Q1 2024 Under Armour Inc Earnings Call
[music].
Yeah.
Yeah.
Good day and thank you for standing by welcome to under Armours Q1, 'twenty 'twenty four earnings conference call at.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
So you enter a question at that time, Please press star one wanting your telephone.
Please be about at today's call is being recorded.
I'll turn the call over to Atlanta, like I was senior Vice President.
And corporate development. Please go ahead.
Thank you good morning, and welcome to under armour first quarter of fiscal 'twenty 'twenty four earnings conference call to David that is being recorded for replay.
Joining us on today's call will be under armour, President and CEO , Stephanie and CFO , Dave Bergman.
Today, well them certain forward looking statements that reflect under armour management's current view of our business as of August eight 2023.
These statements may include projections for our business at the present and future quarters and fiscal years.
These statements are not guarantees of future business performance and our actual results may differ materially from those expressed or implied in the news provided today statements.
Statements made are subject to risks and other uncertainties detailed this morning's press release and documents filed regularly with the SEC, including our annual report on Form 10-K, our quarterly reports on Form 10-Q. Today's discussion May also include the use of non-GAAP references.
These measures provide investors with helpful perspective on underlying business trends when applicable. These measures are reconciled to the most appropriate U S. GAAP measures reconciliation, some reconciliations that which along with other further information can be found in the mornings press release.
Under armour dot com with that I'll turn the call over to Stephanie.
Thank you Lance and welcome to everyone joining today's call.
Having finished my first full quarter at under armour I am pleased that our results were broadly in line with our expectations and that we are on track to deliver our fiscal 'twenty four outlook.
Looking further into the business and gaining a better understanding of our strengths strategies and opportunities for improvement.
Even more inspired about the power of the under armour brand and our ability to unlock our full potential over the long term.
During the quarter I met with athletes customers and teammates across the U S, Italy, France, Spain, Turkey, and Netherlands, and the U K and I have seen firsthand the enthusiasm and passion for our brand and products from athletes to thank us for helping them push the boundaries of what is possible in the field of sports two.
Our retail partners, who are energized for what's to come our mission to make you better is front and center.
On our last earnings call I laid out our protect this house three or PTH three strategy, which is centered on delivering three significant initiatives over the next three years.
First is driving global brands with an emphasis on the U S SEC.
<unk> is delivering elevated design and products with a focus on footwear sports style of women.
And third is driving U S sales, while harnessing momentum in our international business.
Although these initiatives will take time to gain traction with one quarter behind us I am pleased by the team's increased execution accountability and unification around these pillars.
Using fiscal 'twenty four is a building year to focus on cost management and profitability, we are making progress across each of the PTH three priorities. So I'd like to spend a few minutes reviewing some highlights.
We'll start with driving global brand team.
Crucial to this execution is strong leadership to strike an appropriate balance between topline growth and proving our strategic capabilities and maintaining cost discipline to ensure we generate the highest returns possible as we grow the under armour brand.
In this respect we're happy to have recently welcomed two new additions to our executive team.
First is our chief Consumer officer, Jim Dallas, whom I have the pleasure of working with for over 20 years of Marriott International.
Jim is a seasoned executive with experience, leading transformational strategic initiatives across product marketing and sales and driving significant brand and consumer loyalty improvement.
As a crucial operator in our effort to drive global brand P. He has hit the ground running and Im looking forward to the fourth tower that I know he can add to our team.
Second we welcomed Amanda Miller as under Armours, Chief Communications Officer with over 20 years of experience Amanda joins us from Paypal, where she served as VP of corporate affairs, leading the company's multi tiered global communication strategy.
In conjunction with Jim's role in linking all of our commercial elements together evolving how we tell our brand and product story to our athletes consumers the media and other stakeholders will be critical to driving global brand team.
Welcome Jim and Amanda you have the fantastic team at under armour to lean on and we're excited about the journey ahead.
Last month, we also announced that Lisa Collier and Colin Browne are leaving under armour to pursue other opportunities accordingly comprehensive searches for a new chief product officer, and a new chief supply chain officer are underway.
Want to thank Lisa and calling for their contributions and leadership throughout their time at under armour.
Switching gears to marketing we saw positive results with the return of protect this house earlier this year and continue to build on this momentum with recent activations around the women's World Cup.
The campaign has a digital emphasis and showcases to under armour top female football or Kelley O'hara from the U S and Alex screen, but from England.
Respect to music massive impact on sports culture, and the athletes mindset dairy stories and motivation come together to armor up with a common goal to protect this house.
Working in parallel as our premium women's magnetically III soccer boots under armour first please made with a specific class for women's but an outstanding example of our commitment to serving female athletes from the world's most elite football stage to the local patch.
Further showcasing our female athletes under armour held a series of events coinciding with the WNBA All star weekend in July , including our newest basketball athlete Diamond Kneller, along kelcey plant with the Las Vegas, Asus, who most of you use basketball camp.
Powered by UA next under Armours Youth focused sports development camps. We also debuted calces, new Earth wind and fire UA flow breakthrough for sneaker at the Las Vegas brand House.
UA next continues to be an excellent connection vehicle with the 16% to 24 year old varsity athletes in fact, we wrapped up its eighth iteration in June the future 50 were 50 of that that high School American football Juniors and seniors gathered for an intense two day experience. This.
This included training practice competition and mental exercises along with engagements with Justin Jefferson of the Vikings and Kyle Hamilton of the Ray ban.
Yeah.
And speaking of football. We also recently announced that we have extended our long term relationship with Notre Dame, which is a tremendous point of pride for under armour in the decade ahead, we look forward to supporting the next generation of athletes as we co create customized fighting Irish uniform footwear and apparel for the University 26 <unk>.
James.
