Under Armour Inc (UA) 2007 Q4 法說會逐字稿

Good day, everyone.

Welcome to the Under Armour 2007 earnings results conference call and webcast.

Today's call is being recorded.

At this time I would like to turn the call over to Alex Miyamoto, Director of Investor Relations.

Please go ahead.

Thank you, and good morning, everyone.

I would like to start by welcoming you to Under Armour's fourth quarter 2007 earnings call.

During the course of this conference call we will be making projections or other forward-looking statements regarding future events or the future financial performance of the company.

The words estimates, intends, expects, plans, outlook or similar expressions are intended to identify forward-looking statements.

We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially.

Important factors relating to our business including factors that could cause actual results to differ from our forward-looking statements are described in our press release and in the risk factor section of our filings with the SEC.

The company assumes no obligation to update forward-looking statements to reflect the events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Before we continue I would like to direct you to our website, investor.underarmour.com.

There you will find this morning's press release.

Now I would like to introduce the speakers and topics for this morning's call.

Kevin Plank, Chairman and CEO, will address the drivers of our fourth quarter results and our strategy for continued growth in 2008 and beyond.

Brad Dickerson, Vice President of accounting and finance will then discuss the company's financial performance for the fourth quarter and provide an outlook on key balance sheet items.

Wayne Marino, Executive Vice President and Chief Financial Officer will conclude the prepared remarks with an updated outlook for 2008 financial projections.

After that we will have a Q&A session that will end by 9:30.

With that, I will turn it over to Kevin Plank.

Thank you, Alex, and good morning everyone.

I would like to talk this morning about two topics I have some strong opinions about; the strength of the Under Armour brand and the future of Under Armour.

The strength of our brand was evident throughout 2007 as we saw great revenue growth, 41% to top the $600 million mark.

We saw great balance in that revenue growth with apparel growing 37% for the year and footwear growing 52%.

We also saw great balance in 2007 within our apparel topline growth as men's grew 36%, women's grew 35% and youth grew 53%.

But the biggest callout to me is that we were able to achieve that level of growth primarily by growing within our existing categories and our existing distribution.

That tells us that the opportunity for the Under Armour brand remains enormous, and we are focused on building out our business while staying true to our performance position.

One area in which we believe we are well positioned to grow is women's.

We have a great brand position, particularly with the young team athlete.

We now have in place what we believe is the right focus on that opportunity with the hiring of Suzanne Karkus, who joined us earlier this month as Senior Vice President of apparel.

Suzanne comes to Under Armour from Izod Womenswear where she was President, before that she was President of the women's division of Calvin Klein jeans.

The strength of our brand was most evident during the fourth quarter as we grew revenues 29% in what has been described as the most challenging retail environment in many years.

We saw strong sell-through for our core apparel styles in the Q4 selling season and as is our norm, virtually all of it at full price.

Our strong sell-through at retail despite increased effort from some of our competitors in performance apparel category is great evidence that we are clearly the performance brand of choice for this generation.

We believe in our current distribution and made our in-store presentation a priority in 2007.

One of the ways we helped our retail partners drive sales in the fourth quarter was by improving the way Under Armour is presented within our best partners.

That process has had a positive effect on sales as we outfit concept shops covering more than 250,000 square feet in the back half of 2007 alone.

This is most visible in our largest partners like Dick's, the Sports Authority, Hibbett and Cabela's; but is also evident across our distribution channels in accounts like Sport Chalet.

Telling our story at retail is an asset for our brand, and we will continue to invest in our in-store presence with our best partners.

Another great indicator of the strength of our brand was our fourth quarter results in our online store and our first branded retail store which opened in Annapolis, Maryland, in early November.

We invested in both these areas in 2007 to better understand how we can deepen our relationship with our consumer and results exceeded our expectations in both cases.

In the case of our online store, we were very pleased with our average selling price which increased more than 13% compared to Q4 2006.

Based on these encouraging results we will continue to invest in our online store both from a marketing and technology perspective.

Our performance in our Annapolis store was equally strong as we are now able to sell comprehensive product stories in a brand focus retail environment.

While we are still in the testing phase at the Annapolis store we are encouraged about our results there and believe it is the right time to test three to four additional Under Armour branded stores in 2008.

In the fourth quarter our online and branded retail store accounted for 8% of revenues and helped drive our consolidated gross margins to the 52% level.

There is more great evidence of the strength of the Under Armour brand.

The effectiveness of our good, better, best strategy which helped drive an improvement in our apparel ASPs of 8% for the full-year and helped us to maintain our position as the performance leader in the category.

Our ability to enter new categories like golf and outerwear which provide a great opportunity for us to gain share in large existing categories.

We bring UA technology to these categories and provide consumers and retailers with a new point of view on the business.

And our 53% increase in youth for the full-year, which was driven in part by strong growth in the core categories of baseball and football, and core products like Armour Fleece and ColdGear.

To sum up, I am confident saying that the Under Armour brand has never been stronger.

We grew our topline more than 40% in a year where our new product introductions were relatively limited and most of our growth came from core categories.

We had a very strong fourth quarter, selling through at full price and generating strong traffic for our retail partners.

We had great consumer response to both our first branded store and our improved online site.

We continue to make inroads in Europe as Peter Mahrer who joined our team in July of '07 looks to build our authenticity as well as our retail presence that now includes more than 1500 doors.

And most importantly, we expanded our position as the authentic performance leader and deepened our connection with the athlete of this generation.

This brand strength is my primary source of confidence in the future of Under Armour.

It is what empowers us to bring our consumers somewhere new, to take the Under Armour brand to businesses where authenticity and performance matter.

