled <unk> to be able to.

Realistically get the factories back up.

And caught up and not be missing PFS to customers. So we've worked with our customers on those cancellations. So thats a bigger impact on calendar Q1 calendar Q2, and then after that it should start to dissipate and we're continuing to work through it.

So I think we have really good partnerships with our suppliers.

But some of the challenges down the pipeline that Patrick mentioned on once the product actually gets to the inbound port are still a pretty big challenge.

And then I know that Patrick this is for you I know I know that.

A lot of problems phase.

Basically you are good but they are they ended up being good for the brand in the long term. Thank you wish you didn't have them, but it helps make your brand more premium.

And get more focused because of the supply chain delays.

That's a great question, Sam and I think it's a good observation I think when you anytime when you're faced with a constrained right. It forces you to make choices and I think we've had to make some choices to Dave's earlier point, especially as you think about the first quarter of next year not so much perhaps this year, but certainly going into next year.

As we were very.

We have to be strategic right and what we're actually delivering into the market based on the capacity that we're able to get through the pipes. So the question.

It could probably be answered with a.

Yes, somewhat because I think it is helping us to make the right prioritization of what's going to go where and ultimately help us continue to drive this premium sanction that that we're driving right now with the brand. So I think I think it's a good observation sammon I'd, probably there is probably some truth to that.

Okay. Thank you very much continued success.

Sam.

Thank you. Our next question will come from Simon Siegel with BMO capital markets. Your line is now open.

Hey, guys congrats on the ongoing progress great job.

Patrick maybe just.

Maybe just a follow up on that so obviously the flip side standpoint, the flip side the supply chain issues. It's just an industry wide lid on discounts just curious what's your view on industry promotions for holiday and then more thinking into next year and maybe talk about what you think happens when promotions ultimately do come back across the industry, just speaking to where you believe you've elevated the brand.

And your ability to hold the line there and then.

Just you've made a bunch of really impressive strategic changes in your marketing approach. So could you just talk to how you were thinking about marketing expense going forward into next year, whether it's dollar growth percent of sales or just how strategically you guys are focused on it. Thank you.

Yes, Simon this is patrik, yes, so I think in terms of how we're thinking about.

Driving the brand.

Going forward.

Going to be continuing.

Continuing to.

Follow our strategy, which is ultimately now a consumer led strategy right. So in other words.

Laser focused on the consumer and understanding the consumer understanding how the consumer moves through his or her journey as they are on their way to do an activity in sports.

And really this year.

Pivot a little bit into your second question around marketing.

We have really activated against this concept of the journey to compete.

Through the same campaign that we started last year, but the only way is through change your game.

And being on the offensive and I think for us.

That marketing spend.

And the activation that we're able to do is being done much better now and it's being done better because we understand through our return on marketing investment model that we're able to run how to do it better. So we're more effective more efficient and it's having a better effect on the consumer as we are activating against it we're going to continue.

To do that into the future and invest into marketing for the brand.

And I don't know, Dave if you want to add a little bit more on that yes, I guess.

<unk> to the dollar investment we've talked a lot about kind of heavy ing up our investment this year.

Based on our overdrive and being able to reinvest a fair amount of that back into the brand, which has been really exciting to do and it's definitely back half weighted this year a lot of top of funnel marketing around brand awareness consideration, which which we're super excited about.

That could mean for us as we go into next year would that kind of behind our backs.

But I would say that although we're going to run a higher percentage of revenue.

This year, we do expect to be able to leverage marketing as a percentage of revenue as we go into next year and the following year, because we need to leverage every area of our cost structure going forward and we feel confident about being able to do that and still get more return in more bang for the Buck based on what we've been doing this year and based on all of the ROI work.

Been doing from a marketing perspective.

And changing the mix and how we spend through the restructuring activities as well so.

You will probably see some leverage in marketing as a percentage of revenue as we go into next year and beyond.

But I don't think you will see any decrease in the power of our marketing if anything you should see an increase in the power, yes, that's right and I would just add a comment around your question around the holiday and promotional environment I think that currently has a perceived scarcity.

Round.

Product in general across different sectors in the marketplace and I think that's going to enable us to continue to drive a more premium position for our brand.

It is unclear as a little bit around traffic patterns, we're seeing some.

Some things going on with the consumer around the world, which is not necessarily consistent but in terms of our offering and how we think about promotions, we're going to be less promotional than 2020.