And then a central theme underlying supported these brand heat moments is the importance of social media and an always on digital presence to connect with young athletes more deeply.
I am encouraged by the progress, we're making here with the considerable evolution in our overall social media approach, which has led to increasingly positive results over the past six to eight months.
We have also been refining the content on our category specific social handles, allowing us to target athlete groups, better and increasing efforts to directly connect product marketing and technical attributes to their everyday moments.
I'm also pleased that we continue to improve the shopping experience for under armour products featured imposed on Instagram and Tic Toc and working towards direct purchase and checkout on our platforms.
Another step in enhancing our omnichannel capabilities.
Of course, driving brand team must coincide with having innovative and stylish scared that athletes desire, which brings me to our second priority of delivering elevated design and products focusing on footwear sports style and women.
Over the past three months, we've begun to simplify our product lines around fewer collection groups to optimize our ability to engage and convert consumers as we continue to scale our brand.
To enable that fleet plan to distort investments towards the strategic handful of specific apparel and footwear collections that we will activate through improved inspirational storytelling to drive more consistent demand for key franchises.
Following a few quarters of pressure on our apparel business, our first quarter performance on an impact from the persistent promotional environment and the challenging North American retail environment.
To combat this using our key franchise approach, we are launching a substantial update to our original heat geared compression base layer T shirt. This fall.
Featured on the field to play when to UA teams, Notre Dame and Navy base off during college football's opening weekend in Dublin, Ireland on August 26, there is no better demonstration of the power that our innovation brings to sport.
This fall we are also introducing an elevated meridian legging collection with improved material in our stores and Dick's Sporting goods, New health and sport concept. So the next round of evolution for one of our best loved women's products.
Both here and meridian will be priced to attract better and best level products, helping to advance one of our broader goals, which is to drive higher asp's to leverage gross margin in P&L productivity better.
There is certainly much work to be done and it will take a few seasons to get to where we want to be but Meanwhile, this team is not standing still.
And our footwear business, we continue building momentum with our versatile UA slip speed platform.
Following the initial training shoe launch in February we recently dropped slip speed match, a highly breathable version for your toughest summer workouts.
It's one of our highest rated sneakers slip seat features a unique lightweight upper with an ISO chill padded interior Boa lacing system and flow cushioning, along with the quick slipped heel that puts you right into recovery mode.
This fall we have two launches to look forward to a slip speed collection and collaboration with Justin Jefferson and then on Halloween will do a limited launch of our new UA flip speed running shoe with the Valentines day, 2024 launch, which mirrors last year slip speed rollout.
From the next chapter of slip speed to the next chapter of our best in class basketball shoes. The launch of Curry 11 is also expected in October .
With a new futuristic design language that translates to an elevated aesthetic and vibrant color palette. This is the first time, you'll see dual density UA flow Cushing for even more comfort and traction along with an improved upper chassis for better step and comfort.
Hands down the 11 is the most innovative standout Sheila thus far in the current portfolio.
And we are so excited to get it to market.
In addition, we are continuing to amplify the Curry brand platform more meaningfully with new footwear apparel and accessories across basketball golf and sports style in the works.
This expansion will also unlock new distribution opportunities are at our existing retail partners and provides better consideration into places we're not well represented.
Activating this part of under armour business is a key unlock to driving future growth.
Another apparel example is in our sports style business, where this fall we are elevating our fleece offerings with premium products that amplify style and performance.
Our unstoppable and essential police warm ups aren't just about staying comfy before they gain though it's easily the plush asleep you've ever felt it's about lightweight world class temperature management that performed above your expectations.
These products will be highlighted unjust and Jefferson in North Americas upcoming back to school protective health campaign and will be available in our direct to consumer channels and premium wholesale locations.
Yeah.
This brings me to our third strategic priority, which is to drive U S sales.
Over the long run we are confident the driving brand heat and delivering better defining products will reinvigorate growth in our home market.
Athletes are at the center of everything we do and they are asking for better access to under armour products wherever and whenever they shop.
That said, we're focused on determining where the best expansion opportunities exist across our wholesale and direct to consumer channels.
While at the same time assessing ways to optimize SKU productivity with improved segmentation to drive meaningful ASP expansion as we grow our better level products.
Despite the temporary U S wholesale environment, we are focused on strengthening our retail partner relationships across our sports specialty business and being deliberate in the opportunities we pursue across malls and department store.
As we work in the spring summer 'twenty four we have plans to open new doors across these channels. So much of that work in relationship building is underway.
Back to our P. T H three strategy when we execute well on the first two priorities of driving global brand heat and delivering better products, we expect to enable growth in our U S business.
Shifting to our direct to consumer business, we're happy to report that we launched our U S loyalty program <unk> rewards on July 31.
Early points on the board that draws from my experience driving higher revenue per customer repeat business increased direct channel engagement and brand love and loyalty.
This diverse program extends our brand experience, providing consumers with early access to product drops wellness content and athlete experiences, including one Lucky Sweepstake winner, who will meet Stephan Curry this month in Baltimore.
Initially launched on our digital platforms, we expect to roll this out more broadly into our retail stores. This fall.
This is a fantastic step forward for us and I am confident you a reward for being an excellent asset and deepening connection with athletes and inspiring better sales conversion as we scale the program.
As our most profitable region, we have to win in our home market of North America growing faster here. It means more future dollars to invest in product marketing and our international business as well as increasing returns to shareholders.
Now to be sure we're not taking our eyes off our international business and are encouraged by the positive momentum we continue to see in the EMEA and Asia Pacific businesses, which each saw double digit revenue growth during the first quarter. So balance is key in the near term as we set up for the long term.
In closing, we're making initial progress on our PTH III priorities and I'm encouraged by the team's efforts in these early days from leadership changes and amplifying our storytelling to driving global brand heat and optimizing our product engine to deliver ground breaking innovation that athletes.