And it is the reason we are so excited about the launch of our first line of performance trainers.

This launch marks Under Armour's entry into the non-cleated footwear market and will be the cornerstone of Under Armour performance training.

Maybe the best way to describe what these performance trainers are all about is to tell you what they are not.

They are not crosstrainers, which in our business has come to stand for a nice, comfortable shoe that you might wear while grilling up some burgers or mowing the lawn.

This is footwear for today's athlete, the new prototype, who spends nearly 95% of their time training for that very important 5% of competition on the field, court, ice or track.

And we have built a technology into our footwear for that new prototype athlete.

To start, all of our performance trainers are lightweight for speed and they in line with our HeatGear fabric, featuring our signature moisture transport system to pull sweat away from the athlete.

The midsole features directional cushioning engineering which provides specific degrees of support and propulsion depending on the type of athlete you are.

They are meant to perform.

To bring our story to this new prototype athlete we have begun the most comprehensive brand campaign in our history.

We selected May as the launch date to coincide around the training season where football begins.

Football is a great asset for Under Armour, and we see the new prototype campaign as a way to solidify our dominance in the sport.

We began a strategy around acquiring football assets several years ago that plays out this spring leading up to our launch.

Let me take you through it.

It began earlier this month with the first Under Armour high school All-American football game that was broadcast on ABC where we brought the best high school players from around the country to play in an all-star game and declare their college of choice on national television.

Next was the Under Armour senior bowl which aired last weekend and featured the best collegiate players in the country preparing for the NFL.

We debut our new prototype campaign this Sunday for the Super Bowl, in what may be the largest television audience in American history.

We then go back to grassroots with the Under Armour football combine which takes a 15 city tour inviting the top 200 to 300 high school underclassmen in each city to participate at NFL locations.

And we will, of course blitz the media around the NFL draft in April.

And all that happens even before the shoes are launched in May.

Our strategy is to not just protect our position in football but to grow it and learn as we bring the Under Armour story to new categories.

We've been told that this launch is critical to the long-term growth of Under Armour and we agree.

In fact, we vigorously agree.

It's our authenticity with today's athlete that empowers us to lead them someplace new in footwear.

But it is important to understand that our Super Bowl effort is really just the start of a year-long campaign focused on this new prototype athlete.

We will tell the story through the launch of the footwear in early May and continue to communicate that performance message throughout the full-year online, in-store, through grassroots and of course, through product.

We believe communicating that authentic performance story both on a grassroots and national level around where we are going to take this generation of athletes, is a critical element to our success.

This is the next leg of the Under Armour growth story, the future of Under Armour.

We have the right combination of a great campaign, great retail partners who are heavily invested in the launch, the right product positioning and most importantly, great product that will deliver against the demands of today's athlete.

This launch will further authenticate the Under Armour performance story with athletes and position us to enter new footwear categories in 2009 and beyond.

We feel confident about the investments we are making in this company, investments that will help generate large, scalable businesses in new categories and geographies.

We are not looking to take the express lane of easy revenue growth that is unsustainable.

We are building an infrastructure to support a multibillion dollar company set on a broad based foundation.

The future of Under Armour is footwear, apparel and international.

The future of Under Armour is sound.

The future is ours and it begins Sunday night in the first quarter of the Super Bowl.

And we encourage you to tune in.

Thanks, Kevin.

I would now like to provide some information around our fourth quarter and full-year income statement.

In addition I will also discuss our 2007 year-end and 2008 outlook for some key balance sheet items.

First, our income statement.

Our net revenues for the fourth quarter grew 29% over the prior year quarter.

This is largely driven by nearly 30% growth in our apparel sales.

For the full-year our net revenues grew 41% to $606.6 million, driven primarily by a 37% increase in our apparel sales combined with a 52% increase in our footwear sales.

For both the quarter and the full-year we also had strong growth in our accessories sales and our licensing revenues.

For the quarter gross margin improved by 140 basis points to 52% from 50.6% in the prior year quarter.

The primary drivers impacting the margin improvement for the quarter include the following.

First, growth in our licensing and direct to consumer sales which includes our website, catalog and retail stores provided improvement in gross margin for the quarter.

More specifically, our direct to consumer sales which generally yields higher margin percentages grew 80% quarter-over-quarter.

Second, as planned since the beginning of 2007 we have been shifting dollars previously given as customer discounts, in-store marketing and SG&A.

For the full year gross margin improved by 20 basis points to 50.3% from 50.1% in the prior year, in line with our most recent guidance for 2007.

Selling, general, administrative costs as a percentage of net revenues for the quarter were 35.8% compared to 37.5% in the prior year quarter.

This 170 basis point decrease in SG&A quarter-over-quarter was driven primarily from a reduction in marketing from 12.6% of net revenues in 2006 to 11.2% in 2007.

Similar to prior quarters, increased investments in our growth initiatives, which include international, footwear and direct to consumer accounted for more than 40% of our quarter-over-quarter dollar increase in SG&A.

For the full-year SG&A as a percentage of revenue decreased 80 basis points, from 36.9% in 2006 to 36.1% in 2007.

Marketing costs remained within our 2007 target range of 10 to 12% of net revenues, representing 11.7% of net revenues compared to 11.2% in the prior year.

By leveraging some of our fixed overhead components we were able to more than offset this 50 basis point increase in marketing for the year.

Our operating income for the quarter increased to $28.3 million compared to $17.7 million in the prior year, an increase of 59%.

For the full year our operating income increased to $86.3 million compared to $56.9 million in the prior year, an increase of 52%, exceeding our previously provided outlook.

Operating margin for the fourth quarter was 16.2% compared to 13.1% in 2006.

