Under Armour Inc (UA) 2014 Q1 法說會逐字稿

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  • Operator

  • Good morning, ladies and gentlemen, and welcome to the Under Armour, Inc.

  • first-quarter earnings webcast and conference call.

  • (Operator Instructions)

  • As a reminder, this conference call is being recorded.

  • I would now like to turn the conference over to your host, Mr. Tom Shaw, Director of Investor Relations.

  • Mr. Shaw, you may begin.

  • - Director of IR

  • Thanks, and good morning to everyone joining us on today's first-quarter conference call.

  • During the course of the call, we will be making projections or other forward-looking statements regarding future events or the future financial performance of the Company.

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

  • These risks and uncertainties 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 events or circumstances after the date on which the statement is made or to reflect the occurrence of an unanticipated event.

  • Joining us on today's call will be Kevin Plank, Chairman and CEO, followed by Brad Dickerson, our Chief Financial Officer, who will discuss the Company's financial performance for the first quarter followed by an update for our 2014 outlook.

  • After the prepared remarks, Kevin and Brad will be available for a Q&A session that will end at approximately 9:30 AM.

  • Finally, a replay of this teleconference will be available on our website at approximately 11 AM Eastern time today.

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

  • - Chairman & CEO

  • Thanks Tom, and good morning everyone.

  • Our first-quarter results are a great example of what happens when we execute at a high level.

  • We grew revenues 36% this quarter, and the strength was evident across genders, categories, geographies and both our wholesale and direct distribution channels.

  • Our top-line growth exceeded 20% for the 16th consecutive quarter.

  • That's four straight years.

  • We saw meaningful acceleration in both our footwear and International businesses.

  • Our first-quarter results also illustrate two key elements of what I would like to discuss today.

  • First, what we are capable of delivering today as a North American base brand, and second, the boundless opportunities that exist for our brand both here at home and in markets beyond our shores.

  • I want to start today by addressing three product categories that demonstrate both our ability to execute and the opportunity that still lies out in front of us.

  • I will hit running first, then cover golf, and then outdoor.

  • Of the three categories, running represents the biggest revenue opportunity for us, given the size of both the footwear and apparel components, as well as the fact that it's an important category across all geographies.

  • We have always had a strong running presence in apparel, but have focused a tremendous amount of resources the past few years in cracking the code on footwear.

  • I think it is safe to say that given the strong [wash] this past quarter of our SpeedForm Apollo footwear, we are on a trajectory to become a significant player in the global running marketplace.

  • While the number of pairs we sold were limited, we did a great job of executing the SpeedForm launch and set ourselves up to broaden and deepen the platform for the balance of 2014 and beyond.

  • So while we saw the benefits this quarter with a great SpeedForm launch, I think the important takeaway is how well it positions us to benefit from the flow of footwear and apparel product our team is working on in running.

  • We are unique in that we came to the running category through apparel, and are therefore in great position to have successful platforms like SpeedForm helping ignite our entire apparel business, be it running, training or other features of our core business.

  • We believe our opportunity to grow running in an integrated way with footwear, apparel and accessories, combined with what we will bring to market with our Connected Fitness initiative, truly positions our running business as a key building block of our global growth story for the foreseeable future.

  • Part of that confidence comes from the growing strength of the team we are building in running.

  • It's a team where we make significant investment in human resources, a team that understands the importance of building multiple platforms for all different types of athletes, a team that continues to break the rules about footwear construction as we did with SpeedForm to create precision feel, fit and comfort consumers have come to expect from our apparel.

  • The second piece of business that speaks to the scope of our opportunity is golf.

  • I am sure there were a lot of people watching the Masters a couple of weeks ago who said to themselves -- hey, look, Under Armour's making golf shirts now.

  • But as most of you know, the golf category was one of our first steps outside of our core compression apparel.

  • That original insight came from the football field, when some of our coaches saw how dry our compression was keeping their players and asked us for polo shirts that they could wear on the sidelines with a little looser fit but the same performance properties.

  • Then those sideline polos started making their way to the golf course.

  • We quickly understood opportunities to authenticate ourselves with that consumer.

  • We built the UA golf business systematically by doing what we do in every category we enter: bringing performance innovation to the consumer and maintaining a premium position wherever we do business.

  • The business started to change along with Under Armour.

  • When we started out, the overwhelming majority of polos sold in golf pro shops were cotton.

  • I think any of you who have been in a pro shop in the last year or two have noticed how that map has absolutely flipped, and the overwhelming majority of golf polos are made now from performance materials.

  • Then, last year, we signed a 19-year-old kid who we thought was a great fit for the Under Armour brand for one simple reason: he has the talent and drive to be a game changer.

  • What we saw in that first year of our relationship with Jordan Spieth was an athlete with little fear and high confidence in his ability to compete with the world's best golfers.

  • We talked about that at our investor day last June, and he went out in July and became the youngest winner on the PGA tour in 82 years.

  • We continue to grow our golf business, which approached $100 million mark in 2013, with an increased focus on fit and style in both our shirts and pants to accompany the technology we build into our golf apparel.

  • We also thought that Jordan had the opportunity to be something special and made sure we were in a position to capitalize on his presence over the long term.

  • He proved that at the Masters with not only a great finish playing the final pairing, but in the manner that he comported himself both on and off the course.

  • Again, our golf business is a great example of not only our ability to execute today, but to position ourselves for sustainable growth by partnering with a great stable of young golfers like Hunter Mahan, Scott Stalling, Gary Woodland and, of course, Jordan Spieth.

  • The third category I would like to discuss today is outdoor.

  • It is not a category we talk to you about a lot, but it's one that has been a critical piece of our growth and brings a new dimension to our brand.

  • You have heard us talk consistently about being a premium brand wherever we show up, and outdoor is a great example of this.

  • In both the hunt and fish categories, we've been an authentic brand with our consumer from day one.

  • We've seen a very strong six-month trend across the board, and we're seeing great growth across specialty outdoor accounts as well as our bigger wholesale partners, all driven by great product and innovation like our UA Scent Control and MagZip.

