Under Armour, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Under Armour, Inc., first quarter earnings webcast and conference call. At this time, all participants are in the listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Lance Allega, Senior Vice President of Investor Relations and Corporate Development. Thank you. Please go ahead, sir.

Thank you, and good morning to everyone joining us for Under Armour's first quarter 2020 earnings call. The information being made available on today's call includes forward-looking statements that reflect Under Armour's view of its current business as of May 11, 2020, as well as considerations for future events that may impact our business moving forward. These statements are subject to risks and uncertainties that 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 at about.underarmour.com. It is important to note that at this time, the global COVID pandemic has had and continues to have a significant material impact in Under Armour's business. Given an extremely high level of uncertainty about the duration and extent of the virus's near and long-term impact to the global retail environment, Content discussed on today's call could change materially at any time. Accordingly, future results of operations could differ materially from historical practices and results or current descriptions, estimates, and suggestions. On today's call, we may reference non-GAAP financial information, including adjusted and currency-neutral terms, which are defined under SEC rules and this morning's press release. You may also hear us refer to amounts in accordance with U.S. GAAP, Reconciliations of GAAP to non-GAAP measures can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items, as well as providing management's view about why we believe this information is useful to investors. Joining us on today's call will be Under Armour President and CEO Patrick Frisk and CFO Dave Bergman. Keep in mind that we are individually each in different locations this morning, so please bear with us as we work through this call and apologies in advance for any glitches should they arise. Following our prepared remarks, we'll open the call for questions. And with that, I'll turn it over to Patrick.

Thanks, Lance. Good morning, everyone, and thank you for joining us during these unparalleled times. Before we discuss Under Armour's first quarter results and the significant factors continuing to impact our business, I'd start by underscoring how incredibly proud I am of our company and our teammates. Along with our retail customers and factory and vendor partners around the world, the extraordinary leadership, humanity, and collaboration that continues to transpire during this global health and economic crisis is incredibly humbling and inspiring. Specific to Under Armour, I'd like to highlight a few COVID-19 response efforts that exemplify our priorities and values. Amid this accelerating event, we mobilized to focus on the most immediate needs of our local communities, including healthcare professionals and first responders. Within days of the pandemic designation, we had repurposed the innovation lab at our headquarters to begin producing masks and gowns. To date, we're on track to produce and provide nearly 5 million face masks and 200,000 gowns to Johns Hopkins and nearly 40 other healthcare organizations, including hospitals and senior care facilities on the front lines of this fight. We've also donated Andromeda Performance product to numerous healthcare professionals in certain hard-hit regions around the world that are fatigued from long, challenging hours fighting this horrible virus. In the US, we've deployed our talented teammates to provide logistics expertise and distribution center space to organizations that need it to scale quickly, storing and staging PPE and medical supplies to meet demand for their respective fulfillment efforts. We've also partnered with Feeding America and local food banks here in Baltimore including a new delivery model that ensures food and other critical items are delivered safely and timely to our neighbors struggling with needs in this time of crisis. These are just a few of the things we've been involved with during this period. All of this, of course, is a group effort across our universe of teammates, partners, and communities. We are all in this together and Under Armour will continue to respond. Turning to our business, clearly this will be a considerably different earnings call than those of the past. And while we will review our first quarter results, Today's conversation will focus more specifically on this point in time, updating you on the actions we're taking to navigate the uncertainties that we're all confronting. These uncertainties are what every company is currently facing with respect to duration of the closures, how deep an economic crisis might persist, how much agility may be needed for possible permanent changes in consumer behavior, shopping preferences, and disposable income considerations, and ultimately triangulating what the future state operating environment might look like. Given that these variables, among many others, remain highly uncertain and inconclusive, we cannot reasonably estimate the operational impact of the pandemic on our business at this time, so we're not able to provide a financial outlook on today's call. We can, however, share insights into the things that we are able to control. In this respect, we'd like to provide some color on the strategic, operational, and financial actions we're taking to adjust and manage our business during this period. First and foremost is our strategy. We are centered in athletic performance and bringing authenticity to the brand by delivering innovative products, solutions, and experiences that athletes didn't know they needed and once they have them, can't imagine living without. There's no change to this purpose and now, even more clearly, as the world continues to persevere through these challenging times, health, fitness, and wellness are even more center stage. In fact, the balance between physical and emotional well-being and the visceral connection to our capacity to fight, thrive and restore amid extraordinary circumstances draws directly on strengths from these very elements. So while many things are on lockdown, inspiration, wellness and fitness are most certainly not quarantined. So as the athletic performance world moves towards social distancing, athletes made a turn towards working out at home and the outdoors and in the process have activated more digitally than ever before. By broadening the Only Way is Through brand platform that launched earlier this year into Through This Together Manifesto, our digital, social, and marketing teams work quickly to activate our robust roster of athletes and key