For the full-year our operating margin increased 100 basis points to 14.2% from 13.2%.

The growth in our operating income and improvement to our operating margin were driven by the strength in our topline and the leveraging of our SG&A spending.

Our resulting net income for the quarter increased to $16.9 million from $11.9 million in the same period last year.

Fourth quarter diluted earnings per share was $0.34 compared to $0.24 in the prior year.

Full-year net income increased to $52.6 million from $39 million in the prior year, resulting in diluted earnings per share of $1.05 exceeding the preliminary estimate provided on January 17th.

Now I would like to move onto the balance sheet.

Total cash, cash equivalents at the end of the year were $40.6 million, and cash net of debt was $26.3 million ahead of our most recent outlook.

For the year, cash net of debt decreased by $38.1 million.

This year-over-year decrease was primarily a result of investments in inventory and capital expenditures which I will speak about shortly.

For the full-year 2008 we expect cash net of debt to remain relatively flat from our 2007 year-end balance.

Net accounts receivable increased 30.1% or $21.6 million on a year-over-year basis, which was in line with our net revenue growth for the quarter.

In 2008 we expect net accounts receivable to continue to grow in line with topline growth.

Now I would like to discuss our inventory.

In line with our most recent outlook, inventory increased 9% from September 30, 2007 to $166.1 million.

For 2008 our inventory strategy is focused on continuing to meet consumer demand while improving our inventory efficiency.

We expect to achieve this by first, being in stock on core offerings; second, shipping seasonal product at the start of the shipping window in order to maximize the productivity of our floor sets; and third, earmarking any seasonal excess for outlet stores and operating those stores at a profit.

Our inventory consists of three buckets; core, seasonal and prior.

Core inventory which represents approximately 60% of our total inventory is available for sale over the next 12 months and beyond.

In 2007 our strategy was to increase core fulfillment rates from the low 80s to the mid-90s on increased demand.

This strategy led us to double our level of safety stock in core auto replenishment items.

This strategy significantly impacted our topline growth.

Additionally, we also took receipt of our entire seasons ColdGear product by the end of October 2007 to take advantage of significantly favorable duty rates.

This strategy has positioned us to receive a similar benefit for ColdGear and fleece programs in 2008.

For 2008 our strategy around core auto replenishment programs is to continue to fill our demand at 90 to 95% while reducing the number of weeks of supply in safety stock.

Through improved supply chain efficiencies which we tested in 2007, we are already beginning to make adjustments to safety stock levels and expect to see an improvement in core inventory productivity during the back half of 2008.

Seasonal inventory, which represents approximately 30% of our total inventory, pertains to styles that will drop from our productline within the next 12 months.

We generally purchase seasonal inventory based on visibility of future bookings.

Our strategy for seasonal inventory is to set the retail floor at the start of the sell-through window.

Our early receipt of spring 2008 product has put us in a good position to service that seasonal business.

Prior inventory represents 10% of our inventory and pertains to drop styles which are earmarked for our retail outlet stores.

For 2008 we plan to add five new outlet stores, bringing the total to 22 by year end.

It is worth noting that we currently do not cut product for our outlets.

As we move to capital expenditures, we need to continue to point out that we are building the foundation for large, scalable businesses.

Our investment in capital expenditures for the fourth quarter was approximately $9 million, which brought the total to approximately $35 million for the full year, in line with our previous outlook.

Our 2008 capital investments are planned at levels similar to 2007, and will include approximately $15 million in our branded concept shop and in store fixtures, $5 million in upgrades and improvements to our existing distribution facilities, $7 million in upgrades and improvements to our information technology infrastructure including additional investments to our website, and the remaining balance in general corporate improvements to support our growth.

In addition, as Kevin discussed in 2008 we will expand our full price retail test.

We anticipate adding three to four additional full price retail stores in 2008.

The investment in these stores will represent an additional $5 million to $7 million for the year and brings our total 2008 capital expenditures to the $40 million to $42 million range.

Now Wayne will take you through the remaining outlook for 2008.

Thank you, Brad.

First I would like to remind you that our long-term growth targets remain at 20, 25% for both our top and bottom lines.

Due to the strength of the brand and existing channels, the increased productivity of our new concept shops, the continued expansion of key customers and the ability of the brand to expand into new categories, we believe 2008 revenues and income from operations will increase between 26 to 28%.

While we remain confident in our business and our long-term strategy, we believe it is prudent to consider the current macroeconomic environment in providing our outlook for the year.

Our strategic growth initiatives remain the same; first, grow our men's and women's US apparel business.

Second, expand our footwear business by launching new categories while maintaining a disciplined approach to gaining market share in existing cleated footwear categories.

And third, continue to build the Under Armour brand internationally.

Additionally, as Kevin mentioned, based on the success we have had to date with our Web business, and our first branded store in Annapolis, we plan to continue to grow our direct to consumer sales.

Now a little more detail around these growth initiatives.

Our apparel business will continue to be a significant part of our business for 2008.

Men's full-year growth is planned in the range of our long-term growth target of 20 to 25%, while all other apparel businesses are projected to grow at an even faster pace.

We had strong growth in apparel in 2007, and we believe additional opportunity can he captured in 2008 through strong order fulfillment within our core product offering, expansion of our lines in the training, golf, football and outdoor categories, continued innovation resulting in consumers moving into better performance products, driving higher ASPs and continued expansion of our largest strategic accounts into new geographic markets.

The growth of our footwear business will be driven by the expansion of the Under Armour brand into new categories of footwear.

The next phase of this plan begins with the launch of our performance trainer on May 3.

We believe that success with this launch will position us to introduce additional performance footwear categories in 2009 and beyond.

