Under Armour, Inc.

Ladies and gentlemen, thank you for standing by 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. 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 one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference to your speaker today, Lance Allega, SVP of Investor Relations and Corporate Development. Please go ahead, sir.

Good morning, and thank you to everyone joining us for Under Armour's third quarter 2020 earnings conference call. The information being made available today includes forward-looking statements that reflect Under Armour's view of its current business as of October 30, 2020, and considerations for future events that may impact our business moving forward. Statements made today 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 at our website at about.underarmour.com. It's important to note that due to ongoing uncertainty related to COVID-19 and its potential effect on global markets, we continue to expect material impacts on our business results. With uncertainty about the duration and extent of the virus's immediate and long-term impact on the global retail environment, The content discussed on today's call could change materially at any time. Accordingly, future results could differ meaningfully 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 items, which are defined under SEC rules in this morning's press release. You may also hear us refer to amounts under US GAAP. Reconciliations of GAAP to non-GAAP measures can also be found in this press release. Thank you, Lance, and good morning, everyone, and welcome to our third quarter 2020 conference call.

Before we discuss our results, I'd like to pass along Under Armour's well wishes and the hope that you and your loved ones are staying healthy and safe during the ongoing COVID-19 pandemic. For this and many other reasons, 2020 has proven to be a challenging and transformational year for Under Armour. In an uneven global economic environment, we've continued to make tough decisions across our business to ensure that our base is stable, and we have the agility to return to profitability in the near term. Over the long term, we are confident that the actions we've taken have created an operating model that we believe can deliver consistent value to our consumers and customers as well as sustainable return to our shareholders. And backed by a stronger foundation, enterprise-level discipline, and green shoots across many areas of our business, we believe that we are well positioned to compete for premium brand-right growth as we work to fulfill our mission and vision in 2021 and beyond. In this respect, you've heard me speak many times over the past year about our mission, vision, and values. These elements unify our global culture. They're why we are here and why we do what we do. Our North Star. And excitingly, as we work to close out this body of work and install the final cornerstone of our reimagined house, we are shifting to become a purpose-led organization. In our transition from being product-driven to purpose-led, we didn't have to go very far to find our purpose. At the intersection of our distinct strengths and an obsession with improvement, Under Armour's purpose is we empower those who strive for more. For those who show up with relentless persistence day in and day out to train, compete, and recover, pushing themselves past the limits of what they thought was possible and being just a little bit better than they were before. This is why we exist and why Under Armour's athletes know we've always got their backs. With 2020 nearly complete, I am proud of our team's work and believe that the critical mass of our transformational challenge is behind us. Our target consumer and operational playbook are well-defined and understood. And while I'll leave the financial details of our quarter to Dave, our third quarter results are tangible evidence of the progress we've made with our business. To be sure, we have more work to do, and of course, it remains a highly uncertain environment with a pandemic. So to that effect, Thank you very much. Third is prioritizing a direct consumer-focused approach to elevate our brand experience and deepen our correction with our consumers. And finally, through all of these efforts, we're continuing to amplify our discipline around profitability to drive sustainable shareholder value over the long term. Starting with strengthening the brand, our global brand marketing platform and the execution continues to fuel a well-orchestrated, Singular Voice that is driving greater engagement and consideration among focused performers. We are successfully activating our assets more effectively across physical and digital touchpoints, allowing for more personalized activation through a sharper data-driven point of view. A couple of areas where this momentum is showing up is in our women's and footwear businesses, two of our largest long-term growth opportunities. Taking a moment to touch on each of these, I'll start with our women's business. Within our train category for the quarter, key innovations like the Infinity Bra and Meridian Pants showed continued strength, making their case for the most popular Under Armour women's products of 2020. Within footwear, authenticating ourselves as a premium player remains paramount to our long-term success. By more deeply understanding an athlete's performance journey, whether it's training, competing, or recovering, our innovation pipeline and ability to elevate our