2019, and we're going to continue to drive the brand to higher levels. That's really is our approach going into holiday this year.

Great guys and congrats again, thanks, a lot and best of luck for holiday.

Thank you. Our next question will come from the line of Brian Nagel with Oppenheimer. Your line is now open.

Good morning, great quarter, congratulations thanks, Brian.

So a couple of questions.

Thank you want to focus on just the supply chain.

I'll merge the questions together, but I mean first off you've laid out kind of the trajectory.

Through the holidays and into early next year. The question I have there are there.

If you look at.

The first quarter of next year are there levers you can pull.

Mainly like others have mentioned airfreight, and bringing product and potentially at a higher cost would you pull that and then the second question I have is.

Look at the data now.

Continued nice sales acceleration for your brand, particularly United States usually.

The ability of your company to manage supply chain relatively well here is actually serving as a driver of incremental market share.

Well I feel.

Thanks, Brian I'll start off and ill pass it over to Dave I think if you've got any additional comments.

Commented on this I think in general in terms of the operating ability that we currently have the agility that we have and.

The improvements we've made in our supply chain and our vendor base over the last years have now put us in a position where we can go both ways, we've talked a little bit here today about our ability to navigate through a pandemic, where we had to scale our orders back by 30%.

And then ramping it up again for 'twenty, one and kind of going through what is now a logistic and transportation.

Quagmire and navigating through that adjusting again, our order base a little bit for first half of 'twenty to all of those different things are not possible unless you run a an efficient and effective machine and I think that's what you're really seeing from under armour at.

At this point in time, there's an ability to navigate anything that's thrown at us.

Do so in the most efficient way possible just think about the last two quarters I mean, our inventory position in the last quarter was down 26% now down 21%.

And we're guiding to a flattish end to the year.

I think that is a testament to how we are able to navigate and understand demand much better and then throwing that over to supply chain to execute more efficiently and better and.

And I think also.

Going back to what Dave talked about earlier as it relates to.

Our off price or what we're selling into that channel being also able to manage that.

In combination with.

How we think about our wholesale and our own direct to consumer all of that coming together and being able to navigate the last two years.

Should give you an indication of the ability of this team's ability to execute Dave I don't know if you want to add a bit I guess, Brian to add a little bit to that and you touched on air freight.

Our I would say employing every lever possible to try and mitigate as best we can and keep the experience to our customers and our consumers strong so.

We have used a lot.

A lot of air freight this year, which were not excited about but it's a necessary thing with the challenges that we're all being faced with and I think as we approach next year.

We would expect the use of air freight to be something that we would still employ.

Probably not as much as we did in this year in 2021, but still more than pre Covid 2020.

And I would say that that is probably going to be more front half calendar 2022 focused which will put a little bit of pressure on gross margin, but it is helping us to.

Mitigate some of those challenges from a timing perspective.

And try and keep that impact.

From being not as significant so it is a work in process. There's a lot of a lot of pieces to that puzzle as we are driving through but.

Our supply chain has been excellent and working with our partners not just the factory, but also our logistics providers to mitigate this as best we can and so we feel very good about how we can navigate through.

And we're trying to stay ahead of it relative to the <unk> and the relationships that we have.

Great I appreciate it thank you very much.

Thank you Brian.

Thank you and our next question will come from the line of Bob <unk> with Guggenheim Securities. Your line is now open.

Good morning.

Just a couple of questions from me thanks.

First one is you talked about the recent trends in China I was just wondering if you can elaborate a little bit with what you saw in the quarter and sort of what youre seeing this quarter to date.

How you have that planned into the fourth quarter and then I think you called out running as the category I was just wondering if you could give us maybe a little more color on basketball and even the kids business. Thanks.

Hi, Bob This is Patrick but I think China.

We're still seeing Covid effects, if you like in terms of how the consumer is navigating.

The landscape there.

There are lots of ins and outs on a weekly or monthly basis in terms of.

Localized closures as it relates to brick and mortar.

And.

The traffic in terms of full price traffic really has not returned to pre COVID-19 levels, yet and it's just it's just the way it is.

And I think we're also seeing somewhat of a.

Tempered traffic pattern in <unk>.

E Commerce and I think that is.