Internationally we will continue to focus on Western Europe with particular emphasis on the UK, France and Germany.

We continue to believe that the long-term opportunity for the Under Armour brand internationally is as large as the opportunity in the US.

And we will make the appropriate investments in people, brand and infrastructure in 2008 and beyond to reach that goal.

We expect a rate of topline growth internationally for 2008 to outpace the company's overall year-over-year topline growth rate.

For 2008 we believe that our direct to consumer sales which currently include our website, catalog, outlet stores and one full price test store will be an important contributor to our topline dollar growth and an even greater contributor to our operating income growth.

Our first branded store located in Annapolis Mall which opened in November of 2007 has thus far exceeded our internal projections.

We believe that there is more to learn about our full price retail opportunity.

And as Brad mentioned earlier, we are planning to open three to four new test stores in new geographic markets over the next year.

Based on these growth drivers, we believe 2008 net revenues will increase 26 to 28%, resulting in a topline between $765 million and $775 million.

I would like to comment on the timing of our business.

Historically a greater percentage of our revenues have been recognized in the back half of the year, and we expect 2008 revenues to reflect a similar pattern to that which occurred in 2007.

For the first half of 2008 we continue to plan topline growth in line with our full-year growth targets.

However, based on factors that I will explain to you shortly, we expect our 2008 earnings to be more heavily weighted towards the back half.

Gross margin.

Based on the visibility that we have today, we believe that our gross margin for 2008 will show a 40 to 50 basis point improvement as a result of growth in our higher margin direct to consumer sales, outpacing growth in our overall business.

Offset in part by our anticipated growth in footwear, which carries lower margins than our existing apparel margins.

The margin impact of footwear will be most evident in the second quarter.

We are planning gross margins to be lower than the prior year.

However, we believe our performance trainer will carry higher margins than our cleated footwear business.

SG&A.

We will continue to make investments to drive the growth of the brand in 2008 while also investing in initiatives that will drive our longer-term growth.

First, let me begin with marketing.

We believe that our marketing has a direct impact on our topline.

In 2008 we plan to invest between 12 and 13% of our full year net revenues to tell our story and support major launches, specifically the performance training shoe in Q2 of 2008.

It is important to note that our marketing line includes people, print and media, sports marketing, the amortization of fixtures in all our in-store marketing efforts.

Additionally, we do all of our creative in-house.

If you recall in 2007 we shifted certain discounts towards improving the presentation of the Under Armour brand at retail.

Essentially representing a shift from margin dollars to marketing dollars.

For 2008 we plan to continue this strategy and expect to open or reshape over 300 in-store shops with our best retail partners.

We have said in the past that as our business becomes more diverse in terms of product assortment, gender, sport categories, we would adjust the timing of our marketing spend to reflect this more balanced mix.

Historically we have spent approximately 40% of our marketing dollars in the first half of the year.

As we have stated for 2008, we are planning to spend more than half of our marketing dollars in the first half to support our new prototype brand campaign.

We will use this new prototype campaign as a platform to launch our performance trainer in Q2.

As always, we will be opportunistic with the timing of our marketing spend and provide appropriate updates on marketing spend as we manage our business during the year.

Below the marketing line we plan to continue to invest each and every quarter in our strategic growth initiatives, such as footwear, international and direct to consumer, putting the infrastructure in place to build large, scalable businesses and to market the Under Armour brand globally.

We've already seen these investments begin to pay off with approximately 30% of our topline growth in 2007 coming from these new businesses.

For 2008 we anticipate over 40% of our topline growth will be generated from these investments.

As a result of our topline growth, we expect our fixed components of our SG&A to leverage and partially offset the increased spend in marketing, resulting in a 40 basis point increase in SG&A as a percentage of net revenues for 2008.

Based on these projections we believe income from operations will grow at 26 to 28% in 2008, resulting in a full-year range of $108.5 million to $110.5 million.

However, based on the seasonality of our topline, the timing of investments, the impact of performance training footwear on the second quarter margins, our earnings in 2008 will be more back half weighted.

We are currently anticipating the first half EPS to be in the range of $0.03 to $0.05.

For the full year we expect our effective tax rate to increase to 41.6%, up from 41% in 2007 and a weighted average diluted share count in the range of 50.5 to 51 million.

We are excited about the upcoming year.

We believe our ability to continually invest in large, scalable businesses and the marketing to support these initiatives is paramount to our long-term success.

Now Kevin, Brad and I will take your questions.

Before we do I would ask that each of you try to limit your questions to one to two per person, so we can hear from as many of you as possible.

(OPERATOR INSTRUCTIONS) Omar Saad, Credit Suisse.

Couple quick questions.

First, can you guys talk about why you decided to do a Super Bowl ad?

It seems like a little bit of a departure from your previous approach to marketing the brand.

Can you comment on that?

We talked about how much we should put even in the script but let me just take a minute and walk you through what is going on with Super Bowl.

First of all, the easy answer is it absolutely has no change to the strategy that we've had before.

In fact we see Super Bowl as the perfect venue to unveil the most highly anticipated product launch in our company's history.

All of our launches that we've done in the past have centered around major media but we've done it on things like ESPN were you can pick up 1.5 to 2 million viewers at a time.

It is the opportunity to unveil.

It is a coming out party for more than 100 million people to introduce them to the Under Armour brand.

And again, this is not just a shoe commercial for this company.

It is a brand campaign.

And I think that is one of the things that makes us so excited about what is coming up this Sunday.

It's important for us to reiterate the fact that the spend we have falls within our 12 to 13% campaign for the full-year.

The new prototype is something, again is much bigger than just a shoe campaign.

So let me lay out for you the way and the idea we have.