offerings continue to fuel our product engines. One highlight on the quarter was the launch of our first ever women's specific basketball shoe, the UA Hover Breakthrough. To date, it's been well received in the marketplace and demonstrates our commitment to delivering innovative performance solutions for the focused performer. We're also very excited about the upcoming launch of the Courier basketball shoe, which will be the first footwear to feature Under Armour's newest and fourth cushioning platform, UA Flow. As the most technical cushioning offering in Under Armour's history, UA Flow performs precisely as it sounds, fluid, light, and unfailing as it eliminates all distractions for the athlete by using a revolutionary material and streamlined design that removes a typical rubber outsole. In translation, the UA Flow technology allows us to create our most obedient and highest traction footwear yet. UA Flow is also set to launch on our running platform in early 2021 as Under Armour's most pinnacle running footwear expression yet. We're very excited about bringing this innovation into running as we believe it will help strengthen our consideration among consumers while elevating our premium performance positioning. And finally, I would be remiss not to mention our connected footwear platform, which a couple of weeks ago hit an incredible milestone, surpassing one million pairs of shoes that have been connected to our MapMyRun app. This is an accomplishment that we are incredibly proud of as we drive deeper into the intersection of data, connectivity, product, and experiences. Turning to our second area of focus, I'd highlight our operating model evolution. Throughout 2020, we have continued to refine how we work to ensure we are appropriately positioned from a strategic, operational, and financial perspective for the size company we are today, while being set up to scale responsibly along with future growth. All of this, of course, is centered around an absolute focus on profitability. And with that, our improved go-to-market process and highly disciplined inventory management Thank you very much. Post-flat revenue results in the third quarter versus our previous expectation of being down 20% to 25%. Looking at the balance of the year, as we stated on our last call, we cut our inventory purchases by about 30% for the back half of 2020. This, along with more planned spring product deliveries in early 2021 versus late 2020, and a few other drivers that Dave will detail, means we continue to expect top-line headwinds in the fourth quarter. That said, our fourth quarter outlook has improved from our July 30th expectation. As we turn into 2021, we're also focused on prudent marketplace management and working proactively to ensure that we show up in distribution that is brand right, profitable, and capable of elevating the Under Armour brand with focused performers. Accordingly, we have begun identifying certain undifferentiated retail partners, primarily in North America, To be clear, wholesale remains a crucial part of Under Armour's future, but as the broader retail landscape continues to evolve, so must we. Switching gears to our third area, which is prioritizing a direct consumer-focused approach. Our efforts remain centered around becoming a best-in-class retailer capable of providing a premium Under Armour experience whenever and wherever consumers directly engage our brand. Starting with e-commerce, which continues to be a bright spot this year, we saw more than 50% growth globally during the quarter. And now, with the majority of our global e-commerce sites on one scalable platform, we are working to unlock a more robust functionality to power our CRM efforts to help us drive more resonant and personalized interactions with our consumers. In our brick-and-mortar business, we continue to make progress in evolving our store concepts towards more scalable, brand-right, and profitable formats. Thank you for joining us today. It's well understood throughout the organization that we must empower our earnings potential as one of the most essential elements of our investment thesis. As we sit here today, I believe that our operating model's transformation, driven by brand elevating strategies centered on the focused performer and an increasingly more appropriate cost structure, is strongly aligned with our long-term goals. Now, before handing it over to Dave, I'd like to touch briefly on another announcement that went out this morning related to our decision to sell MyFitnessPal platform, which is the largest part of our connected fitness business segment. MyFitnessPal has an impressive record of innovation and strong user growth that has enabled it to sustain its leadership position and scale as one of the world's most popular food and fitness tracking apps. However, as we worked to more sharply define our strategy over the past few years, it became evident that MyFitnessPal did not fully align as a core asset with our target consumer needs, the focus performer. In this regard, from an Under Armour perspective, we believe this divestiture sharpens our long-term digital strategy by simplifying our consumers' brand journey and increases our ability to better harness the power of MapMyFitness platform as we work towards a singular, cohesive UA ecosystem. From a MyFitnessPal perspective, this move provides an excellent home for the brand and its passionate teammates with a new owner who will holistically focus on driving that business going forward.