  • We will continue to grow this category from a comp perspective as well as growing new categories like outerwear and boots.

  • That has enabled us to reach more athletes off the playing field and expand our presence in their closets with product that is more lifestyle based.

  • Our outdoor business is another great example of Under Armour authenticating itself with our consumer, earning their trust and expanding our share of their closet.

  • There are three big categories of business for us -- running, golf and outdoor, all of which are helping drive our business today and where we are setting ourselves up to be major players on a global level.

  • To better understand the scope of opportunity we have outside of North America has been a focus of our organization for at least the past 24 months.

  • We talked at our Investor Day last June about how we would ensure building our brand globally in the same authentic manner we did here in the United States.

  • Since then, we progressed against several of our key global initiatives, including transitioning our distributor in Mexico to a wholly-owned subsidiary, launching our brand in Brazil and Chile, and signing several sports marketing agreements in global football.

  • Two of those teams, Toluca in Mexico and Colo-Colo in Chile, have had outstanding volumes, with Colo-Colo winning their first Chilean premier division title in five years and in just the first year wearing Under Armour kits.

  • Toluca played in a CONCACAF Champions League final last night at home against fellow Mexican league team Cruz Azul for a spot in prestigious FIFA World Cup in December against [VEDA World's] best club teams.

  • While Toluca did not advance, Under Armour will still be represented in the tournament as we just signed an agreement to outfit Cruz Azul starting later this year.

  • Our strong 79% increase in international revenues this quarter is a positive sign that these new initiatives are off to a strong start and that the story of our brand continues to play well as we expand into new markets outside of North America.

  • The strength of this quarter internationally was really across all regions, including especially Europe, where the Under Armour brand continues to gain traction.

  • In key markets like Germany and France, our brand awareness doubled year-over-year.

  • In the UK, where we are in the second year of outfitting Tottenham Hostpur, the English premier league, it grew three times as we continue to bring new consumers into our brand through global football.

  • One last area I want to touch on is the opening today of our first new store in New York City, which will highlight the largest presentation of the Under Armour brand anywhere in the world.

  • When we opened our first Brand House here in Baltimore, we talked about how the deeper presentation of footwear and women would help our wholesale partners get a better understanding of the opportunity we see in this key category.

  • This morning when we open the doors in our Soho store, that breadth of product will be on display in full force.

  • The timing will be particularly good for our women's business as we activate our next brand holiday later this summer.

  • It will be our first holiday focused exclusively on women, and we believe it will help call attention to how Under Armour is constantly evolving to meet the needs of both the female athlete and the athletic female.

  • In summary, when we look at the 16 consecutive quarters of revenue up 20% plus, it is clear we are executing well during a period of tremendous growth.

  • There is going to be variability in any given quarter, and this consistent growth can map inefficiencies in our business where we can improve.

  • We are becoming better merchandisers.

  • What we see in our New York store today should be the standard for how we want our brand to look around the world in all channels of distribution.

  • Within our supply chain, we are constantly looking to improve our inventory turns while balancing consistently high demand for our products.

  • We are a growth company.

  • As a part of the growth story, we will not always make the perfect decision, but we promise that when that happens, it will be done full speed and we will never make the same ones twice.

  • Whether it's categories like running, golf and outdoor, key growth drivers like women's and footwear, early-stage businesses like basketball and Connected Fitness or new markets like Brazil and China, it is equally clear the opportunities for the Under Armour brand are abundant.

  • Our philosophy around growth is unchanged.

  • Our North American growth and cash creation will be the engine that feeds and fuels our global ambitions.

  • We still have tremendous runway here in North American market that will fuel our business and enable us to invest early and often to capitalize on the opportunities that will drive our growth in the years to come.

  • With that, I will turn it over to Brad.

  • - CFO

  • Thanks, Kevin.

  • I would now like to spend some time discussing our first-quarter 2014 financial results, all by our updated outlook for 2014.

  • Our net revenues for the first quarter of 2014 increased 36% to $642 million.

  • As expected, we experienced a strong rate of growth during the quarter given the sustained momentum in apparel, broader range of products in running footwear and international market expansion.

  • This quarter marks the first time since the third quarter of 2011 where each of these key growth drivers surpassed 30% growth.

  • Taking a look at apparel, we grew this category 33% during the quarter to $459 million, compared to $346 million in the prior year.

  • This represents the 18th straight quarter of at least 20% growth for our largest product category.

  • Overall, we saw strong apparel growth from our training, golf, hunting and fishing lines.

  • In women's, our Studio line remains a stand-out.

  • Youth registered notable gains in training and baseball during the period.

  • Taking a look at some of our product programs, we experienced broad-based strength in fleece, UA Tech and base layer while also offering new innovations with ColdGear Infrared and ArmourVent.

  • First-quarter footwear net revenues increased 41% to $114 million from $81 million in the prior year, representing approximately 18% of net revenues for the period.

  • We were encouraged by the strong sellthrough rates of our SpeedForm Apollo running shoe while also offering a broader running assortment at key price points, including the Assert, Engage and Spine Evo styles.

  • We also seeing success in baseball as our cleated business taking market share despite a somewhat slower start to the season given adverse weather conditions.

  • Our accessories net revenues during the first quarter increased 43% to $52 million from $36 million in the prior period, primarily driven by our headwear lines.

  • Our direct to consumer net revenues increased 33% for the quarter, representing approximately 26% of net revenues.

  • During the quarter, we opened our first of what we expect to be seven new Factory House stores for the year.

  • Our first-quarter ending store count in North America totaled 118 locations, compared to 103 a year ago.

  • We also expanded two existing locations during the quarter as part of our current full-year plan to expand 12 locations.

  • Looking at our full-price Brand House stores, we're excited to open our third location in Soho following our 2013 opening at Harbor East in Baltimore and Tysons Corner near D.C. These three Brand House locations will provide valuable earnings as our full-price retail strategy continues to evolve.

  • In eCommerce, we continue to see strong results driven primarily by traffic gains.

