Under Armour, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Under Armour first quarter 2021 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 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 Lance Olega, SVP Invest Relations and Corporate Development. Thank you, sir. Please go ahead.

Thank you. Good morning, and thank you to everyone for joining us for Under Armour's first quarter fiscal 2021 earnings conference call. Yesterday after the close of market, we announced that we have entered into a settlement with the U.S. Securities and Exchange Commission, resolving a previously announced investigation related to disclosure and the impact of certain pull-forward sales for the third quarter of 2015 through the fourth quarter of 2016. This settlement relates to our disclosures and does not include any allegations from the SEC that sales during these periods did not comply with GAAP. The details of the settlement are outlined in our press release, and we are happy to put this behind us. The information provided on today's call will include forward-looking statements to reflect Under Armour's view of its current business as of May 4th, 2021. Statements are made 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 is important to note that the ongoing uncertainty related to COVID-19 and its potential impacts on the global retail environment could continue to impact our business results moving forward. We may reference non-GAAP financial information on today's call, including adjusted and currency neutral terms, which are defined under SEC rules in this morning's press release. You may also hear us refer to amounts under U.S. GAAP. Reconciliations of GAAP to non-GAAP measures can also be found in our press release, which identify and quantify all excluded items, and provides our view about why we believe this information is helpful to investors. Joining us on today's call will be Under Armour President and CEO Patrick Frisk and CFO Dave Bergman. Following our prepared remarks, we'll open the call for questions. And with that, may the force be with you. And now I'll turn the call over to Patrick.

Thank you, Lance, and good morning, everyone, and welcome to our first quarter 2021 conference call. With the continued disciplined execution of our strategic playbook, we're happy with our results, which marks a better than expected start to our year. As with many companies, our year-over-year comparisons are affected by the significant COVID impacts we experienced in 2020. Putting these dynamics aside for a moment, and perhaps what we're most encouraged to see at this early point in our year, is that on a two-year stack, that is skipping over 2020, we're running a better, higher quality, and more profitable business. This is even more evident because of the strategies we've employed over the past couple of years, including significantly reduced sales through the off-price channel, proactive supply constraints against demand signals, the early days of exiting undifferentiated distribution, and certainly on an annual basis, the absence of MyFitnessPal, which we sold at the end of last year. By staying focused on athletic performance, operational excellence, and connecting even more deeply with our consumers, these efforts are beginning to drive more consistent results, particularly in North America, our largest and most challenged business over the past couple of years. At the highest level, we are executing well strategically, operationally, and financially. Given these and other factors, including market dynamics and continued strong momentum in fitness and wellness, we have meaningfully updated our outlook for the year, with revenue now expected to grow at a high team percentage rate, bringing our business essentially back in line with our results from 2019. As our transformation continues to translate into improved momentum for Under Armour, there are no changes to the strategies we outlined earlier this year. Strengthening the brand, continuous operating model improvement, elevating a direct consumer-focused approach, and staying disciplined about returning greater profitability and value to shareholders. Using this construct, I'll take a few minutes to highlight some of the progress we're making in these areas, starting with brand strength. From a marketing and consumer engagement perspective, our global campaign, The Only Way Is Through, is delivering a singular Under Armour voice with focused performers. In 2021, we are evolving these efforts to bring the ecosystem of how we engage and inspire athletes across both physical and digital experiences into even better alignment. These factors, driven by more robust data-driven decisions, a constant consumer insights feedback loop, and our meaningfully improved outlook gives us confidence that this is an opportune time to amplify the momentum even more greatly in the second half of this year. As such, we plan to make additional investments to support our marketing efforts to help drive awareness and increase conversion. These accelerated investments will primarily focus on North America and critical countries like China and Germany, where we are still significantly underpenetrated from a brand awareness perspective. Next is product. As a premium athletic performance brand, the products that Under Armour delivers to the marketplace must meet and exceed a consumer's high expectation of performance, fit, and style, unfailingly to make them better. So whether it's bringing newness and excitement to women with our cross-back and infinity bras and no-slip waistband leggings, to the next generation of rush and ISO-chill apparel for all athletes, our go-to-market process, storytelling, and operational excellence are helping to drive more robust consumer demand. Taking a moment to talk about our run category. We continue to be quite pleased with the success of our Under Armour Hover franchise as it's broadened our appeal and preference among runners by offering multiple price points and seasonal newness to inspire loyalty. During the first quarter, we saw strength in Hover Sonic, Machina, and Infinite. We also successfully launched our most pinnacle running footwear ever with the UA Flow Velocity Wind. Priced at $160, this product is delivering well against our expectations. It's also pushing performance with data from our MapMyRun digital lab telling us that runners wearing these shoes are on average going farther and faster than any other UA running shoe. So while still early, very exciting to see. Switching gears