To really think about it in three phases.

Phase one is a tease, which has been going on for about the last frankly several months kicking off with both online as well as 15-second teasers that we've been doing across media.

Phase two is what we call the blitz, and that is introducing the mothership.

The mothership is what starts with the Super Bowl ad.

And again, this is not a --our marketing for the year should not be defined as a Super Bowl ad.

As much as that simply the launching pad for a year-long campaign.

Again, it is the unveiling of maybe one of the largest growth engines that we will introduce as a brand.

And Phase 3 is going to be what happens after Super Bow.

There is five components that we've thought about for that and it is everything from major media with building around not only how do you translate the new prototype into just football, and I took you through that in my script of the way that we really took an approach of owning the sport of football.

But also how it translates into baseball, how it translates into field hockey, into lacrosse; everything will take on the positioning of the new prototype.

Grass-roots campaign.

And again, we talked about our All-American games that we have beyond just the sport of football, but our All-American lacrosse games or All-American baseball and softball games.

Under Armour camps and clinics throughout the years in combines, the Under Armour senior bowl which just took place as well as the ESPY Awards that we have coming up.

In-store what you're going to see out at retailers you will find all of our major partners will be engaging all of the graphics will switch over to the new prototype.

You will have ninety-day countdown clocks that will be found at all the retailers beginning on Monday.

Online, it is going to be our home base where we will continue to drive people and tell them the story about what the footwear is.

You will get the first look at it Sunday and people will be able to drive from there.

And then also just the way we are hitting kids which isn't just traditional media like a television commercial as much as it is things like a recent partnership we just did with Xbox, of hooking up with things like Tom Clancy's new Ghost Recon, for instance, where you will have somebody walking down the street and there will be an Under Armour billboard inside the video game.

So again, this isn't just one platform of a campaign as much as its multiplatforms that will take place throughout the year, and frankly for something as big and major as Under Armour entering non-cleated footwear we think it is completely appropriate.

Thank you.

That's helpful.

One more question if I could, on the full price store in Annapolis, I know it is just a test location.

Could you share with us if you could any details around how that store performed in the holiday?

And it sounds like you're talking about three to four new locations this year.

How you're thinking about that channel.

Let me start with the fact of we like our distribution today; and our distribution likes us very much.

We want to continue to reiterate the fact that this is a test.

When we talk about a test there is a lot of things we get out of stores.

Number one, we placed the store in a place where in the Annapolis Mall for instance, it didn't have Under Armour distribution prior to us putting a store in there.

And you think about whatever revenues we put up and we did exceed our plan and exceeded our expectations.

We would have walked 80, 85, 90% of those sales had we not had a store there.

And you look at that, it is not exclusive to just the Annapolis Mall; and there are other locations out there where we believe we can be strategic with placing stores in the right locations.

We believe that we are underpenetrated at retail and I think the mall channel is a great example of the fact that there are additional places for us to go where I believe with the breadth of the productline that we have today we can be relevant to many more consumers.

And again I think that also speaks to why open up at a venue like Super Bowl this weekend.

Two or three years ago I am not sure that an event like that would make sense as much as today, we have the breadth, the product to be relevant to more consumers, and we believe it will pay dividends for ourselves and for our shareholders in the long-term.

Did the store have an impact on your wholesale partners in the area?

You know, frankly one of the reasons we selected that was because of again because of the fact that we didn't have wholesale or some of our wholesale partners in close proximity.

And the ones that we did actually still comped plus or positively for the year.

So it is that same -- I think you hear two sides of that argument but obviously from our side we are pretty pleased with the fact that we can go in, create a bigger brand presence and still drive sales not only in our own store, but also for our surrounding partners as well which is something that hopefully will continue as we find more tests this year.

Thanks.

Jeff Edelman, UBS.

Two marketing questions.

Kevin, has the timing -- did the timing of the marketing spend change materially from the third quarter conference call?

Jeff, this is Wayne.

There are two things with that.

First of all, for competitive reasons we really wanted to control the release of any information around the brand.

And Kevin can expand on that but the campaign around the performance of the trainer we wanted to keep very tight.

And secondly, our marketing consists of many components; it includes the retail, graphics.

It includes the media.

And some of the decisions as related to the timing of our campaign we made much later in the game.

And that impacted our visibility.

Okay, thank you.

Let me jump on the end of that, as well.

I think it is a good example of what came out in brand week earlier this week as well.

You had one of our competitors saying that they declared they are now in the performance -- they are calling it performance training, A, that they announced they will come out with their shoes a month before the Under Armour launch, that they are going to put the full weight of their brand behind the launch.

They don't have a name yet, they haven't shown you the show, they have given you price points but they haven't told anyone anything else.

And you look and you think because of those types of competitive environments that we are in and these people are good at what they do as well.

If we had given them more notice, would they have had a name, would they have had a campaign, would they be going head-to-head versus one of the largest spends we're going to invest in Super Bowl for instance?

So we feel good about the competitive advantage that we put ourselves and we put our market to by coming out with it the way that we have.

Understand.

And secondly, realizing how important marketing is to driving volume, are you at risk with your marketing cutbacks in the back half of the year in terms of driving volume, or might we start to see a pickup there?

First of all, marketing for the full-year we're going to be very disciplined with our 12 or 13%.

But I think it is important to note that -- I think I said it in the script -- that over 50% is in the first half and there certainly is a significant amount in the back half.

So in the past we've spent 40, in the first half and now we will spend a little over 50.

So there is still very positive marketing throughout the entire year and the brand campaign that we are about to launch in the first half will be a brand campaign that will resonate through the entire year.

Okay, great.

Thank you.

Robby Ohmes, Banc of America Securities.