  • Our efforts throughout the duration of 2014 will include an enhanced mobile experience, improved consumer marketing segmentation efforts and increased engagement in Connected Fitness.

  • International net revenues increased 79% to $55 million the first quarter and represented 9% of total net revenue.

  • We experienced broad-based geographic strength during the quarter.

  • In Europe, we are starting to see the combined benefit of higher brand awareness and a more focused in-country strategy around our three key markets of the UK, Germany and France.

  • In Asia, we are starting to accelerate our franchise through our model in China and driving growth through eCommerce and expanded distributor relationships.

  • Finally, in Latin America, our growth was primarily driven by the conversion of the Mexican distributor to an Under Armour subsidiary at the beginning of the year.

  • Moving on to margins, first-quarter gross margins expanded 100 basis points to 46.9% compared to 45.9% in the prior-year quarter.

  • The following factors contributed to this improvement.

  • First, our sales mix remained favorable due primarily to a lower mix of excess inventory sold to our factory house outlet stores, contributing approximately 40 basis points of gross margin improvement.

  • Second, improvements in our supply chain drove lower air freight expenses year-over-year, contributing approximately 30 basis points of gross margin improvement.

  • Finally, we experienced lower product input cost, primarily in our accessories business, contributing approximately 20 basis points of gross margin improvement.

  • Selling, general and administrative expenses as a percentage of net revenues leveraged 40 basis points to 42.7% in the first quarter of 2014 from 43.1% in the prior year period.

  • Details around our core SG&A buckets are as follows.

  • First, marketing cost increased to 13.7% of net revenue for the quarter from 13.3% in the prior-year period, primarily driven by the launch of our first brand holiday of 2014 and international marketing efforts.

  • Second, selling cost increased slightly to 10.8% of net revenue for the quarter from 10.7% in the prior-year period as our direct-to-consumer business grew roughly in line with our overall business combined with increased investments around our Brand House store strategy.

  • Third, market innovation and supply chain costs decreased to 10.4% of net revenues for the quarter from 10.5% in the prior-year period as costs tied to our Connected Fitness efforts were offset by lapping prior-year costs tied to start-up of our expanded West Coast distribution facility.

  • Finally, corporate services declined to 7.8% of net revenue for the quarter from 8.6% in the prior-year period, primarily reflecting lower incentive compensation expenses.

  • Operating income for the first quarter increased 99% to $27 million, compared to $13 million in the prior-year period.

  • Operating margin expanded 130 basis points during the quarter to 4.2% compared to 2.9% in the prior-year period.

  • Our first-quarter tax rate of 46.1% was unfavorable to the 39.9% rate last year, primary due to an R&D tax credit reported in the first quarter of 2013, as well as higher international investment primarily associated with the 2014 market entries in Brazil and Chile.

  • Our net income in the first quarter increased 73% to $14 million compared to $8 million in the prior-year period.

  • First-quarter diluted earnings per share increased 71% to $0.06, compared to $0.04 last year.

  • The EPS calculations for both periods reflect the 2-for-1 stock split, which was effective April 14.

  • On the balance sheet, total cash and cash equivalents for the quarter decreased 30% to $180 million, compared to $256 million at March 31, 2013.

  • We continued to utilize $100 million of our $300 million revolving credit facility which was used to fund a portion of our $150 million purchase of MapMyFitness in December.

  • Inventory at quarter-end increased 46% to $472 million, compared to $324 million on March 31, 2013.

  • Our investment in capital expenditures was approximately $31 million for the first quarter, compared with $11 million in the prior-year period.

  • We continue to plan 2014 capital expenditures in the range of $140 million to $150 million, primarily driven by incremental investment to support our direct to consumer and international business and further develop and expand our global offering footprint.

  • Now moving on to our updated outlook for 2014.

  • Based on current visibility, we expect to 2014 net revenues of $2.88 billion to $2.91 billion, representing growth of 24% to 25%.

  • 2014 operating income of $331 million to $334 million, representing growth of 25% to 26%.

  • Both expected growth rates are outpacing the long-term growth rates laid out on our Investor Day last June.

  • While on operating results, we continue to anticipate higher interest expense in 2014, given the financing of the MapMyFitness acquisition.

  • We now expect a full-year effective tax rate of approximately 40%, ahead of our prior guidance of approximately 39%, giving additional investments to international expansion.

  • Adjusted for the 2-for-1 stock split, fully diluted weighted average shares outstanding are now expected to be approximately $219 million.

  • Given these updated full-year parameters, we would like to provide a few more details on how we currently see the quarterly cadence playing out.

  • Looking at net revenues, we currently anticipate our growth rate for the remainder of the year to be roughly in line with our long-term Investor Day compounded annual growth target of 22%.

  • We currently have planned a growth rate for the second quarter slightly higher than this target, and for the fourth quarter, slightly lower than this target.

  • Relative to the fourth quarter, we grew 35% last year given favorable weather, our improved year-over-year ability to better service demand, a strong new innovation story around ColdGear Infrared, and better than expected direct to consumer performance.

  • But we are taking a more balanced approach in planning the business for the fourth quarter, particularly around weather expectations and our direct-to-consumer business, which represented approximately 40% of our total business during the fourth quarter of last year.

  • Next on gross margins, we continue to expect modest overall gain for the full-year following the 48.7% level achieved in 2013.

  • From a cadence standpoint, we currently expect year-over-year rates to be relatively flat during the second quarter, up strongly during the third quarter and down in the fourth quarter.

  • Looking at the second quarter, we do not expect the three primary drivers of our positive performance during the first quarter to carry forward into the current period.

  • This includes the normalization of our Factory House product mix, a more consistent comparison on our supply chain performance year-over-year and lapping of our bags relaunch which carried higher margins commencing in the second quarter of last year.

  • During the third quarter, the primary consideration is higher US import duty which negatively impacted the year ago period by 90 basis points.

  • For the fourth quarter, our forecast reflects a higher mix of our lower margin international business as well as our approach to planning the direct-to-consumer business considering the prior factors I previously mentioned.