I am confident that we will continue to methodically place ourselves into a stronger position to achieve the improved growth and profitability that I know under armour is capable of.
Now I will hand, the call over to Dave to go into more detail about our first quarter results. Thanks Stephanie.
Let's review the results for our first quarter of fiscal 2024, which ended June 30.
Our first quarter revenue was down 2% to $1 3 billion, which was in line with our outlook.
Excluding the negative impact of foreign currency due to the strength of the U S. Dollar revenue was down 1%.
Clicking down into our region.
Revenue in North America was down, 9%, which was roughly in line with our expectations and a result of challenges in the U S. Wholesale channel due to elevated sector wide inventories and ongoing promotional activities factory, we expect to ease as the year progresses.
As a result, the first quarter should be the largest decline in North America. This year.
Revenue in EMEA grew 10% during the quarter with a solid performance in our wholesale business and strong growth in our CTC business.
Currency neutral growth in EMEA was 11%.
Our Asia Pacific business was up 14% during the quarter.
The 21% increase on a currency neutral basis fueled by steady improvements in retail traffic and post COVID-19 normalization.
We also saw solid performance in our wholesale business and strength in our DTC business.
And rounding it out due to favorable wholesale and DTC channel results Latin America revenue was up 13% or up 5% on a currency neutral basis during the quarter.
On a global basis by Gerald Holton.
Wholesale revenue was down 6% to $742 million.
The increases in our distributor and off price businesses were more than offset by lower sales to the full price channel amid U S wholesale challenges.
Direct to consumer revenue increased 4% to $544 million driven by solid performances in our e-commerce and retail channels.
Licensing revenue was down 11% in the quarter to $25 million driven by softness in our Japanese licensee and North American business.
By product type.
Apparel revenue was down 5% driven primarily by softer sales in our training business due to the ongoing pressure in the North American wholesale environment, we spoke to earlier.
Footwear was up 5% driven primarily by strength in our run rate.
And revenue accessories was up 1%.
Our first quarter gross margin declined 60 basis points year over year to 46, 1%.
This was driven by 300 basis points related primarily to higher promotional activity within our DTC business as we managed through prior season products as well as unfavorable pricing related to sales to the off price channel.
70 basis points of negative impact from changes in foreign currency.
And a combined 30 basis points from less favorable product and regional mix.
These headwinds were partially offset by 320 basis points of supply chain benefits related to inbound ocean and air freight tailwind.
And 20 basis points from a more favorable channel mix.
Moving further down the P&L in the first quarter SG&A expenses were down 1% to $587 million.
Operating income was $21 million in the quarter and.
And after tax we realized net income of $9 million or <unk> diluted earnings per share.
Next our two first quarter balance sheet call outs, starting with inventory, which was up 38% to $1 3 billion. This was in line with our outlook and as a reminder, we ran leaner inventory levels in the summer of 2022 due to our constraint model.
Proactive cancellations of orders due to COVID-19 related supply challenges. So this comp is elevated accordingly.
Finally, our quarter end cash and cash equivalents were $704 million and we had no borrowings under our $1 1 billion revolving credit facility.
Now, let's turn to our fiscal 'twenty four outlook.
Which remains fundamentally unchanged from the outlook we provided.
<unk>.
But to reiterate there is no change to our expectation that revenue should be flat to up slightly versus fiscal 'twenty three.
However, we do see the regional color shaping up a little differently with North America expected to be down 3% to 4% given the challenging environment, we spoke to earlier and our international business to be up.
At a low double digit rate as momentum continues in EMEA and APAC.
Next there is no change to our gross margin outlook, which is an expected 25% to 75 basis point improvement from last years rate of 44, 9%.
And we also continue to expect SG&A to be flat to up slightly opt.
Operating income to reach $310 million to $330 million.
Diluted earnings per share of <unk> 47 to 51.
Next I'd like to give some color on our second quarter and the second half of fiscal 'twenty four.
We expect second quarter revenue to be flat to down slightly versus the prior year.
Including a low single digit decline in our North American business, partially offset by mid single digit growth in our international business.
In addition, we expect the years highest revenue growth rate to be in our fourth quarter.
Next we expect gross margins to be up approximately 100 to 150 basis points in the second quarter due to a tailwind from lower freight costs.
Partially offset by persistent promotional activity.
We expect the third quarter to half of the year smallest quarterly gross margin improvement due to anticipated actions to manage our inventory down further.
All of which gets us to an expected second quarter operating income of $115 million to $135 million.
Which translates to 18 to 21.
Diluted earnings per share.
And finally in line with our previous outlook, we expect inventory up at a mid to high single digit percentage rate at the end of our second quarter.
Before declining in the third quarter and being down at a mid teen percentage rate to end fiscal 'twenty four at approximately $1 billion.
To wrap up today's prepared remarks.
Underscore the confidence we have in our strategy.
Improving the ability to execute against our PTH three initiatives, which are engineered to drive revenue growth over the long term.
In the near term, we are identifying additional areas of cost improvement such as supply chain efficiencies SKU rationalization and improved segmentation opportunities to drive ASP expansion.
We are also continuing to prioritize investments.
Particularly around our demand creation efforts to ensure that we do choose to invest we're providing the highest possible returns to our topline.
And we are managing costs more aggressively.
To set us up for even more productive P&L once revenue begins to inflect more significantly in the future.
This balance of bottom line profitability in the near term with topline productivity and improved profitability in the long term is what we are relentlessly focused on driving with a sense of urgency.
With our first quarter in the books. The changes we are implementing in our execution against our PTH. The strategy gives me confidence that we're on the right path to creating improved value for our shareholders over the long term.
With that we'll turn it over to the operator for questions.
Operator.
Thank you again ladies.