to our second area of focus, which is continuous operating model improvement. With the critical mass of our transformation now behind us, an appropriately re-based cost structure, and optionality to scale smartly with future growth, We believe we are firmly on the path to returning to double-digit operating margin over the long term. This, of course, is not a one-and-done strategy. There is no finish line. Yet instead, an ever-present focus on getting better, better process, more optimal structure, more efficient systems, and vigilance around our decision-making. By region, channel, or product, we are constantly challenging ourselves to leverage our foundational horsepower by being more precise and return-based in the investment choices we make is a global company to advance our strategic and financial goals. Looking at our business by region, let's review how some of this is playing out. I'll start with North America, which by many accounts, I believe to be in the healthiest position it's been in in quite a few years, from both a brand and financial perspective. High quality revenue driven by a sharp focus around tight inventory management, proactive demand constraints, improving segmentation, and servicing our customers well puts us in the sweet spot of our strategy to return to brand-ride premium growth. To support this confidence, and recalling my earlier two-year stack example, we see our full-price wholesale business in North America in 2021 being meaningfully healthier than the same business in 2019. Keep in mind, this is despite several headwinds in the comp set, including proactive demand constraints, exiting undifferentiated retail, a significant reduction in sales to the off-price channel, and overall promotional activities. So, when taken in total, an encouraging sign as to the future of our business. The other side of this equation is our direct consumer business in North America, where we remain committed to reducing our promotional activity and driving improved store and digital productivity. And while traffic challenges persist in our physical stores, the business is performing above plan and we expect it to deliver solid growth in 2021. Shifting next to Asia Pacific, While short-term pandemic-driven impacts continue to present traffic challenges and higher promotional activities across the region, we remain confident in our ability to navigate these dynamics to emerge a stronger brand. Optimistically, given an accelerated shift to online purchase behaviors, investments into CRM and digital activations remain center stage in our playbook to driving better brand affinity in the long term. From a direct consumer perspective, we remain appropriately cautious concerning the right balance of return on those investments relative to the environment and staying premium. Next up is EMEA. And even though ongoing impacts from COVID-19 and related restrictions are tempering our near-term growth expectations a bit, there's no change to our expectations for this crucial market. With stronger than expected bookings coming in for the fourth quarter, we remain encouraged by our strategies to tightly manage inventory while investing in brand awareness and consideration. The reception to new products combined with the strength of our go-to-market is enabling us to build strong demand among key wholesale and distributor partners. And within our direct consumer business, while stores are a bit more challenged due to pandemic restrictions, like last year, our e-commerce business continues to serve as a healthy offset to drive growth. And finally, our Latin America region. As discussed in our last call, we have begun transitioning our business in certain countries to a strategic distributor model. While we expect this change to negatively impact our revenue in 2021, over the long term, we believe it will help drive greater profitability and provide a better opportunity to increase brand awareness and affinity across this region. Now moving to our third priority, elevating a direct consumer-focused approach. Consumer shopping preferences continues to blur the lines between physical and digital, demanding that brands create unique personalized experiences that integrate seamlessly into their lives. For Under Armour, we believe building out the capabilities to execute a powerful omnichannel strategy will enable us to create more connected shopping experiences across all consumer touchpoints. From an own store perspective, our first quarter results, led by improved traffic trends and higher average order values, along with high gross margins due to reduced promotional activity, are encouraging signs for how we're thinking about our long-term opportunity in retail. In the near term, however, even amid optimism from recent trends, we'll continue to keep an appropriate level of conservatism in the mix. Globally, our e-commerce business was up 69% in the first quarter, representing approximately 45% of our total direct-to-consumer business and included solid growth across all regions with better-than-expected conversion. Given the outside strength of e-commerce in 2020 and the continued shift to online due to the pandemic, We are hyper-focused on better understanding the consumer journey and building greater digital capabilities to unlock even deeper connections with athletes. And ultimately, while it's left to be seen about how sticky last year's e-commerce results are against this year's performance, we're confident that making additional investments in our sites, teams, and processes to support our long-term growth expectations is money well spent. Bringing all these strategies together leads us to our last focus, maintaining our discipline around profitability to drive sustainable shareholder value over the long term. With our expectation of revenue being up at a high teen rate for the full year, I am pleased with our progress and our expectation to deliver an adjusted operating margin in line with 2019. This is a nice step up towards a double-digit rate over the long term. So to wrap up, I'm pleased with the progress we are making. Our transformational strategy to architect a global operating model capable of driving sustainable and profitable growth is on track. With a solid start to the year, it's about continuing to execute the play with patience and allowing the processes, tools, and structure we've built to drive improved capabilities across Under Armour and further enable our ability to compete for premium brand-right growth. And with that, I'll hand it over to Dave.