Under Armour, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Under Armour Second Quarter Earnings Call. At this time, all participant lines are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star, then 1 on your telephone keypad. Please be advised that today's conference may be recorded. If you require operator assistance, please press star, then 0. I'd now like to hand the conference over to your host today, Mr. Lance Allega, Senior Vice President, Investor Relations and Corporate Development. Please go ahead.

Thank you, and good morning to everyone joining us for Under Armour's second 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 July 31, 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 at this time that the global COVID-19 pandemic has had and continues to have a significant material impact on Under Armour's business. Given the continued high level of uncertainty around 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 and 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 in this morning's press release. You may also hear us refer to amounts in accordance with U.S. GAAP. Reconciliations of gap to non-gap measures can be found in the supplemental financial tables included in this morning's 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. 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 on today's call. Before we discuss our second quarter results and the significant impacts that the coronavirus pandemic continues to have on our business, I'll start by underscoring the incredible resilience and fortitude our teammates are demonstrating in these uncertain times. By staying true to our strategy, mission, and values, we're prioritizing safety while advancing our e-commerce and retail capabilities, proactively managing costs, and working to execute smarter, Thank you for joining us today. There are four main areas Under Armour is hyper-focused on right now. First, we're working to rebuild the brand through increased engagement and consideration with our target consumer, the focus performer. Second, we're further evolving our operating model to simplify the way we work and collaborate, including accelerating the digitization of our go-to-market process to drive greater efficiency and speed. Third, we're prioritizing a D2C-first approach to elevate our brand experience and deepen our connection with Under Armour's consumers. and finally, through all of these efforts, we're heightening the discipline on profitability and reconstructing our ability to drive sustainable shareholder value over the long term. Starting with rebuilding the brand, amid a dramatic migration to at-home and outdoor training, running and fitness, we're focused on elevating our digital connection with our consumers. Utilizing our Through This Together platform, we've been able to drive increases in brand engagement and consideration through targeted content, social events and key influencer workouts. As a result of connecting these dots, we've seen a significant increase in usage in our digital app community, as well as steady, meaningful increases in new users throughout the quarter. After six months of activating a re-engineered marketing and brand platform, we believe that consumers are gaining more consistent clarity about who we are and what we stand for, the human performance company with products designed to make you better. Given the success we've seen with our quick adaptation to consumer shifts in the first half of 2020, I feel that we are well positioned to continue to manage through this period of uncertainty around the consumer and the overall marketplace. So wherever training may take athletes, whether at home, on the field, or back to the gym, we'll be there to connect even more deeply through premium product, content, and experiences. Premium has been and will continue to be core to Under Armour's brand positioning. In this respect, we are working both to strengthen and, in some cases, earn back that consumer promise One innovative product and premium experience at a time. Retrenching from the past few years, especially in North America, requires prudent and purposeful marketplace management with the right balance of product and service to meet consumer demand. Pre-COVID, we entered 2020 with the healthiest global inventory position that we've had in several years. Wanting to protect that aspect as best as possible, we acted decisively and aggressively to cut originally planned back half inventory buys. For example... In April and May, we reduced our inventory purchases for the back half of the year against our original plan by nearly 30% in response to COVID impacted demand expectations. So while undoubtedly punitive to our top line, given an expectation of higher discounting and promotions across our space in the second half of this year, we believe this strategy to be prudent to ensure continued progress towards rebuilding our premium brand positioning. This doesn't mean, however, that we have paused our innovation agenda or postponed new product releases for this coming fall and winter. We're on track, same plan, same discipline with our product pipeline and a long-term strategy focused on protecting and ensuring Under Armour as a premium athletic performance brand. Now moving to our second area of focus, which is the continued evolution of our operating model. Before COVID, work was well underway to further streamline our business to increase our ability to execute more quickly by simplifying the way we work Collaborate and make decisions. Using this pandemic-impacted period as an accelerant, we're going even deeper, identifying the areas of opportunity within our business along with additional strengths so that we can maximize the value we create for our consumers, customers, and shareholders. Instilling a digital-first approach throughout Under Armour is