influencers. From virtual social events, curated at-home workouts, an incredibly successful healthy at-home fitness challenge, and free content, along with well-orchestrated community givebacks, we've seen exceptional increases in usage within our digital app business. In fact, since mid-March, the record for the number of MapMyRun workouts logged for a single day has been broken six times and new users are up 275%. The momentum has also continued to grow in our connected footwear business as well, with year-over-year workouts up over 200% since mid-March. With respect to emerging shifts in consumer behavior, this is a unique time to sharpen our digital knowledge by converting real-time data and analytics to drive brand interest and consideration within our largest categories of training and running. From dedicated and casual runners whose habits have picked up significantly due to gym closures to devoted fitness and team sport athletes who are craving opportunities to stay active while their normal routines have been halted, our engagement strategies are driving momentum into our digital channels. All positive factors that we believe are helping directly contribute to the improvements in e-commerce sales that we've seen since the end of March. and although this is still a fairly small part of our business, this validates some of the pre-COVID work coming together with recent strategic adjustments to drive brand consideration. From an operational perspective and more specifically business continuity, as the virus began to rapidly spread during the first quarter outside of China, which we had already closed down, we implemented teammate protocols following government recommendations to increase social distancing, avoiding large gatherings and requiring our office-based teammates around the world to work remotely. Within our global supply chain, COVID-19 continues to cause large impacts and disruptions. Not only are there meaningful shifts in demand, but we're also seeing significant swings in supply due to factory closures. Over the past couple of years, we have made significant changes to our supply chain in how we plan, develop, source and distribute product. These changes will certainly help us as we manage through these disruptions. Additionally, as we discussed previously, we work to establish integrated strategic relationships with considerably fewer partners. This has helped to accelerate our transition to digital sampling and virtual modeling, which is increasing product accuracy, helping to reduce lead times, and in turn, allows us to quickly evolve how we're selling product into our accounts and customers. Also, because it's digital, We haven't missed a beat working remotely during this time. Last year, we also stood up a new demand planning function that has allowed us to execute and leverage our go-to-market process much more efficiently within our operating model. This move has provided us with greater insight into demand and our ability to create product supply solutions, two elements we're leveraging tremendously during this time. As an example of this work, as the virus gained momentum in China, we recognized the potential impact on global markets and product supply and immediately pivoted our teams to redesign our product supply plans. As a result, we quickly adjusted future plan buys to reduce potential impacts on our business. Next, since the vast majority of owned stores and wholesale locations remain closed globally, we've shifted our distribution networks prioritization to e-commerce. This, along with our multi-year investments in our ERP system, has provided us with the necessary flexibility to service increased digital demand. Altogether, the previous actions we've taken and the investments that were made over the past few years are helping us to be more efficient during this state of suspended animation. Speaking of which, I'd like to take a minute to give some year-to-date color on the status of store closures around the world to provide better transparency into our current business. Starting in Asia Pacific, which as a reminder was 12% of global revenue in 2019, both owned and partner doors began closing in China in late January and remained largely closed through early March when a slow progressive reopening process began. By the end of March, more than 80% of these locations had reopened, and as of today, substantially all owned and wholesale locations in China have reopened. That said, traffic in these locations, while continuing to see progressive recovery in recent weeks, continues to be down year over year. Outside of China and South Korea, which combined makes up about two-thirds of revenue in APAC, the rest of the region has been effectively closed since mid-March. In the rest of our regions, North America, India, and Latin America, the closing timeline was similar with substantially all of our own stores and wholesale partner locations, Shutting Down in Mid-March, which as of today is still the case. In our global e-commerce business, our sites are active and revenue has continued to show consistent strength since the start of the second quarter, including e-commerce sales that have trended back to year-over-year growth in North America and the NBA with outpaced strength in our women's business. So although only a low double-digit percentage of global revenue, we're encouraged by the emerging strength of our e-commerce business. Wrapping all of this together means that since mid-March, about 80% of our global business has been at a standstill. As we look to close out the second quarter, we're continuing to assess the environment on a local basis and have begun opening a very small number of own doors, so still very early. Particularly in this time, our brand DNA, which is based in grit and tenacity, is precisely the North Star that will give us power to go through this storm. and within this determination, we will continue to drive through the necessary changes and now in an even more accelerated manner to make the no regret decisions necessary to serve our consumers, customers and shareholders better over the long term. So before handing it over to Dave to walk through some of the financials, I'd like to close by acknowledging COVID-19 has changed our lives in unprecedented ways. A pandemic that has emphasized how the health and safety of our families Friends and communities cannot be taken for granted. Over the past few months, I've been inspired by countless examples of resilience, witnessing the courage, love, and humility of the human spirit. Led by our committed teammates, an incredibly talented management team, and a fiercely unique brand, we are in control, well prepared, and positioned to stand strong through this. Yet, we will do more than endure. I believe through all of this, we will ultimately emerge stronger.