All of that has to do with the big platforms Tmall and JD that are that are seeing also a diminished traffic pattern on their platform. So the digital landscape in China is shifting you're seeing a surgeons.

Surgeons of smaller platforms and commercial ventures, starting up around these bigger platforms and the good news for US I guess is that we've made a lot of investments into our digital teams over there over the last few years and when we feel that we are able to navigate this this.

New landscape, but it is a varied landscape and it isn't.

Necessarily 100% clear how this holiday period is going to pan out in China. So there is a softness I would say in the traffic patterns in China right now.

Can you talk a little bit about maybe basketball in the kids business, Oh, yes, basketball and the kids, but sorry about that Paul Yes basketball in basketball, we're very excited about and this comes back to a little bit what I talked about earlier, both basketball and kids as we've seen.

More normalized back to school this year, it's absolutely the case that all of our team sports are doing better in basketball is certainly a part of that we're also very excited about our <unk>.

Latest release for women.

Came into the market.

Breakthrough basketball shoe, that's been doing great. Our core business is doing great.

And we just think that there is a.

Just a vitality if you like and the team sports business right now that we haven't seen for a few years, so that goes across kids and.

Also basketball, but also the other team sports American football.

As well as baseball.

I would just say that in total.

This year versus 2020, we are seeing youth growth rates higher than kind of the mens and womens which is a great sign as well.

Great. Thank you very much.

Thank you and our next question will come from that Paul <unk> with Citi. Your line is now open.

Hey, guys. Thanks curious even prior to your purchase cancellations that you mentioned I'm curious how you were thinking about your unit buys for 2022, and how were you thinking about that differently in your direct to consumer business versus the units that will be required to service your wholesale accounts.

And then post.

Cancellations.

Is that unit by shaking out because what percentage did you have to cancel.

Hi, Paul This is Dave we havent been giving.

He'll unit numbers as far as in our in our expectations and I appreciate the interest in next years.

That growth.

But it's not something we're ready to give color on yet we will be talking about that more on the upcoming call or the one following that.

Knowing that our fiscal year change happens on April one as well.

So we're kind of being careful relative to how much detail, we give an on the go forward.

Okay. Thanks, and just to follow up on a couple of other questions were asked that you mentioned.

Maybe you saw some differences in geographies.

From a consumer perspective, how would you characterize the promotional environment I should think about the different regions.

Are you seeing big differences.

In APAC versus EMEA compared to the more team promotional environment that we're seeing here in the U S.

Hi, Paul This is Patrik I'll give you my my kind of high level around around the globe. If you like I think that youre seeing more of a discounted environment in China right now in APAC.

With softness in traffic patterns.

In Europe, we see a pretty interesting phenomenon, where actually the consumer has gone back to brick and mortar.

More strongly than we would've anticipated actually creating a bit of softness in the E. Commerce digital channels not just for us, but also for the pure players in Europe. So the consumer really is enjoying being back out and shopping in stores.

And they're doing so at a let's say premium level, so not really a very discounted level.

And in North America, I think the consumer has stayed in digital.

And have.

<unk> two.

Go back.

No.

At higher rates in terms of traffic to the stores.

At a more.

And less discounts and an elevated level for us. So I think it's a mixed bag across the world. The three regions are behaving a little bit differently right now.

Which makes it a little bit challenging perhaps too.

Let's say understand exactly how theyre going to navigate through through through this next couple of months, but.

At the end of the day, we feel confident that the forecast that we currently have given today is going to be kind of where we're heading.

But it is interesting I don't think I've seen it like this before where.

Everybody has a different stages with COVID-19 everybody's at different stages with retail and e-commerce.

But in general in the Western World, There is definitely less discounting and more so in China at least in terms of how we think about our sector right now.

Thanks, a lot Patrick.

Thanks, Paul.

Thank you and our next question will come from line of Jonathan Komp with Baird. Your line is now open.

Oh, Yes, hi, Thank you just a follow up on the running category would you say that's the Best example.

Or your strategy to move more premium is underway and.

When you think about the broader brand metrics I know you track a lot of them internally could you share maybe a couple of insights.

Recent movement or improvement youre seeing across some of those metrics.

Yes, Hi, John.

Very excited about our running category, it's been a category that we have methodically and strategically and tactically.

Really worked on in a meaningful way since 18, when we launched our hover platform. This year, we came out with our flow platform with the velocity wind and the velocity ESC.