To ask a question. Please press star one on your telephone again to ask a question. Please press star one one.
One moment please for our first question.
Our first question comes from Simon Siegel.
Of BMO your line is open.
Great. Thanks, Hi, everyone. Good morning, hope, you're having a nice summer.
Stephanie I noticed it might be early but would love to just get your broader thoughts on the wholesale environment North America, maybe just your thoughts on looking further out the need for promos versus as inventory gets cleaner. That's both for you and also the competitive landscape and then Dave any way to quantify any of the puts and takes you just mentioned for the <unk>.
Second quarter gross margin, but also how it flows through into the full year. Thank you.
Sure well good morning, Simeon and happy summer to you as well.
As it relates to the wholesale environment as we mentioned in our prepared remarks. It is.
There's a couple of things going on they are still in play the levels of inventory that are leading to more promotional activity, but as we see the year going on and as we head into next year, we anticipate that things will get better and there will be less need for so much promotional activity I think from.
The bigger perspective, though in much longer term, we're very confident that our protect this house three pillars, which are again around driving global brand heat with the focus on the U S delivering elevated design and product with a focus on footwear sports fallow women and then really driving U S sales.
While leveraging our international momentum this is all going to come together too much.
Better business more business with our wholesale partners and it's also going to allow us to expand our distribution.
As we focus on better product, we're going to be more disciplined about segmentation, we're going to open new doors, new partners, including in the wholesale.
Arena. So we're excited about the long term strategy and where we're headed with our with our partners.
And relative to inventory and gross margin I mean first of all I, just would kind of remind us that our inventory is in a very healthy position. We don't have a lot of older products thats, making up our inventory.
And we are normalizing against leaner days last year. So I think we're balancing promotions and the need to move some of our inventory very well.
And also kind of keeping that third party off price liquidation channel in that 3% to 4% range of revenue, which we feel is a reasonable level and kind of how that translates to your point to Q2 and back half gross margin.
Q2, we see the 100 to 150 basis point expansion and it's really just the two things mainly.
Lowering freight costs, we continue to see.
And then partially offset by the promotional environment continuing to be a little bit pressured.
All other smaller puts and takes for Q2, but those are the big ones and then when you think about kind of the back half of the year.
Again, some of the similar puts and takes but I think in the third quarter, we called this out as being one of the smaller year over year gross margin improvement quarters, and Thats really just because from a timing perspective, we're planning to do a little bit more with the third party off channel in that quarter versus the prior year third quarter for us.
And then also we're still being a little cautious in how we plan.
Holiday in fiscal Q3 or calendar Q4 for us. So you see some of that come into play as well.
And then you would see better improvement year over year in Q4.
Because we get past that quarter, but then also a lot of the different costing initiatives, we've been working on with our vendor base. They start to come into play more in Q4, and then further as we go into next year.
Great. That's really helpful. Just a quick follow up on the to your point about inventory health did you say what percent is pack and hold this quarter. Thanks.
I mean generally speaking.
Been starting to work that down.
Probably about.
I would say.
Third of the increase in inventory.
Year over year is due to pack and hold.
And then we will continue to work that down as we as we use that through.
Some of our outlet stores, but also some of our in line accounts, because theres a fair amount of that that is.
No.
Core product that is more seasonal in nature.
Great. Thanks, a lot guys best of luck for the rest of the year.
Thanks, Thank you.
Thank you one moment please.
Our next question comes from the line of Jay sole of UBS. Your line is open.
Great. Thank you so much I just wanted to follow up on the last question a little bit first.
Just talk about how your order book in the U S wholesale business firmed up as you went through the quarter and got those orders for the holiday season.
What it how it trended versus your expectation and then relative to maybe the mid tier channel versus the more premium channel.
Things develop there that'd be helpful. Thank you.
As we can.
Embarked on this year, we knew coming in that there was going to be some pressure on the buys with some of the retail partners just because of the building inventory from a lot of the brands last year and so we saw that coming through in the orders.
As we.
Embarked on this year I would say, though that Q4 of this year Q3, Q4, those orders and the visibility around that did come in slightly less than what we had expected and that's partly what's going into kind of that revision. We made within revenue. So yes, we're definitely maintaining our revenues out to us and we feel very comfortable with.
But with that.
Order visibility for kind of Q3 Q4 on the wholesale North America.
We are tempering that a tiny EBIT you see that in our in our update but international will continuing to drive very well and so that is coming up a tiny bit but net net still back to the same answer on a full.
Net revenue for us for the year.
Got it and then maybe Stephanie just as you talk about protecting it sounds three plan and driving global brand heat and really working on product.
Over the last few months as you've been getting more into the role what have you seen it sort of the potential of under armour from a gross margin perspective as you connect this strategy to the financials.
I think the gross margin should be for the business. Thank you.
Yes, I think that.
We've got a lot of opportunity ahead, I think that there is both the protect itself three pillars that I went through are really about driving growth on and much of that this fiscal year 'twenty four is a building year, but see I think the growth really begin in 'twenty, five and beyond fiscal year, 'twenty five and beyond but.
In the in the short to medium term, we really are focused on driving profitability I mentioned in.
In my remarks that we're looking to drive higher ASP is theres a lot of work being done on SKU productivity cost of goods sold improvement. We are looking to manage costs very aggressively. So we can set the P&L up for more success in the years ahead and there is really no reason over time that we can't get back to the <unk>.
<unk>, so when I look out in the future that's what I'd say.
I'll just add a couple of thoughts to that as well a.
A couple of things that we will continue to be in play for us is over driving on DTC growth versus wholesale which from a mix helps the gross margin rate as we go into the next couple of years.
But then also as we continue to grow and scale of footwear theres, a little bit of pressure from that because our footwear gross margins are lower but as we're growing faster there and building scale in getting smarter in how we approach our product. The gross margin is starting to improve within footwear. So that disparity is a little bit less so.