A couple of quick questions.

Kevin, can you -- I was hoping you could talk a little bit more about Europe and Peter Mahrer, and how different his approach is going to be versus the previous approach.

And then just my second quick question is in the core men's US business can you just walk us through the product extensions, or how you get to maybe a 20% or better growth in just the core men's US wholesale business in 2008?

Thanks.

First of all, Peter joined us in July and has really hit the ground running.

The strategy that we had in Europe, it hasn't, frankly, changed.

First and foremost there was three parts to that strategy of number one, building the right team of people and obviously Peter is a critical component to making that happen.

And he is in the process of building his team and again there is a good team in place in Europe to begin with, but I think expanding that and looking and saying one of the things that we are engaging in over there now is a response team which basically puts people in boots on ground in France, in Germany and the UK in 2008.

So you are going to have these crack teams, you are going to go to events and be telling the Under Armour story and really taking a grass-roots approach to it.

The second component was building authenticity on field.

And I think again if you continue to open up the papers in Europe you will find more and more credibility, more and more authenticity happening and occurring on field.

And one thing we are excited about is that we do project that we will have some exciting new announcements about sports partnerships that will be loud and will be heard in Europe in the coming months.

And then thirdly is establishing the appropriate distribution with good partners.

We've expanded now to roughly 1500 doors in and throughout Europe.

Peter has engaged those relationships, and we're just coming off or in the middle of a really strong ColdGear season.

So I think there is good confidence in the brand.

There is belief in the long-term prospects.

Most importantly, probably the most telling thing about our brand positioning in Europe is, A, I give you that compression versus loose ratio.

And it still -- it's about 4 to 1 in favor of compression.

So we're still developing there.

But more importantly, probably our fastest-growing segment over there and one of our largest segments is our youth business.

We believe that youth, obviously, in something that is a pretty good indicator of what our long-term brand positioning in Europe is going to be.

The second part was the increasing core programs.

What I want to point out is, first of all, our top line 26 to 28 for the full year as well as for the first half.

In the back half, we will be introducing some new programs.

For example, have a fitted ColdGear, some additional fleece programs, and additional space with those programs at retail.

And that certainly for us drives our plan in the back half to be a fairly substantial increase year-over-year.

So in apparel, that is a big driver for us, the extension of fitted ColdGear fleece in more space.

And does that skew, the extended ColdGear and the fleece, is that across men's, women's, and youth, or is it skewed towards women's and youth?

It is mostly men's, but it definitely crosses over.

Terrific.

Thanks a lot, guys.

Jim Duffy, Thomas Weisel Partners.

FY '07 footwear revenue was $41 million in round numbers.

How much are you expecting from footwear in '08?

How much do you expect the prototype to contribute, just so we have something to benchmark you against?

For us in 2008, we are expecting approximately a million units, which is, to remind everyone, a million units is an allocated program.

So we have kept it fairly tight.

It is allocated to our current customer base.

It is about a million units.

And you look at the prices and our average retail price $80, $90, and $100, so I think you can probably take it from there.

Okay, very good.

And then I think I may know the answer to this, but are you prepared to talk about the footwear concepts that will fall on the success of its trainer in '09?

What are some of the things that you have in the works?

I think that as we sit here today, two days prior to launching the campaign and a few months from actually having the product in the market, we're focused on delivering a great, great footwear campaign.

I think the best measure of success for Under Armour and footwear at the end of 2008, when we sit there on New Year's Eve of this year, is going to be the progress that we've made in building the foundation for a large, scalable footwear business.

We're going to be judged by how the brand is positioned at year end, the ability to enter additional footwear categories.

So without question, I think that too much of the shift has taken people into just focusing on running and basketball, and training has been forgotten about.

You know, we mentioned the barbecue shoes, but we see the opportunity to reinvent that category with something called performance training.

And in addition from that platform, will give us I think the credibility to go into additional footwear categories, but our consumer continues to ask for it.

We hear that more and more.

And just one more anecdotal piece.

Coming off of the Under Armour All-American high school game, the Under Armour American -- or senior bowl rather and you've got the best of the best of collegiate and high school athletes.

And when you have kids that are -- in one of the events we were able to give kids a pair of shoes and had only taken the shoes off their feet and walking barefoot back to their room because they don't want to get their shoes dirty.

They are taking photos of the shoes that they can't get yet emailing them to their friends.

So the excitement and the buzz we have around this campaign is where we are really focused right now, making this a success.

And I think that we've learned some things throughout footwear that show us that being prudent about the projection we have and is it a million units; it is not a million unit launch.

We're looking to sell much, much, much more than that but it starts with one small step.

Is it fair to say that you think there is enough work to be in the training category that it is a multiple year program for you and things like basketball and running could be delayed even beyond '09?

Again I think that there is opportunity and as I stated in 2009 we will reevaluate that again.

But look I think we got one more conference call before we even launch the footwear, so we will keep you abreast I think as that information comes in.

But again, we spent the last year really building infrastructure.

We spent the last year -- apparel and footwear do not leverage.

It is one thing you learn, the back office leverages and as you will see on Sunday, we believe the marketing leverages between apparel and footwear.

But everything else its a completely new supply chain.

It is completely new.

We have opened an office in -- a quality office in China -- we've brought development in-house, we've brought design in-house.

We have fully flushed out and built a footwear team in the last 12 months.

And because of that we are positioned and we are testing, we are building product for additional categories.

But I think we are going to wait and we are going to use market timing and positioning as the appropriate time to head into any of those additional categories.

Understood.

Thank you very much.

Brian McGough, Morgan Stanley.