On the back of the Curry released last year in basketball and I think what Youre seeing now with under armour is really an ability to execute on running head to toe and we're doing that across the globe, which I'm very excited about.

In a premium way so so really what <unk> seen over the last three years is this running.

Effort.

Evolving into becoming a new platform for under armour across both men's and women's across apparel.

And footwear.

And we're very excited about the innovation that we continue to drive in this category and how we think about it going forward into 'twenty, two and beyond so more to come on this from under armour, but we're here we're in it we're in it to win it and we're going to stay in running and do a better job there as we go forward so very excited about that.

Okay. That's really helpful. And then Dave just one follow up I know you mentioned the stub quarter of the March quarter could grow low single digits for revenue even with the headwinds that you mentioned, so should we be thinking that overall youre moving more towards sort of a load or sort of a mid to high single digit growth rate.

That Q1, you'll be still low single digits, even with the constraints just trying to get a sense of more of the underlying pace that you might be yet.

So Jonathan Great question.

And I'd love to give you more details on that but we're not ready to give.

That exact numbers or impacts yet for calendar Q1 or for the new fiscal 'twenty three next year. So definitely appreciate the question.

We wouldn't call out the impact of the supply chain cancellations, if it was not material.

So it is definitely a pretty big impact but.

Kind of giving a normalized run rate growth isn't something that we're ready to give at this point, but definitely appreciate the question.

Alright understood. Thanks again.

Thank you.

Thank you. This concludes our question and answer session for today everyone. This also concludes our webcast and conference call. Today. Thank you very much for your participation. You may now disconnect everybody have a wonderful day.

[music].

Okay.

[music].

As a reminder, this conference call is being recorded for replay purposes. It is now my placer to hand, the conference over to let the Lego SVP Investor Relations and corporate development you May proceed.

Thank you and good morning to everyone joining us on our conference calls we're in front of our third quarter of fiscal 2021 earnings Conference call.

<unk> provided on today's call will include forward looking statements that reflect on Armours view of its current business as of November <unk> 2021 statements made are subject to risks and uncertainties that are detailed in documents regularly filed with the SEC and the safe Harbor statement included in this morning's press release, both of which can be found on our website about that under armour dot com.

It's important to note that the ongoing uncertainty related to COVID-19, and its potential effects on the global retail environment could continue to impact our business results moving forward, we may reference non-GAAP financial information on today's call, including adjusted and currency neutral terms, which are defined under SEC rules. In this morning's press release, you May also hear us refer to amounts under U S. GAAP reckon.

Filiation GAAP to non-GAAP measures can be found in our press release, which identify and quantify all excluded items and provides our view about why we believe this information is helpful to investors joining us on today's call will be under our president and CEO Patrik Frisk and CFO, Dave Bergman. Thank you Patrick.

Everything we do at under armour is based on driving sustainable long term growth while at the same time, ensuring we are setting a solid foundation to deliver near term value to our shareholders.

This is the balance you should expect from us and it's a commitment we work towards every day.

Constant focus on operational excellence to ensure we manage the marketplace efficiently and steady financial discipline to create meaningful levers to drive greater profitability.

These strengths were evident in our third quarter results with revenue up 8% gross margin up 310 basis points to a record, 51% and solid adjusted EPS performance at 31.

In this spirit as we work to close out 2021, I feel good about the progress we've made the resiliency we've earned and the potential we have to do even better in the future.

Demand for our product and consideration for our brand is growing that gives me confidence that despite potential impacts from near term headwinds the long term opportunities before us and our ability to compete and win in an ever changing global landscape are stronger than ever.

Of course, it all starts with brand so with that let's get into some third quarter highlights starting with the incremental investments, we're making in marketing and how they are translating to improving brand affinity from our focus on consumer awareness attraction and consideration.

Through uniquely under armour execution via social media TV retail and digital Activations. The only way is through and train your mind train. Your game showed up as one global brand and voice across categories channels, and our marketing funnel.

Coming off this effort, we have now shifted gears into fourth quarter activation, which is centered on cold weather training.

Knowing athletes, sometimes see cold as Theyre kryptonite, our human performance research lab is helping equip them and reshape this type of training as an asset to take their performance to new levels validated by the experiences of our most elite athletes were aspiring and educating focused performers for the winter ahead with powerful storytelling.