It kind of starts to normalize there and one of the bigger things that we've really jumped back into is working hard with our vendors on the product costing side and really increasing the visibility of the build out of those costs in comparison with different vendors and that work has been underway and we do.
Anticipate some of that benefits starting to come in to our fiscal Q4 of this year.
And then even more so as we get into full year for fiscal 'twenty five.
Got it that's super helpful. Thank you so much.
Youre welcome.
Thank you one moment please.
Okay.
Our next question comes from the line of Bob durable of Guggenheim. Your line is open.
Hi, good morning too.
Two questions that I have so.
The first one is around the pipeline the product pipeline. Stephanie can you just talk a whole lot of around.
Where you're focused on and sort of some.
Improvements that you're making in the team that's in place to drive the new product development, new product pipeline since you joined.
The second question is you talked about driving higher AUR.
Can you just talk how you think the brand is priced.
Competitively versus your peer group and sort of where those opportunities might be.
Sure absolutely on the first part of your question as it relates to product our focus is on building out more and better and that's part of the product pyramid.
A big focus as we have discussed is around footwear women and sports style and that is just going to help build out those parts of the product pyramid again, better and best and we're excited we're excited about the team that we have in place to be driving the innovation on the product side and.
As I mentioned, we have a search underway for a new chief product officer, we're continuing to look at an opportunity to bring in new talent, we brought on some new designers.
And to help us on particularly on footwear and sports style. So again, it's really going to be about driving that better and best part of the product pyramid, which I think leads to the second part of your question, which is how we're going to drive higher asps.
I think we're going to drive higher asps by better product more on very disciplined segmentation.
We're going to continue to on our digital sites.
Look at opportunities to reduce overall promotional activity. So I think when you kind of put everything in the blender better product more disciplined segmentation and we're going to drive higher ASP and again it doesn't take much 510 $15 per unit to really drive some significant topline revenue in <unk>.
The ability for the company. So we're very focused on that.
Thank you.
Thank you one moment please.
Okay.
Our next question comes from the line of Laurent <unk>.
Of BNP your line is open.
Hi, Thanks for the question it's beyond your answer there on within the North America lowered outlook sounds like most of the changes on the wholesale side.
Maybe could you comment on your expectations for DTC has that changed at all or is it the same at 90 days ago.
Yes. This is Dave I would say.
Expectations between DTC and wholesale Hasnt changed very much we haven't really updated that in the outlook that we've provided but I would say that knowing that.
You know, we adjusted North America, a little bit with our expectations around Q3, and Q4 orders that is a little bit more wholesale skewed.
So from that perspective, you could probably back into.
BTC performing slightly better net net for the full year that we expect.
And wholesale slightly worse on the full year than we expected 90 days back, but not a real big inflection there.
Okay got it helpful. And then maybe could you talk a bit more about the strategy around team sports you've been exiting some contracts with UCLA and now it's nice to see you renewed the Notre Dame, but just how you're thinking about that overall and maybe within that how you think about marketing as a percent of sales going forward. Thanks.
Yes, sure absolutely, while we are an absolutely thrilled our balanced.
Our deal with with Notre Dame and looking forward to a spectacular decade with the school in terms of outfitting their athletes for their 2600, <unk> four ish, but what I'm, particularly excited about in addition is the fact that we're gonna have to be able to co create with their athletes as we head more into sports style more access.
Two.
The media assets of Notre Dame So under armour is one of only a few brands in the world that has real authenticity on the field of play the pitch the court.
You name. It. So we have this authenticity and it's authenticated through great relationships like with schools like Notre Dame.
And youre going to see US also leaning into that relationship on for collapse, we have.
Exciting co lab coming up.
With when Notre Dame place USA basketball on the womens side in Paris later this year no better place for our co lab in Paris, I mentioned in my prepared remarks, we're going to you know.
Relaunch, our renewed and improved version of Heath care compression with Notre Dame place Navy and other great UA School.
In Dublin later this summer so relationships with top sports programs are top universities is a big part of our strategy as it relates to marketing more broadly.
We are a goal in marketing is to really hit that 16% to 24 year old varsity team sport athlete. So from a marketing perspective that means continuing to double down in terms of digital and social.
Social it means more storytelling it means better use of not just our team, but our athletes and our marketing it means doing a better job of product marketing, so connecting brand marketing and product storytelling.
So we're it's really being what can always on highly digital marketing approach is really the key to how we're going to relate to that 16 to 24 year old varsity team sport athlete.
Great. Thank you.
Yeah.
Thank you one moment please.
Our next question comes from the line of Sharon Zackfia.
William Blair Your line is open.
Hi, Thanks for taking the question.
Can you hear me.
Yes, we can sure.
Awesome. Thanks for taking the question I guess, a follow up on the marketing side of the equation I know a woman is a huge opportunity for you and I'm wondering from a marketing dollar standpoint, how you can kind of better get in contact with our female consumer.
Due to show the elevated product that you've been putting putting.
Put them out and get more traction there.
Absolutely and good morning, Sharon Yeah, driving our women's business is a very big focus for me and for the team.
And it does start with product it starts with product that's always at the core of everything on the women's side and as we get into sports style more broadly it's about better design, it's about that upset its about better finishes and one that better and best part of the product pyramid, but you pointed out something very important it's equally about Halloween.
Market to the female consumer and so we're thinking about our marketing approach.
Bit differently, how we speak to the female consumer which athletes endorsed social influencers et cetera that we used and then last but not least you also highlighted distribution.
Getting more into sports title win in better and best product is going to open up new doors of distribution. So whether that's in the mall specialty Ron boutiques were going to have more product on more shelves I think that will appeal to women an end demand as well for that matter, but we definitely are.