I hate to nitpick on the '08 guidance because it really does sound like you guys are making the right overall investments longer-term in order to boost the MPV of the brand, but if I look at the first half so earnings are down about 80%.

It implies that the backhalf numbers need to be up better than say 60%, which is just a big number and it is a rate that you guys haven't grown since at least three years ago, when the company was about one-third of the size it is now.

So with no margin improvement planned for the year, I am just wondering one part of the equation is within your control which is marketing and OpEx, but the sales and gross margin aren't as much within your immediate control especially with days inventory where they are.

So what kind of leverage do you have in the back half of the year in order to pull to still hit your full-year goals to the extent that sales are coming in a little weaker.

Or margins are coming in a little weaker on the gross margin line, just to still get to that $1.30-ish number for the full year?

Let me give you first of all some color.

First of all, the first half topline growth of 26 to 28%, full-year 26 to 28%.

Secondly, I would expect our gross margins in each and every quarter to be improved with the exception of Q2 which I mentioned, which would pretty much be lower as a result of footwear.

The other thing I want to point out that our marketing -- we've always said this -- our marketing we'll be opportunistic with our marketing, but our marketing is a variable.

It is 12 to 13% of our topline revenues.

It has many components.

So as we look at our entire year we've been very disciplined in staying within our 12 or 13%.

Our ongoing investments currently, as Kevin mentioned, Brad mentioned, we've been investing in long-term, large, scalable businesses.

We have to continue to do that.

We can't just slow down the first half of 2008 because the topline revenue is more weighted toward the back.

It is very prudent.

But I also want to point out to everyone that within our SG&A there is a component in there which is fixed, and there is a component which is variable.

We will have the ability in our SG&A if we see things with the visibility not to go where we planned, we can make the appropriate adjustments.

So there is flexibility within a component of our SG&A.

So I think the whole story is A, we are very, very confident in what we have today in our topline.

We've looked at the macroeconomic environment, we looked at trends that we've seen in holiday, what we see so far.

We look at the current visibility we have with our retail partners and our own direct to consumer business.

And we take all those pieces together, and I think we are providing a balanced outlook.

So taken as a whole I would say the flexibility to adjust if we need it is there.

But we are very confident in what we've put out today.

So the adjustment, if there were to be on in the back half would not come out of marketing is what you're saying, it would come out of some other area that you have identified internally, that you think you can tap into if need be?

Marketing is a variable.

And our topline is 12 to 13% we allocate for marketing; so there is a component of our topline that we will stay disciplined.

And there is also components in our SG&A, which are very variable and we will be able to adjust both.

All right, guys.

Thanks for taking my question.

Jeff Klinefelter, Piper Jaffray.

Just a couple quick questions.

Wayne, first off on inventory and I apologize if I missed this right at the beginning but in terms of your inventory thoughts going into '08, it sounds like you are going to maintain very high service levels in your core but you're also going to be taking down weeks of supply.

Can you give us some sense as we move through the year for what level the inventory will be, not specifically by quarter, but how will we see this coming down and narrowing the gap between topline growth?

In Europe your inventory growth based on the dynamics within core and seasonal as we move through the year?

I'll take that one.

Just again let's look at the three categories or buckets of inventory I spoke about in the script.

First core which we said was about 60% of our inventory, sells through at full price nearly 12 months out of the year.

As we talked about on our previous calls in '07 our order fulfillment rates in the prior year, late '06 early '07 were in the mid-80s so we really had a strategy to increase that safety stock level in core so we could get our order fulfillment rates up to the mid-90s, which we were successful in doing in the back half of '07 and even in some instances above the 95% level for fulfillment rates.

Also we talked about bringing ColdGear in early, in October of '07 to take advantage of some of the favorable duty rates we had for Singapore.

So those were some of the things we did in '07.

As we look into '08, on the core inventory bucket I think we need to be really smart about how we reduce those safety stock levels.

Because we want to maintain those order fulfillment rates in the 90 to 95% range which we think is an acceptable range.

So we are working with reducing leadtimes and other strategies to do that but we want to be smart about that.

We really see right now that is putting more of a back half of the year improvement.

And when we say improvement we are looking at probably our inventory growing at a level less than our topline.

And that will happen during the back half of the year.

\ When you talk about seasonal, we mentioned that is about 30% of our inventory.

We purchase that inventory based on the visibility of our customer bookings.

However, again, based on certain product and leadtimes sometimes we are ordering some product ahead of those bookings.

So again, we can get better at that as we go into '08 here and improve leadtimes.

And purchase the inventory more along the lines of bookings so again we think there is an opportunity in '08 to be more efficient in our seasonal side, too.

Now obviously any excess seasonal inventory that we have would obviously go through our outlet stores, which are accretive to our gross margin.

So the inventory growth will be very likely will be ahead and maybe well ahead of the sales growth in the first two quarters but we will see it moderating down close to that growth maybe even dipping below in the second half.

That's correct, Jeff.

Again, we want to be smart about reducing those safety stock levels.

We don't want to do that too quick because we want to maintain those order fulfillment rates.

My other question is on SG&A.

You know, there is some concern near-term that would likely be mitigated longer-term with your strategy to go into these other businesses that it is going to require a stepped-up level of SG&A for potentially the next two to three years as you really build out a footwear competency.

Meaning everything from R&D to the distribution house, expansions, people, marketing because of more competitive environment etc.

And then also international I guess as that ramps up, takes a little bit longer and potentially could be more competitive.

Kevin, how would you position that for investors?

Is that likely to happen?

Are you thinking that way that this SG&A build just may be required ahead of some of the revenue growth in this new businesses?

What I want to first set out is we're going to continue to invest in large, scalable businesses and we've done so in 2007.