  • Moving on to SG&A.

  • As we indicated in January, we plan to allocate more dollars to marketing, international and Connected Fitness throughout 2014, areas that we believe are key to our long-term global success.

  • The timing of these investments this year is currently planned to create substantial deleverage of our SG&A rate in both second and third quarters.

  • The magnitude of this deleverage is expected to be greatest in the second quarter, as higher marketing and product innovation and supply chain investments contribute to approximately 250 basis points of total expense rate deleverage year-over-year.

  • We expect overall deleverage estimates to ease somewhat during the third quarter before showing significant leverage during the fourth quarter.

  • As a reminder, the fourth quarter of last year included significantly higher incentive compensation expenses and MapMyFitness deal related costs.

  • Overall, we continue to expect modest SG&A deleverage for the full year, inclusive of a marketing expense rate of approximately 11% of net revenue.

  • To reiterate, our focus will remain on driving operating income dollar growth, balanced with making the right investments to drive our long-term global success.

  • Below operating results, we expect the elevated effective tax rate in the first quarter will persist during the second quarter before trending more in line with our full-year guidance during the second half of the year.

  • Finally, a quick update on our inventory position for the balance of the year.

  • As we outlined last call, we expect the inventory growth rate to return to more in-line levels with our revenue growth rate during the balance of the year.

  • We would now like to open the call for your questions.

  • We ask that you limit your questions to two per person so we can get to as many of you as possible.

  • Operator?

  • Operator

  • (Operator Instructions)

  • Our first question is from Matt McClintock with Barclays.

  • - Analyst

  • Hello.

  • Good morning.

  • Can you hear me?

  • - Chairman & CEO

  • Yes, Matt.

  • How are you doing?

  • - Analyst

  • Thank you, good morning, great quarter.

  • Kevin, you talk a little bit about the women's business.

  • You had success with the studio line, and you talked about the brand holiday.

  • Wondering if you could go into some more detail on the product that is coming out this year that gets you excited and maybe some of the innovation you plan to launch throughout the year or layer into the year surrounding the brand holiday.

  • Thank you.

  • - Chairman & CEO

  • Sure, so a few things.

  • Number one, essentially it feels like every time we talk about women's, people give us the perspective of -- congratulations on launching women's.

  • We forget sometimes we have a $500 million wholesale business of women's today.

  • We are certainly not in launch mode -- we are in perfecting mode.

  • I think we are incredibly proud of the team, and that always begins with leadership.

  • Leanne, who joined our Company a little less than two years ago.

  • Her first season will be hitting floors this fall in partner with I think the outstanding leadership we already had here of really understanding what the female athlete wanted and transitioning and evolving with our consumer into what the athletic female wants.

  • We want to make sure we never lose that athletic credibility.

  • We want 16-year-old girls that are playing field hockey and volleyball and basketball and soccer and La Crosse, we want them to feel like Under Armour is their brand.

  • We just want to demonstrate we have got additional chapters in two and three and four that we can grow up and grow older with her as well.

  • I think the one thing you will see, and I will get to innovation in a second, is commitment that we have as being successful in the women's space.

  • You won't see that any more clearly articulated than what we're going to be doing with our second holiday.

  • That will be hitting, as I mentioned in my comments, later in the summer.

  • And holiday too, for us, is 100% committed and without limits.

  • Brands are about points of view.

  • I think we are incredibly excited about the creative net we have and the statement this is making about Under Armour's commitment to this stage and more importantly, our thought leadership in this space.

  • The campaign's going to be about increasing awareness in the breadth of the line, and frankly the first case of where we really see taking this consumer to.

  • When you think about innovation, Under Armour, I think we've been coined.

  • We have not shied away from positioning ourselves as an innovation company.

  • We take no exception, Matt, to what we're doing with women's.

  • Whether it's something as core and basic and as important to the female athlete or the athletic female as the sports bra, with things like Armour Bra, but taking it from being a really great functional bra to making it sexy and beautiful and ensuring she has the use for wearing it beyond the athletic field.

  • I think you'll see us take that, and to be honest with you, I know people on the call are dialing in from New York.

  • I can't emphasize enough, if you want to see what does Under Armour women's look like, take a walk down to our new Brand House in Soho, which opens today, it's a soft opening.

  • We are just getting going, and we will have a grand opening next week.

  • Be nice when you go as we work out the cobwebs.

  • I think we're incredibly excited by what's on the floor, the presentation of products that we have there, and the commitment to A, innovation.

  • The thing that makes Under Armour unique is every product does something -- wicks moisture, keeps you light, keeps you cool.

  • That doesn't mean we couldn't allow it to be beautiful, sexy or cute.

  • I think when you walk in there, anyone who has an ideal or a picture of what they thought Under Armour women's is or was will absolutely be blown away and change.

  • I want to be clear, the goal that we have as you walk into our Brand House in Soho is that you will see A, a great breadth.

  • But frankly, this is the inspiration that we are hoping to bring all of our partners at every channel of distribution that Under Armour presented in this way.

  • Beyond just being authentic and things really for that athletic female, I think you're going to see a beautiful presentation of Under Armour women's products we are really proud of and backing that up with some great storytelling coming later this year of driving home Under Armour to be successful in the women's space.

  • - Analyst

  • Thanks for that, Kevin.

  • We will make sure to make it down there for that.

  • - Chairman & CEO

  • Thank you, Matt.

  • Operator

  • Our next question is from Michael Binetti with UBS.

  • - Analyst

  • Hey, guys.

  • Congrats on a good quarter.

  • - Chairman & CEO

  • Thank you.

  • - Analyst

  • Brad, one quick question for you.

  • Can you discuss a little bit -- in case I missed it -- how much the improvement in the fulfillment rates you guys had which obviously continued in the first quarter from the fourth quarter.

  • Is there any way you can help us estimate how much that contributed in the first quarter?

  • And then does that completely go away as an opportunity in the second quarter?

  • Then I have a quick follow-up.

  • - CFO

  • The metrics from the fill rates are relatively comparable year-over- year.