Focusing on the harder on women than we ever had before and are excited about some of the things underway I mentioned, just a moment ago. The co lab, we're gonna do in Paris.
Later this year with the women's basketball that of Notre Dame and UFC, but they've got some other really exciting things underway that that we're going to we're going to be launching later into this year and into next year.
Yeah.
Okay.
Thank you one moment please.
Okay.
Okay.
Our next question comes from the line of Geoff Lowery of Redburn. Your line is open.
Yes, Hi, just one question. Please team could you talk a bit more about the international performance.
Killer, what's working between apparel and footwear.
Together with your your inventories and in any of the major markets and I guess actually maybe just a small part which is.
Is there a plan to take the rewards program.
Tonight rational or does the scale of the individual countries not justified at this point.
Any color you could add around that would be great. Thank you very much.
Sure and good morning, Yes, we're we're very pleased with the momentum we're seeing in our international business.
When you think about I'll start with EMEA, where the team is doing a fantastic job.
In both our own retail and with our with our wholesale partners very a lot of discipline around segmentation terrific relationship with our wholesale partners.
The brand in EMEA, particularly in the UK and Germany.
The under armour brand is and very elevated.
Place spoke with apparel and footwear.
Particularly on <unk>.
In apparel, we're doing very well in the international markets as they move to APAC I think about were also very strong in APAC were seen as the athletes brands kind of our brand positioning in APAC again very premium as we mentioned in our remarks growing both in EMEA and in APAC in DTC and with our wholesale partner so.
Cited about about our growth in Asia, and really see over the long term, China, a big growth driver for us ongoing UA rewards 0.1st of all I am So excited that we launched <unk> rewards.
About a little over a week ago here in the U S. It's going to be the cornerstone of our consumer strategy.
No loyalty program means anything if you don't have great products. So it goes back to product, but we're going to be investing in product in our rewards program is going to allow us to and I know this from my past life drive higher revenue per customer more repeat business and higher direct channel engagement.
<unk>, so more stickiness to our website or app in our own stores, we already we actually launched the loyalty program originally in Asia and the program is off to a great start there in China specifically.
And.
That's where we saw some of these early wins as it relates to higher revenue per customer more repeat business through our direct channel engagement, we used all of that with our program in China. So we're bringing in here to the U S. It's we're off to a great start on our.
Our digital channels, where out of the gate first our retail stores later this summer as I mentioned and as it relates to expanding the rewards program over time that is absolutely something that will dovetail on because again, it's a rewards program does well with product at the center and terrific marketing around it is it's going to be.
A growth driver for us so more to come but we're excited that we've got a great start here in the U S and as I mentioned already in China.
Alright, Thank you very much.
Anything that would be covered.
Yeah.
Next question please.
Operator.
Operator, we can't hear you.
Okay.
Operator are you there.
I'm not sure if you guys can hear us.
So we cannot hear the operator.
So there's some technical difficulties if you could give us one minute, we'll try to sort this.
Keith and cheese on announcing.
Yeah.
Pardon me. This is the operator can you hear me.
Yes, yes, okay.
Okay. Our next question comes from Brian Nagel Oppenheimer. Your line is open.
Hey, good morning, Thanks for taking my question.
So the question I wanted to ask just with respect to supply chain and shipping costs you'd mentioned here is a positive for gross margins in fiscal Q1, but how should we think about that.
That dynamic over the next few quarters would be kind of like a headwind or tailwind type.
Shift if you will and then to the extent that you do benefit like others will from lower shipping costs supply chain disruption.
Is it the mindset of under armour that youll, let that flow through.
<unk> reinvested elsewhere.
So couple of things Brian This is Dave.
Obviously, a lot of us experienced some pretty challenging freight costs last year, and even a little bit prior to that so it's great to see those costs coming back in check and kind of getting to those pre COVID-19 levels.
And so we are seeing that as a tailwind we will we expect to continue seeing that as a tailwind through the rest of this year.
And then again, what's being added to that as we go further into the year, especially our Q4.
Is some of the product costing negotiations with vendors in addition to that so.
Kind of a two part benefit that we're expecting to start see coming through.
Even more so in our Q4 <unk>.
Relative to how we deploy that.
Frankly, we are continuing to drive and focus on profitability, so whether it be in improving our gross margin, which we will continue to drive forward next year and beyond.
Or whether it would be continuing to move forward leveraging our SG&A next year.
The majority of that we're going to be driving to the bottom line to profitability to our shareholders, but also strategically reinvesting in certain areas to make sure we're supporting our PTH three strategic priorities. So.
It's a little bit of both.
Hopefully that helps you a little bit.
That's very helpful. And then a follow up question I realize this may be a bit.
I mean, we talked a lot about on this call and other calls about improving product innovation to under armour. So I guess, a two part question.
First of all.
To what would innovation has been introduced now how has that been performing but then as we're watching.
The product set of under armour continues to evolve are there key points and where we should be looking for more significant innovation coming from the brand.
Yeah.
I'll start there and good morning, Brian So I think some of the areas, where we continue to innovate would be west hub and flow technology in our footwear I mentioned that we're going to be re launching our hain pure compression. This fall the Notre Dame Navy game will.
Many of them to have.
Materials and fabrics and our apparel that make our athletes more productive. So so much of our on our work in product is around.
Is around technology I mentioned on.
I mentioned to you around.
Hover and and flow that you see in our shoes.
So we'll continue to do that as it relates to new innovation in the pipeline. We've got an amazing innovation team that's focused on what's next and footwear and apparel.
So more to come on that but it's really about making products and that athletes.
<unk> never knew that they needed it makes them much better at their sports.
I think slipped seat net.
One more thing I'd point out I think slip state is a great innovation and it was really insightful. It was looking at something that athletes really needed.