One of the points that I made was that if you look at our topline dollar growth for 2007 approximately 30% of our year-over-year dollar growth relates to the new investments.

And in 2008 that will be close to 40%.

So we are starting to see a return for our investors on the investments we are making in these new businesses.

The other point to make is that for 2008 we are planning to leverage our fixed costs.

So one of the benefits if you look at it in our SG&A is that we are able to invest more money in marketing to launch a large campaign, largest ever and being able to take fixed costs and leverage those fixed costs so that we are able to take some of that marketing investment and pare it down.

Second part to note in terms of the timing, the seasonality of our topline certainly impacts the leverage of SG&A.

So it is important to note that one of the reasons, one of the things that is driving leverage in our fixed cost is our growth.

So that is why it is paramount to continue to invest in that growth.

Jeff, let me jump on the back end of that as well.

And first of all, with the first question regarding inventory, we are hyperaware of the inventory situation and more importantly, the way it is viewed.

And we obviously feel better about that with a comprehensive look at what makes up that inventory.

But you will see inventory improvement from this company over the next 12 months.

And I say that almost the same time where we are investing in new businesses.

We are getting into something that is large as footwear.

So there is going to be times where it won't really look on an overall basis, but where you will see improvement you will see improvement from our core apparel businesses.

And with respect to SG&A, we are a company who added 100 basis points to our marketing this year.

That is something where we are still looking for on a net basis improving back.

As Wayne said, the businesses that we are investing in though, there is a reason that we are not in China today.

There is a reason why we are focused where we are men's, women's, footwear, international; what we are doing with our ecommerce, our direct business.

We are investing in large, scalable businesses.

And what that means for us is that we believe it will pay dividends for us in time, and we believe that we will and have the ability to leverage in the nearer term, as well.

Okay, just one clarification on that then.

That was very helpful.

In terms of the footwear specifically over the next couple of years there is not a substantial amount of fixed expense that you have to invest in in order to say, take that footwear business and scale it up to a 200, $300 million business over the next couple years.

I guess that is the fear is that there is a big investment coming as you truly become more of a balanced footwear and apparel company.

I think seen the investment take place, you've seen the investment in -- frankly where we've talked about footwear as being lower margins, for instance.

This is getting relationships with factories.

This is doing business in Asia.

We will be shipping our third year of football cleats this fall.

We look to continue to grow marketshare there.

We are entering -- we are fully flushed in baseball.

We are fully flushed in more of the (inaudible) sports like lacrosse.

And we see the opportunity with trainers to finally be able to pay some of the dividends.

Again, we didn't get into the footwear business to build football cleats.

We build football cleats so we have the ability to expand into multiple additional categories.

And now that is how we see ourselves and we are teed up to do it.

And at this point it is a function of design, a function of development, a function of really all the qualities that we already have.

And at the same time we will continue to build out that world-class organization by attracting the best talent in the world for the sleakest, best designs and lightest in best performing footwear.

Thanks, guys.

Good luck.

Operator, we have time for one more question.

Brad Cragin, Goldman Sachs.

As a follow-up to some of the infrastructure questions on footwear can you just talk about how your management of that business is evolving?

And perhaps just review with us how the cleated business is performing and how that experience is preparing you for the non-cleated launch now?

Let me start with one of the best successes I think we had in 2007 was finally splitting apparel and footwear and giving footwear its due.

We took Rafael Peck, who had been our Head of Product Creation, and we've now focused Rafael against our footwear initiatives.

We brought in Suzanne Karkus to head up our apparel side.

So within footwear alone it has been building out not only the existing categories of business that we have within cleated footwear, but it is maximizing in football, maximizing in baseball and lacrosse and some of the other sports.

And again, the opportunity of getting into the non-cleated side we do see leverage from both of those businesses.

But as I said before, apparel and footwear don't necessarily leverage.

A lot of the investment that you felt from the company I think have been us getting into business.

One of the best things I think that we've done -- we've taken some of the lessons that we've learned.

It hasn't been perfect for us in footwear but at the same time at the end of two years we've got the number two market position in football, we've got the number two market position in baseball, and we are positioned now to enter the trainer market where some of the feedback we've heard is why are you doing this just to sell one million pairs of shoes.

And as I said earlier, it is much bigger than selling a million pairs of shoes.

What we want to do is we want to get the first million, roughly million pairs of shoes in the market, sell them through, learn and then develop when we come back with generation two, as well as put ourselves in position to expand beyond just the training category.

Okay, and then in terms of pricing trends across your categories, as you think about your good, better, best pricing strategy, have you seen any changes in demand at any particular pricing tiers and do you see any need to make adjustments for the current environment?

Well, one of the things I think that we've heard is from our retailers I think we've all heard it, is that performance apparel in general continues to be a driver out in the marketplace.

And we, of course, continue to be leading that drive.

So with that we continue to see the consumer and this is all part of the shift from cotton to performance, right, consumers continue to take that step and choose our brand.

At the same time we believe that what we put out there with continue to exceed our long-term growth rates of 25% and putting 26 or 28% growth out, is something that we believe is prudent for the current market environment.

It is something that I think we will learn more information as the year progresses.

But we feel good about what we said to the market.

We feel good about our growth prospects.

We feel great about the way we've positioned ourselves with additional large scalable businesses, not only continuing to grow our core men's and women's businesses, but then looking at things like entering the new category of footwear.

It is just going to be exciting.

Okay, great.

Thank you, and good luck with the ad campaign on Sunday.

Thanks very much.

But it just starts Sunday.

Good luck with the ad campaign all year.

That does conclude today's call.

We do appreciate your participation.

You may disconnect at this time.

Thank you all very much.