  • The change I think is the way one we got there relative to achieving those fill rates.

  • Fill rates by request date and fill rates by cancel date.

  • Fill rates by request date were around 70%, and the fill rates by cancel date were in the mid 90%s.

  • The difference being last year, we took some more unnatural ways to get there relative to air freight product to get here on time.

  • For this year, that product flowed a little more naturally, so that bust the callout of the benefit in margin because of air freight expense.

  • As we get forward into the rest of the year, we start to see in Q2, Q3, Q4 as we start to comp better supply chain performance last year.

  • We are going to see the less of that benefit in Q2, Q3, and Q4, especially in the back half of the year where we started to improve that supply chain performance in back half of last year.

  • We're still seeing some comp benefit in Q1 here.

  • It will start to fade in Q2 and become less so in Q3 and Q4.

  • - Analyst

  • Okay, great.

  • Kevin, if I could ask a bigger picture question.

  • Since you guys announced your acquisition, there's been a lot of media coverage on what is going on in the digital part of the athletic industry.

  • You guys obviously acquired MapMyFitness, recently seen headlines that Nike has been moving away at least from the hardware side of their fuel business.

  • Can you give us a state of the union on how the integration is going and how you see the industry moving forward with digital investments like this and how it fits into your longer-term thinking?

  • - Chairman & CEO

  • Yes.

  • Thanks very much, Michael.

  • It's a great question, and I think it's an opportunity everyone looks at and wondering where is this category going, and what does it mean?

  • Let me start by saying that proactive health or as we now coined the term, Connected Fitness, we believe is a massive opportunity.

  • I think as a Company, we are positioning ourselves to put ourselves in a position to really look -- is this being one of the next major industries?

  • Proactive health means not waiting till you're sick to go to the hospital, but how are you going to prevent that?

  • Things like predictive analytics and the science and technology that are out there are things that just aren't being applied to your own body.

  • Think about it for a second.

  • People know more about their car today than they do about their own body.

  • You know how fast you're growing, you know how much gas is in the car, you know how much oil is in there, you know the tire pressure.

  • Yet you don't have an idea yourself of -- when you think about your own health, you go to the doctor every 12, 18, or 24 months.

  • You walk in and he pulls out a manila folder and starts with a subjective question of how do you feel?

  • You're thinking, my gosh, there's got to be more data, more analytics available to the world than that.

  • We been positioning ourselves for quite some time around the space of biometric measuring and understanding the best way Under Armour can play there.

  • Where we did, and frankly going back to last year, we made the decision of looking at things like the wearables and the hardware, but that wasn't really where the future was.

  • The reason for that is because there has yet to be a single market leader to step forward.

  • We think about listening to some of the really exciting launches that are coming up around the wearable community.

  • Frankly there's always going to be new and additional exciting launches coming up with someone trumping someone else.

  • And the idea of that capital intensive business of sitting on a piece of hardware versus us sitting back and maybe saying, who is the best player in the world?

  • The key to the acquisition we made last year with MapMyFitness was the idea of their being agnostic, their being open and acceptable to over 400 different devices that work within their community.

  • When you look and think about the community, what we purchased last December was a community of MapMyFitness of 20 million registered users.

  • As you think about just in the last five months, as of today -- I spoke with Robin Thurston, the CEO and co-founder of MMF and now the Head of Visuals for Under Armour.

  • And as of this morning around 11:00, we're going to pass 24 million users.

  • On Monday, we signed up more than 46,000 people in a single day to the MMF platform.

  • As you think about that size and scale on our prediction will be over 30 million users by year-end.

  • And as we sit here and we dream and we play out how big can this community can be, it's tens of millions.

  • Frankly, we believe it could be hundreds of millions some day.

  • The big question is, what is the product that we're selling, and what is the role we play in that space?

  • When you think about 30 million people by the end of the year, that's the size of Canada.

  • We are definitely having an input and I think an impact and again, this word and this phrase, Connected Fitness, of what it means.

  • The way we're thinking about is not building individual product, but more importantly, building a platform with our own community that one day we envision will have that huge, huge scale and size.

  • As I said when I started, this category is incredibly large.

  • We are working on product, and we continue to operate the MMF platform today as it stood and existed prior to our acquisition.

  • Robin and his team are driving toward that because there's a great product there.

  • We also understand that the engineering and the executive vision of one of the founders of this industry, and Robin and his partner, Kevin, that we feel were incredibly well-positioned to see where this market is going.

  • As we know, our competition is not stepping away from this in any side.

  • Everyone is getting involved and trying to get into the game, but figuring out what is the game is the next big question.

  • We are anticipating additional announcements of large partnerships that our competition will be stepping up with.

  • Frankly, we feel we are in the lead, that we've got the largest community, and that we are the ones dictating the tempo of this space.

  • We're not making predictions about perfection, as I mentioned in my comments before, but we like where we are.

  • We think we've got the best insight into being an important place for the athlete to turn to as they're thinking about how is my body doing.

  • Frankly, expanding the definition of exactly who is an athlete as we think about how big this opportunity potentially could be for our Company and for our brand.

  • - Analyst

  • Thanks a lot, again.

  • Congrats.

  • - Chairman & CEO

  • Thank you.

  • Operator

  • Our next question is from Sharon Zackfia with William Blair.

  • - Analyst

  • Hello, good morning, and congratulations on a really great quarter.

  • Question on the international side.

  • As we think about international longer-term and the way you grow internationally, could you talk about direct-to-consumer and the role it will play within the international growth?

  • I'm assuming, maybe incorrectly, that direct-to-consumer will be a bigger driver of how you grow overseas given the distribution, but would love some perspective on that.

  • - Chairman & CEO

  • Sure.

  • Let me grab that.

  • I've been doing a good job of giving long answers.

  • This one isn't going to be short -- the world's a big place.

  • I have spent a lot of time on the road in the last couple of years beyond Investor Day.

  • As we made that commitment to being a truly global company, which our definition of that is someday, more than half of our revenues will come from outside of our home country.

  • Standing here today, less than 10% of our revenues are coming from outside North America.