Training shoes that they can use while they are of Remington that working out in that they could convert very easily to allow the moment looks like within the heel down. So I think flip speed is an example of a recent innovation that has been quite successful and that we're going to continue to build upon as a franchise with a running shoe coming out later.
This year the last shoe that we already launched it's terrific for that tough summer work out. So I think slipped speed is another great example of product innovation, but that's what the brand is really all about yes, Brian .
So can you talk about on the call you know this the idea of focusing on franchises in general specifically within apparel.
Hello, wake that kind of muscle back to the board with how we go to market correct, Brad He specifically to with the PCA strategies is really key.
Probably have done it and consistent job in the past.
Having franchises, whether consumer really associates.
Religiously with the brand if it comes with Agila stick for us. So that's something we're really focused on right now and it takes time, but those franchises are important the fact that we're coming out with the current 11. This fall is going to be first.
Fantastic for that franchise as well, but so that's really where we're focused.
I appreciate the color. Thank you.
Thanks, Brett.
Thank you one moment please.
Our next question comes from the line of Samuel Poser.
Of Williams trading your line is open.
Good morning, Thank you for taking my questions.
I have a handful here.
Yeah.
Will do.
Jim the new.
Our CMO.
Well he will.
Will he take his knowledge of defining.
Banners.
Say.
Sure.
The St Regis versus.
Courtyard.
To help define.
Businesses within the organization.
I mean, and how and how long will it take for that really to start manifesting itself.
The correct way to think about it.
Sure.
Jim first of all it's going to be an absolutely a fantastic asset for the company. He comes with a LIBOR with Jim for over 20 years deep experience in sales marketing technology operations Finance you name. It. He has worked across the whole business and he actually spent a lot of time and brand two to your question about building brands.
And I think what Jim is going to bring to US is experience at knowing how brands or in the case of under armour underneath our umbrella of under armour. We've got Curry, we've got different franchises hasn't really position them with consumers in a very clear crisp way. So you know what the value is lance hubs.
On this a minute ago in his remarks, like really really being able to do great product franchise marketing and make each franchise very distinct with a distinct value proposition. He is going to pull that experience for Marriott international into this role I think where Jim is going to add a ton of expertise also.
Though is with you a digital I mean, I have a real vision for our digital assets our website or app.
They need to become the premium showcase for the brand I mentioned earlier, reducing overall promotional activity on the site lifting asp's, Ken really in his last role with responsible for amongst other things on Marriott Dot com as Maryann App, which of course are best in class, there's awful lot of tactical things on the digital front.
We need to do to have a world class website and shop App.
We're doing those things and Jim is going to drive hard after more but improving mobile site speed better product discretions, we're improving our handful rates on our site by having improvements to our order management system. This is kind of it's got some maybe a little bit of the behind the scenes work that needs to be done to have a world class.
Website and App engine is is so steep that has so much experience in this area. So I'm really really thrilled that he started he is only two weeks in and he's already hit the ground running but building out those brands and those franchises for us absolutely digital marketing and beyond.
So couldn't be more thrilled that journey with us.
Thank you and then or.
Or are you with the U S business are you looking to narrow or I mean is part of what's going on in the U S business this year sort of.
Activity of getting the the the <unk>.
Allocations on your points of distribution more narrow in order to set a base to grow it and then lastly.
You talked a lot about some of the stuff you're doing with large big teams, but I've noticed you've done some grass root stuff in basketball with high.
High school athletes of HBC.
HBC you athletes as well can you talk a little bit about.
What youre doing sort of stabilized and then to grow it sort of on your own control versus not getting the orders you thought you were getting.
In wholesale for the back half.
Yeah.
Let me start with the first part of the question about our U S business I think we really haven't and strategy, meaning we have a strong $6 billion base of business, we want to continue to grow.
But we want to be much more consistent and disciplined about segmentation, so where we sell our product and as we again build out more of that better and that's part of the product.
Second part of the pyramid, we're going to continue to be more and more disciplined. So we're going to continue to grow our base, we're always going to be very very mindful about what percentage of our business ends up in lower end channels that continue to build the higher end part of the of the product pyramid on the large tier versus grass roots.
Question.
And you know I talked about Notre Dame, which would be an example on the big team front. The grass roots is simultaneously at the heart of what we're doing at under armour I spoke in my prepared remarks about UA next that's our youth focused sports camp.
And we are doing a lot with for example, we just wrapped up Curry Tam.
Out West we are going to have our lead 24 basketball camp coming up in Atlanta, and connecting with youth athletes through these events is is really really critical.
And we do and you also mentioned a T. S use we continue to invest there as well on the in terms of hitting that 15 to 24 year old team sport athlete.
I think our approach is two fold. It is of course, we're going to focus on big athletes like Steph Curry and Jordan speeds, and Justin Jefferson and Big teams like Notre Dame and Navy just to name just a few but then we're also going to focus on that youth athlete Elana.
Grass roots effort, so I'm Super excited about that the Dave anything to add on the U S business right.
No I mean I think that.
You've highlighted it fairly well I mean, we're pretty comfortable with our distribution other than the fact that we know that there is some expansion opportunities in the better and best categories. There is some expansion opportunities relative to sports style relative to women's and all of those should be a little bit more premium as well.
So when you think about where our focus is and where a lot of the bigger opportunities are for growth in the U S. Whether it be on the DTC front or whether it be on some of the more premium wholesale distribution that will come along for the ride with our expansion in the sports style and pushing more on the women's front in the footwear front.
All of that should play well together and I think it's more about returning to growth and doing so in those stronger areas for us that are more premium for the brand.
Thank you very much.
Thanks, Dave.
Thank you and now we'll take our last question from Matthew Boss of Jpmorgan. Your line is open.