<unk> workout routines product reviews, and premium retail capsules, our ecosystem is well set to inspire and capitalize on growing demand.

Turning to product given the third quarter bridge summer and fall, we realized success on both sides of the temperature spectrum, including solid sell through all of our ISO chill apparel products, which cool you and fleece, which saw strength in men's and youth as athletes gear up for the cooler months ahead.

There was also continued momentum in men's unstoppable bottoms and women's leggings, including Meridian and are no slip waistband technology and finally, the project Rock collection and Pops featuring Rush also built on their year to date momentum so consistency in some of our best sellers.

Slow velocity and <unk> footwear in the Americas, driven by better than expected back to school demand his team sports returned.

In fact, North America drove the majority of the third quarter over delivery for the company. So encouraging to see continued progress here.

Compared to 2019, North American revenue was up 2% in the third quarter. It is important however to revisit some key differences in these comparable periods 2021, North America versus 2019, including a significant increase in our direct consumer business substantially lower off price sales reduced promotional and markdown activity.

<unk> proactive supply constraints and undifferentiated wholesale exits so all in meaningfully higher quality and more productive dollars going through our P&L now than just two years ago.

Were making into marketing CRM and store expansions, including opening our 1000th store in the region.

Versus 2019 third quarter APAC revenue was up 37% so solid progress on the two year stack.

Next up is EMEA, where revenue was up 15% driven by wholesale which saw continued momentum from our distributor partnerships and a solid direct consumer performance and our two most prominent countries in this region. The U K and Germany, we remain focused on brand development building long term relationships with our key wholesale partners.

Strengthening our direct consumer team and retail capabilities.

EMEA wholesale growth was balanced across our full price and distributor businesses versus 2019 third quarter revenue in EMEA was up 50%.

Accordingly, we expect top line pressure in Latin America, as we finish out 2021.

Which of course, you will see in our gross margin results versus 2019 direct consumer was up 31% for the third quarter overall, we're pleased.

<unk> that our strategies towards improved presentation and experiences in our stores and online are driving better economics throughout this business.

So in summary, we're pleased with our third quarter performance and our ability to close up will be under armour and split adjusted EPS year in our history.

In the near term however, we remain both confident and cautious with several fluid headwinds continuing to impact nearly every sector. It is important to remember that under armour is battle tested and mission proven I am incredibly proud of our global team and how we've worked to maintain balance and trajectory regardless of whether it's thrown our way we can see.

To get sharper and smarter and more efficient.

Across our business by channel product or region. There remains one constant we obsess the intersection of Undrawn, Ms serving focused performers industry, leading innovations premium experiences heartland, but data driven we empower those who strive for more and.

And with that I'll hand, it over to Dave.

Thanks, Patrick with three quarters of the year behind us our strong third quarter results demonstrate our ability to execute quickly to meet the needs of our consumer needs of our consumers and customers all while driving toward a record revenue and earnings in 2021, So let's dive right into our results.

Patrick covered our regional performance earlier, so now, let's click down into our channel results on a global basis.

But I would also note that when compared to the third quarter of 2019, our E Commerce business was up over 50%.

And licensing revenue was up 24% driven by improving strength within our north American partner businesses.

By product type.

Apparel revenue was up 14% with strength across all categories, particularly in training and golf.

Footwear was up 10% driven primarily by strength in running.

And our accessories business was down 13% due to lower sales of our sports masks compared to last year's third quarter.

Relative to gross margin.

Our third quarter improved 310 basis points over last year landing at 51%. This expansion was driven by 400 basis points of pricing improvements due primarily to lower promotional activity within our DTC channel along with lower promotions and markdowns within our wholesale business.

And 120 basis points of benefit due to channel mix, primarily related to lower mix of off price sales versus last year's third quarter.

Partially offsetting these improvements was about 100 basis points of negative impact related to the absence of my fitness Pal.

And 90 basis points of negative impacts from higher freight and logistics costs due to COVID-19 related supply chain pressures.

Versus our previous expectation our higher than expected Q3 gross margin improvement was primarily due to lower than planned promotional activity within our DTC business.

And more favorable pricing related to sales to our off price partners.

SG&A expenses were up 8% to $599 million due to increased marketing investments incentive compensation and non salaried workforce wages.

Relative to our 2020 restructuring plan.

We recorded $17 million of charges in the third quarter.