  • That is an incredibly large statement to make.

  • Last year I did over 230,000 miles of travel.

  • This year I am on pace too break that.

  • Just in first the quarter alone, been to Latin America to launch our brand in Brazil, visited a couple of our other markets down there.

  • I've been to European and our headquarters in Amsterdam as well as to London to see the Tottenham Hotspur play in London, where they won.

  • Middle East to meet and select our future distribution partners there, and headed to Asia in just a few weeks here.

  • We are without question focused on global.

  • I love that statement that we play in -- what is the role of global?

  • Number one, we've got this horse in North America.

  • As we say, we believe our North American growth and cash creation are going to be the engine that feeds our global ambition.

  • That means we need to continue to win in the US.

  • I want to be clear that we're giving and providing the resources into the US to be successful.

  • But it also gives us the ability to deploy resources outside of the United States and North America in front of some of the real revenue.

  • We believe real revenue is there and is coming.

  • For instance this quarter, we posted 79% growth on international business, but we haven't even started selling product in Brazil yet.

  • The product we've been selling in Chile, for instance, has just been Colo-Colo kits.

  • They haven't even got our full inline sporting goods.

  • As we look at it, we extrapolate the numbers, we think there is incredible opportunity.

  • Granted, it's coming off a relatively small base, but frankly, all of these things come back to leadership.

  • And Charlie has been in the chair for coming up on two years and is doing just an excellent job filling out a team of leaders around the globe.

  • Under Armour today is doing business in 61 countries, and I think we've got 31 different MDs that are managing that in offices all around the world.

  • We are doing a good job.

  • Let me give you quick rundown of how the world looks for us.

  • Latin America, I mentioned briefly, one of the things we said we are going to do is we completed the transition of our distributor in Mexico.

  • It's now being a wholly-owned subsidiary of our brand.

  • The signings that we did at CONCACAF Cup last night final with Toluca wearing our kit and Cruz Azul, who we begin to outfit at the end of this year or in July.

  • We will have a winner that will be on the Latin American club championships down there.

  • In Brazil, great feedback from the launch we did in both Rio and Sao Paulo, and the event turnout was well exciting.

  • I think Under Armour is bringing a different energy and different point of view to the brand that they don't have anyone like us today.

  • The fashion role that other brands are playing is not the performance bench that Under Armour can bring, and still a product that looks great.

  • We're going to have 70 shopping shops going up, as I mentioned.

  • By the end of this week we're going to start selling product there.

  • It's a big idea.

  • Chile, it's the first year in five years Colo-Colo hasn't won the premier cup title, and our first year outfit in, they do that.

  • We are getting our brand awareness out there in a big way.

  • Speaking of brand awareness, Europe is something that has been since 2006, we're proud to say this is the first year Europe will break $100 million for us in the Company.

  • I believe we are taking control in driving alignment across all of our European markets and countries.

  • The one thing with that is, aided and unaided awareness, and so there's a lot of things at work.

  • We're spending a lot more money from a marketing standpoint to deploy resources there.

  • There's the addition of Tottenham Hotspur, which I think has been critical from a brand awareness standpoint and being on the pitch in an authentic way within the EPL is massive, and getting to the point you made is more impactful direct-to-consumer.

  • Our eCommerce there is doing a better job.

  • We view some third-party partners, to distribute our product via the web in Europe, and we're bringing that in-house.

  • And with the addition of Henry and Jason LaRose in North America, figuring out how we can be better from supply chain standpoint to have more and a broader array of product available online.

  • In the past, it has been pretty limited what you are able to get in other markets.

  • We've really edited hard for them.

  • So we're happy to be able to make much more of that as we understand and become better from a distribution supply chain logistics and knowing how to get product to market.

  • That isn't any different in Asia either.

  • Quickly on the direct-to-consumer side.

  • In China, specifically, we've got nearly 20 stores in China by the end of April.

  • That will be growing to over 50 stores at the end of 2014.

  • Most of this is going to utilize the franchise store model, but we're expanding from 2 cities to 10 cities, and we are seeing incredibly strong results with eCommerce.

  • Were also going to be launching our brand on eCommerce front in Hong Kong and a few other markets throughout Southeast Asia as well.

  • Again, all of this, when you talk about Asia for us, it's anchored by our partners in Japan up more than 50% in the quarter growth, and that's on a real number.

  • They continue to grow for us and be an anchor in Asia with brand appropriate retail stores, driving authenticity with the athlete, building incredibly strong Under Armour culture and infecting personality.

  • I can't point over and over that it all goes back to leadership.

  • We've got a great leader in [Shui Shiosudo] running that business for us in Japan.

  • The one thing we found, when you look at it -- and I don't know if I've given you enough detail on in-commerce side of it, the world isn't quite as caught up as we are here in the states.

  • Some markets are in front of us, and some markets are lagging a little bit.

  • One thing we recognize, the more we don't have to go after new markets the way our competitors have gone to them in the past.

  • I don't know if this model is perfected by anyone yet, but we're keeping enough flexibility, putting enough resources behind it, to give ourselves the ability to make best decisions and not just the decision that someone else had done.

  • We expect to write the book, and again, not unlike Connected Fitness, we expect to be dictating the tempo as to how we enter these markets.

  • The good news -- the world is a big place, and we've found that the Under Armour brand translates and we have got a big opportunity.

  • - Analyst

  • That is super helpful.

  • Thank you.

  • Operator

  • Our next question is from Omar Saad with ISI Group.

  • - Analyst

  • Thanks, guys.

  • - Chairman & CEO

  • Hey, Omar.

  • - Analyst

  • I wanted to ask a question about your philosophical approach to SG&A, so to speak.

  • You had this sales acceleration the last couple of quarters.

  • You talk about boundless opportunities for the brand.

  • It is still a very early stage growth company in so many ways.

  • How do you think about pouring money back into the business to take advantage of this and perhaps expanding higher growth rate curve looking out over a longer period of time versus kind of providing upside in the number?

  • I think you had a little bit of SG&A leverage this quarter because the top-line number was so strong.