So Stephanie as we consider the three pillars of protect this house, maybe relative to the more challenging North America backdrop today.
I guess can you just elaborate on the potential timeline that you see to return the brand to sustainable growth in North America, and then how best to judge sequential progress of the actions along the way.
Sure absolutely and good morning, Matt.
And as I mentioned today and in our last call. We're really looking at 2000 fiscal year 'twenty four as a building year for the brand.
We are absolutely certain that the P. P. H three pillars are what we need to do to drive growth for the company, but they are not going to happen overnight. They are going to take some time and you know.
It's a three year plan. So we're one quarter into a 12 quarter game here and I think we need to just stay focused on making progress. Every you know every every week every month every quarter I am really excited and we've had some big wins in the first quarter I mentioned, we signed Notre Dame we launched <unk> rewards.
Had two terrific new executives start we have some really exciting things on the product front, new slip speed collabs coming with just in Jefferson and we actually have cobalt coming with Stephen Curry.
Didn't mention relaunch of compression. So we have a we have a lot of wins in the first quarter youre going to see us building quarter after quarter with wins with fiscal year 2000, and for being a year of building and then fiscal year 'twenty five and beyond.
Being where you start to see that.
The growth happen, but I can't underscore enough how focused we are on.
While we push on our pillars and these big product items, which have the most lean time as an example, we're going to be very very focused on profitability driving higher asps SKU productivity Cogs improvement etcetera. So I think what we're gonna mortality quarter by quarter as we as we return.
Under armour to growth in our home market here in the U S.
Great and then maybe a follow up for Dave could you just elaborate on the state of active in sportswear inventory in the channel today.
So relative to three months ago, exactly where we stand and then just touch on the composition and quality of your owned inventory as well.
Okay.
Sure Matt.
We have we have seen destocking from our retailers and their inventory levels appear to be getting healthier, which is good. So we do feel better going into future seasons.
And so they are getting better, but I would say that you know not necessarily as fast as we thought.
Which means we do expect to see some of the promotional environment sticking around a little bit longer.
And I think if you think about that from a timing perspective.
We remain cautious around calendar Q4, where holiday, but we generally expect inventory levels coming more imbalanced towards the end of this calendar year still a little bit of uncertainty there, but obviously something that we're watching.
Relative to under Armours owned inventory and where we sit we feel very comfortable with what we have.
We have generally very healthy product, we don't have a lot of aged inventory within our warehouses.
We'd been normalizing against a really lean base and that's why you see these higher growth rates at the beginning of the year, but if you look at inventory turns we're still very healthy when you look at mix of inventory, we're still very healthy and with the pack and hold strategy youre going to start to see our.
The inventory growth turnaround and Thats, where we were expecting to be able to land at the end of the year at a high teens decrease year over year. So I think we're doing a good job of balancing.
The promotional environment and discounting with moving through our inventory and making sure that we're buying the right inventory as we finish out this year to go into next year.
So I think we're in a good spot to work from here as we go forward.
That's great color best of luck.
Thanks, Matt.
Yeah.
Thank you.
Ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect have a great day.
Thank you. Thank you.
[music].
Okay.
[music].
Sure.
[music].
Yes.
Yes.
Okay.
[music].
Okay.
Okay.
Yes.
Yes.
Sure.
Okay.
Yes.
Okay.
Okay.
Okay.
[music].
Yes.
Okay.
[music].
Yes.
[music].
Okay.
[music].
Yes.
[music].
Yes.
Yes.
Okay.
[music].
Bruce.
Okay.
Yes.
Yes.
[music].
Okay.
[music].
Yes.
Yes.
[music].
Yes.
[music].
Yes.
[music].
Okay.
Okay.
Sure.
Yes.
[music].
Okay.
Okay.
Yes.
Sure.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Okay.
Okay.
[music].
Yes.
Yes.
Sure.
[music].
Okay.
Okay.
Sure.
Okay.
[music].
Okay.
Yes.
Okay.
Yes.
Okay.
Okay.
Yes.
Yes.
Okay.
Okay.
[music].
Sure.
Okay.
Yes.
Okay.
Okay.
Yes.
Sure.
Okay.
Yes.
[music].
Okay.
Thank you.
Hum.
Yes.
Okay.
Yes.
Yes.
Yes.
Sure.
Okay.
Okay.
Okay.
Yes.
Sure.
Yes.
Yes.
Yes.
Okay.
Yes.
Yes.
Okay.
Yes.
Yes.
Sure.
Okay.
Sure.
Yes.
Yes.
Okay.
Yes.
Yes.
Yes.
[music].
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Sure.
Okay.
Sure.
[music].
Okay.
Sure.
Sure.
Sure.
Yes.
[music].
Yes.
Great.
Thank you.
Sure.
[music].
Yes.
Okay.
Yes.
Okay.
Yes.
Yes.
Okay.
Sure.
Okay.
Okay.
Okay.
Yes.
Yes.
Okay.
Okay.
Yes.
Yes.
Okay.
Okay.
Sure.
Okay.
Okay.
Okay.
Okay.
Yes.
[music].
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
Yes.
Okay.
Yes.
Okay.
Yes.
Okay.
Thanks.
Okay.
Okay.
Yes.
Yes.
<unk>.
Okay.
Okay.
Okay.
Yes.
Sure.
Thank you.
Great.
Okay.
Okay.
Okay.
Okay.
Yes.
Yes.
Yes.
Okay.
Sure.
<unk>.
Okay.
Yes.
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
Okay.
Thank you.
Yes.
Okay.
Okay.
[music].
Okay.
Okay.
Yes.
Okay.
Okay.
Sure.
Yes.
Yes.
Okay.
Yes.
Okay.
Yes.
Thank you.
Yes.
Okay.
Okay.
Yes.