critical to this evolution. In this respect, we've continued to build on the progress we've made with our go-to-market process. After moving to a 17-month calendar, the first fully redesigned season of which launched in the first half of this year, we knew that additional digitization could drive even greater efficiency and agility into the way we work. And that's been the plan, with the exception that this more digitally integrated go-to-market vision was supposed to take place more holistically in 2021. Making the most out of the current environment, the team stepped up and we got to work. And I'm extremely proud to say that we're now well ahead of schedule in this respect. So what does this mean exactly? It means that more of our products are designed and developed in a 3D digital environment, that we're transitioning to fully digital sampling, and now have completely digital selling capabilities across all of UA. And much of it has already been put into action as we held our first virtual sales meeting for spring-summer 2021 just last month. From materials, product creation, and global vendor partners, to retail space visualization, selling, training, and the communication of key features and benefits, our external buyers overwhelmingly agreed that it was a very positive selling experience. Third is the prioritization of a DTC-first approach, specifically elevating the importance of e-commerce and full-price retail to deepen our brand connection with Under Armour's consumers. This obviously ties back to our first initiative with respect to the premium aspect of our brand, and although a global effort, we see a more acute opportunity, particularly in North America in the near to mid-term. From an e-commerce perspective, we're continuing to refine our personalization and content to better compete in today's highly dynamic market. Just last week, we launched our new North American site, which now aligns the majority of our global e-commerce business on one platform that we believe is agile and scalable for the future. To support the additional functionality, data, and processes that the new platform will allow us, we're also working to stand up a CRM program to drive higher engagement with consumers and establish this capability for the brand. Turning to product and led by strength in our e-commerce channel during the quarter, I'd start with our run category and highlight the Hover Machina, which at $150 continues to be a top seller and advance our overall UA Hover platform. This is also helping to support our connected footwear strategy as well with year-to-date footwear activations having nearly doubled over the prior year period and customers completing their first connected workout up more than 150% over the same period, a trend that has accelerated throughout COVID. But it's not only footwear that's doing well. It's also run apparel, including the fly-by and lawn shorts and the ISOCHILL short-sleeve shirt, which utilizes a unique material technology to disperse body heat, helping you stay cooler in the heat of the summer. Overall, we remain very encouraged by the emerging strength of our run category. And as we look toward the back half of 2020, After years of development, we'll introduce our fourth cushioning platform, which will launch first in basketball and then quickly move to run for spring-summer 2021, further capitalizing on the momentum we're building as we offer Under Armour's most pinnacle running footwear expression yet. We're also seeing positive trends in building momentum within our women's train category, from leveraging deep athlete insights into product creation to targeting consumers through successful marketing activations like our Anthem and product videos, to stunning, inclusive imagery coupled with simple language that explains exactly what our products do, we are speaking directly to the focus performer. As a result, we saw strong demand in the quarter for a number of women's products, including the Play Up Short, our Infinity and Mid Crossback Sport Bras, and the Meridian Pant, which continues to be a strong seller. Following our efforts to make PPE for Maryland area hospitals, which to date we've delivered more than five million masks and four million gowns, We leverage this expertise into meeting a specific need for athletes. The result is the UA Sports Mask, designed for and tested by athletes. The UA Sports Mask features a three-layer system of high-performance UA materials, including isochilled fabric engineered for all-day comfort in and out of sports. Initial demand has been extremely strong, so we are working hard to catch up with orders as quickly as possible. And with respect to brick-and-mortar retail, From a full-price perspective, our long-term opportunity to showcase the depth and breadth of our brand in a controlled premium environment remains significant. And the reset work that we are doing to evolve our store concepts towards scalable, brand-right formats continues to be a key focus for us. With a number of new concepts and experiences either being tested or at the ready for deployment, we're looking forward to these expressions helping us to connect even more meaningfully with our consumers. And finally, Through all of these strategies and efforts, whether our own retail or wholesale business, we're working to reconstitute our ability to be profitable over the long term. When the global markets stabilize, however the new normal is defined, we believe that the efforts we're putting into building the Under Armour brand, strengthening our supply chain, prudently managing inventory, employing a more favorable cost structure, and harnessing a re-engineered demand creation engine, puts us in a better position to benefit from shifts in consumer behavior and an increasingly more discerning athletic consumer. And with that, I'll hand it over to Dave.