  • What is your philosophy around reinvesting back into the business?

  • - CFO

  • Omar, a couple of things on that.

  • One, there is always going to be some nuances in timing quarter by quarter.

  • We tend to look more on annual basis of how do we want to invest in our business and the timing of how we want to invest in our business to best support what we're trying to do and initiatives we're trying to do during the course of the year and the timing of that.

  • You will see some nuances when we're calling those out relative to marketing spend and so forth.

  • We've had some incentive compensation nuances also last year and this year as far as timing also.

  • As far as level of investment, how we approach that, we really have consistently looked at investing in our current growth drivers that are performing for us at the highest level.

  • I also balance that with some mid-term and longer-term needs of our business.

  • As an example of that, investing in our direct-to-consumer business in the near-term around expanding square footage in our Factory House stores, building Brand House out and putting money into our in-commerce business here North America is a return we intend to get right away in the business.

  • We tend to put more of our SG&A investment into this short-term where the return is of parts of our business.

  • That doesn't mean that we're going to ignore some of the longer-term successes.

  • Kevin just talked about international, and absolutely, international is in a deep investment boat right now relative to not only growing our existing business in Europe, starting our business up in Asia the last few years, but obviously just getting into some of these markets in Latin America.

  • We definitely want to make sure we balance our investment in the near-term and the next couple of years.

  • A lot of that investment going to short-term gain relative to getting ROI out of it right away, sprinkled with mid-term and long-term investments that we know are going to pay off down the road later but are much, much needed investments today.

  • As far as how we look at how things go during the course of the year, we talk a lot about this over the course of the last 12 to 18 months that we see a lot of opportunities in our brand across all of our growth drivers near-term and long-term.

  • We will definitely use benefits we have in top-line, margin, and benefits of how that drops through in SG&A and will take advantage of that and accelerate SG&A investment to do one of two things.

  • One, that would give us an insurance policy on the execution of near-term initiatives, especially around things like launching international markets and getting into markets for the first time in Latin America, Asia and so forth.

  • Or two, accelerating investments that will pull forward, hopefully by a year or two some benefits we might have in some of our growth drivers that are investment mode.

  • We've talked about focusing on operating income dollar growth.

  • Really taking any benefit we have in top-line and margin to reinvest in our business to give us, again, that insurance policy we will deliver and execute on our initiatives or continue to drive growth going forward.

  • - Chairman & CEO

  • Let me jump on the back-end of that too.

  • Brad and I, we've got a couple of deals and agreements we keep with one another.

  • Number one, first of all as we talk to the Street, we are committed to the operating line that we have committed to and the ability we see in our business to maintain and at times show leverage and grow that.

  • At the same time, with the top-line growing the way that it is, it means the dollar invested in Under Armour has the benefit of the top-line growth we are enjoying.

  • By the end of this year, based on our latest outlook as we see through the year, we will be adding roughly $600 million in revenue over what we did in 2013 and 2014.

  • That is just south of $3 billion for the year.

  • With an 11% roughly commitment to marketing, we've got $330 million to spend in marketing.

  • We look at the largest forced marketing assets out there in the world.

  • It really doesn't put us out of the game for anything.

  • We could theoretically go buy anything we wanted to do.

  • But we don't have all the money in the world.

  • We have to be really thoughtful, and we have to pick the right deals.

  • Two great examples of doing that, number one, I mentioned in my script regarding Jordan Spieth.

  • Hopefully -- we use a phrase here at Under Armour -- humble and hungry.

  • We placed a bet on Jordan ahead of the curve when he was still a sophomore at University of Texas and making the decision to turn pro, that we would get behind and sponsor endorsement.

  • We are incredibly proud of finding someone like Jordan.

  • He didn't come out of nowhere, but he was certainly a bet that our Company took in a really large way.

  • And he has done everything he said he would do and more.

  • Hopefully, our company is delivering on that way and more as well.

  • We want to remain opportunistic about staying close enough to the athlete and consumer to find those Jordan Spieths out there.

  • We know they are incredibly rare.

  • You can beat your chest a bit when you do find them.

  • I promise, that's what we're trying to do is find assets before they are really out in the open and the market really has a chance to understand what we're doing.

  • Second would be Notre Dame.

  • In the last, I guess it was within this quarter, we announced our new partnership with Notre Dame, it was announced as the largest forced marketing deal at the collegiate level in the country.

  • And as we see that and understand the size of it, we have the ability to go buy the best deals and the best assets.

  • But we have to remain true to a philosophy we have about the operating line.

  • One thing I'm incredibly emphatic about is that winning is a culture, and winning is a habit.

  • I saw some people who talked about Soho, and there's been some commentary about it.

  • It's just a flagship, this is more about marketing than it is about profitability.

  • Let me be clear, every activity we involve ourselves in has a line-of-sight profitability in winning.

  • We don't do anything that we see as being just good for the brand or just for marketing.

  • Everything must have a return.

  • That commitment is something I think is cultural and I think it plays to what and who the Under Armour brand is.

  • It doesn't mean we win all the time, but we don't go into things thinking we are going to lose.

  • When we sign athletes and assets, and when we did that deal with Notre Dame, it was because we put a business model behind us that said if we focused on this, we could make this a profitable business for us, which will make more money for Notre Dame and give them the resources they need to compete at the highest level.

  • Everybody basically wins.

  • It just means our being really good at what we do.

  • Whether that's Notre Dame, Jordan Spieth, Colo-Colo or any of the assets, Tottenham Hotspur or anyone that we signed, it's about having the resources behind the initial investment to make sure we make those resources valuable.

  • Within that, we haven't had an instance where we believe we have to change anything about the way we're growing.

  • We think we can deliver growth with the outlook that we provide at our Investor Day last June.

  • We expect to deliver on that going forward.

  • I don't think we are not doing anything because of the commitment that we have to growth.

  • Frankly, with that growth, the commitment that we have to profitability.

  • - Analyst

  • Thanks, guys.

  • Really helpful.

