Under Armour, Inc.

Good day, everyone, 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. Following management's prepared remarks, we will host a question-answer session, and our instructions will be given at that time. If during your conference today you require operator assistance, please press star then zero, and an operator will be happy to assist you. As a reminder, this conference call is being recorded for replay purposes. It is now my pleasure to hand the conference over to Lance Olega, SVP, Investor Relations, and Corporate Development. You may proceed.

Thank you. Good morning to everyone joining on this call this morning for Under Armour's third quarter fiscal 2021 earnings conference call. The information provided on today's call will include forward-looking statements that reflect Under Armour's view of its current business as of November 2, 2021. Statements made 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.underarmor.com. It's important to note that the ongoing uncertainty related to COVID-19 and its potential effects 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 be found in our press release, which identify and qualify 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 our President and CEO, Patrick Frisk, and CFO, David Bergman. Thank you. Patrick?

Thank you, Lance, and good morning. In the third quarter, higher-than-expected demand for the Under Armour brand, an outstanding execution from our global team, allowed us to drive strong top and bottom line results. Everything we do at Under Armour is based on driving sustainable long-term growth, while at the same time ensuring we're setting a solid foundation to deliver near-term value to our shareholders. This is the balance you should expect from us and is the commitment we work towards every day. We strike this balance by leveraging our strategic playbook across key elements of our business, including... a consumer-centric strategy to drive deep, authentic, and emotional connections with focused performers, innovative products and experiences that advantage and inspire an athlete's journey, a constant focus on operational excellence to ensure we manage the marketplace efficiently, and steady financial discipline to create meaningful levers to drive greater profitability. These strengths were evident in our third quarter results with revenue up 8%, gross margin up 310 basis points to a record 51%, and solid adjusted EPS performance at 31 cents. In this spirit, as we work to close out 2021, I feel good about the progress we've made, the resiliency we've earned, and the potential we have to do even better in the future. Demand for our product and consideration for our brand is growing. That gives me confidence that despite potential impacts from near-term headwinds, the long-term opportunities before us and our ability to compete and win in an ever-changing global landscape are stronger than ever. Of course, it all starts with brand. So with that, let's get into some third quarter highlights, starting with the incremental investments we're making in marketing and how they're translating to improving brand affinity from our focus on consumer awareness, attraction, and consideration. As part of our holistic journey to compete strategy, which centers on goal setting, training, and what it takes to earn results, we use the team sports lens to focus on the importance of mental strength as an unlock to realize one's full potential. Through uniquely Under Armour execution via social media, TV, retail, and digital activations, the only way is through and train your mind, train your game, showed up as one global brand and voice across categories, channels, and our marketing funnel. Coming off this effort, we've now shifted gears into fourth quarter activation, which is centered on cold weather training. Knowing athletes sometimes see cold as their kryptonite, our human performance research lab is helping equip them and reshape this type of training as an asset to take their performance to new levels. Validated by the experiences of our most elite athletes, we're inspiring and educating focused performers for the winter ahead. With powerful storytelling, workout routines, product reviews, and premium retail capsules, our ecosystem is well set to inspire and capitalize on growing demand. Turning to product, given the third quarter bridged summer and fall, We realized success on both sides of the temperature spectrum, including solid sell-through over Isochill apparel products, which cool you, and fleece, which saw strength in men and youth as athletes gear up for the cooler months ahead. There was also continued momentum in men's unstoppable bottoms and women's leggings, including Meridian and our no-slip waistband technology. And finally, the Project Rock collection and tops featuring Rush also built on their year-to-date momentum, so consistency in some of our best sellers. In footwear, our core running products, including Pursuit, Aurora, and Assert, saw strength in all regions globally. Additionally, Project Rock footwear performed well, and we had success in our slides business. Regionally, a few of the highlights included the Curry Hover Splash and Mega Clone in APAC, Hover Street and Bandit Trail in EMEA, and Flow Velocity SE and Cleated Footwear in the Americas, driven by better-than-expected back-to-school demand as team sports returned. Let's turn next to our regions, starting with North America, where revenue was up 8% to $1 billion. Indicative of improving brand health in our largest market, we had stronger than expected back-to-school and direct consumer demand. In fact, North America drove the majority of the third quarter over delivery for the company, so encouraging to see continued progress here. Compared to 2019, North American revenue was up 2% in the third quarter, It is important, however, to revisit some key differences in these comparable periods, 2021 North America versus 2019, including a significant increase in our direct consumer business, substantially lower off-price sales, reduced promotional and markdown activities, proactive supply constraints, and undifferentiated wholesale exits. So all in, meaningfully higher quality and more productive dollars going through our P&L now than just two years ago. Turning to our international business, revenue in our Asia Pacific region was up 19%, driven primarily by wholesale growth. Given some of the recent market trends, particularly in China, where traffic continues to struggle, our consumer insights data tells us that our brand health is holding steady in an otherwise dynamic environment. We attribute this to the investments we're making into marketing, CRM, and store expansions, including opening our 1,000th store in the region. Versus 2019, third quarter APAC revenue was up 37%, so solid progress on a two-year stack. Next up is EMEA, where revenue was up 15%, driven by wholesale, which saw continued momentum from our distributor partnerships and a solid direct consumer performance. In our two most prominent countries in this region, the UK and Germany, we remain focused on brand development, building long-term relationships with our key wholesale partners and and strengthening our direct consumer team and retail capabilities. EMEA wholesale growth was balanced across our full-price and distributor businesses. Versus 2019, third quarter revenue in EMEA was up 50%. And finally, our Latin America region was up 27%, driven by strength in our full-price wholesale and distributor businesses. Versus 2019, third quarter revenue in Latin America was up 8%. As previously detailed, we are transitioning certain countries in this region to a strategic distributor model, of which most of this change takes place in the fourth quarter. Accordingly, we expect top-line pressure in Latin America as we finish out 2021. Another highlight is the performance of our direct consumer business, which was up 12%. And although traffic trends were somewhat mixed in our own stores and mirrored various COVID restrictions around the world, we continue to see improvements in average selling prices and productivity. Due to higher than expected demand during the quarter, we further reduced promotions and realized higher price sell-through, which, of course, you see in our gross margin results. Versus 2019, direct consumer was up 31% for the third quarter. Overall, we're pleased that our strategies towards improved presentation and experiences in our stores and online are driving better economics throughout this business. So, in summary... We're pleased with our third quarter performance and our ability to close out what will be Under Armour's split-adjusted EPS year in our history. In the near term, however, we remain both confident and cautious. With several fluid headwinds continuing to impact nearly every sector, it's important to remember that Under Armour is battle-tested and mission-proven. I am incredibly proud of our global team and how we work to maintain balance and trajectory regardless of what is thrown our way. We continue to get sharper, smarter, and more efficient. Across our business, by channel, product, or region, there remains one constant. We obsess the intersection of under-armor serving focused performers. Industry-leading innovations, premium experiences, heart-led but data-driven, we empower those who strive for more.