  • I wanted to ask one quick follow-up on your speedskating business.

  • I'm just kidding.

  • I know it is such a big business for you.

  • - Chairman & CEO

  • (laughter)

  • - Analyst

  • Quick question on ASPs.

  • Seems like there's a premiumization trend going on in the marketplace in the whole athletic, active lifestyle space.

  • Are you guys seeing that in your business or feeling that in the marketplace?

  • That's my last question.

  • - CFO

  • ASPs have been trending in that mid single-digit range for us over the last course of the last couple quarters or so.

  • Maybe a little below that to mid range.

  • Again, that does go back to what you're talking about, Omar.

  • A lot of our new innovations coming in at higher price points and so forth.

  • Yes, we're definitely seeing some of that in that 3% to 5% range over the course of the last few quarters.

  • - Chairman & CEO

  • One thing we have seen too, Omar, is that discounting does not -- we talk to some of our partners about that, the way it works in the market.

  • When you go back to last holiday season, and there was a tremendous amount of discounting happening in the marketplace.

  • Frankly, we didn't participate.

  • We are really proud of the 35% growth that we put up in the fourth quarter.

  • The weather makes this all a lot smarter, but it wasn't a consumer coming in and just choosing price.

  • There is a consumer that needs to make a decision based on price, but there is a bit of a barbell effect that continues to take place.

  • Under Armour continues to differentiate itself as a premium player in any market.

  • As long as we are delivering newness and innovation, and whether that newness is SpeedForm, whether it's Alter Ego, whether it's our ColdGear Infrared which is an incredible product if you haven't tried it when it's cold outside.

  • Whether it's our new MagZip zipper we're going to be introducing on 400,000 pieces of jackets and outerwear at the end of this year.

  • What it effectively is, it's a zipper that has a magnetic lock on the bottom that allows you to zip your jacket with one hand.

  • It is things like that, that we need to make sure we continue to do in market and not relying on playing the price game.

  • There's plenty of people doing that.

  • Under Armour wants to stand for innovation.

  • We're going to stand for newness on the floor.

  • We will continue to give our partners reasons for their consumers, all of our consumers and customers to walk into their store and find what is next, and what's latest and greatest at Under Armour.

  • - Analyst

  • Thanks.

  • Very helpful stuff.

  • - Chairman & CEO

  • Thanks, Omar.

  • Operator

  • Our last question is from Camilo Lyon with Canaccord Genuity.

  • - Analyst

  • Thanks.

  • Good morning, guys.

  • Also, great quarter.

  • Kevin, you started the conversation about talking about running and the momentum you are seeing on the product side.

  • You also mentioned human capital.

  • I think about one month ago or so, you made a pretty significant hire in Fritz Taylor.

  • I was wondering if you could shed some light on what you think he will bring to the category, to the business, what he can do or where do you think he can take the business to?

  • - Chairman & CEO

  • Well, first of all, it's great when you have industry veterans.

  • And Camilo is referring to Fritz Taylor, who is our new Head of Running for Under Armour -- a 25-plus-year vet.

  • Mizuno, Brooks, Nike.

  • He's someone who brings a really strong point of view of what the consumer is looking for.

  • I think we are really proud, specifically, of footwear business overall, but running is probably the easiest way for us to find where we are and where we are going.

  • A company that started as an apparel company, I think it's taken us as we are in our eighth year in the footwear business as a whole, to really find our stride as to what is the product that comes through from Under Armour.

  • Again, not unlike our women's business, in 2013, we finished our footwear at just under $300 million in revenue.

  • This year, we're north of a $400 million business for footwear in 2014.

  • We've got a long way to go, but we're beginning to create some scale and allow us to grow much faster in the future.

  • SpeedForm for us was something -- again, this happened prior to Fritz getting here.

  • The most difficult thing about the footwear business is the long lead time, the long time it takes to get people onboard.

  • The good news is, as excited as we are about Fritz, this is not one person.

  • We've got three or four people coming off of non-competes at the end of this month, going to be joining our offices here and Baltimore as well as in Portland.

  • Every month is like that.

  • People coming off of non-competes, and we're lucky to have put ourselves in a position where we're looking for -- who's someone we could hire right now?

  • Who's someone we could hire right, to getting to the ability to take the long view and saying, we're going to be in this business for a long time.

  • $300 million business is going to turn to a $400 million business, will be a $500 million business with a line of sight to $1 billion.

  • And not unlike we've said over and over again, we believe footwear has potential to be larger than apparel for us.

  • Within that, this is factory relationships.

  • This is supply chain; this is getting the right design talent onboard.

  • This is really having, I think, the ability to develop a point of view both for our product as well as from a distribution standpoint.

  • Beyond things like SpeedForm.

  • Again, they weren't the largest number of pairs, but it certainly articulates the point of view of our Company and running of what Under Armour, at $100 in a running shoe looks and feels like.

  • Within that, we've also got a $70 Blur, an $80 Engage, a $90 Spine Evo that are products we have in the market and that we believe in, and these are price points that work within our largest distribution today, which is sporting goods.

  • At the same time, take a look and go from what we are doing there.

  • Under Armour today, as you look and think about us, we're the sixth or seventh running brand when you look at the charts.

  • We are the number two running brand in youth.

  • We're the number two youth brand in footwear, period.

  • Running, training, basketball.

  • Kids love our product.

  • We have a consumer who's demanding us and who we are willing to grow old with.

  • And frankly as they're nine today, we have six years to deal with them until they're 15 and 16 years old and continue to improve and enhance the product and enhance the team.

  • Within that, what we're doing, the way we are showing up on field, our baseball business, our football business, the oldest business, the longest footwear business we have been in -- are continuing to do well, continuing to bring innovation like Highlight, continuing to bring things like Alter Ego to cleats.

  • We got Captain America, Superman, the Flash in some of our footwear that we have.

  • I know you take something from a little more serious standpoint is like scored basketball, which we have been pinned on since we entered basketball in 2011 and believing we have an incredible opportunity there.

  • We've found a game changer in Stephen Curry, and someone we believe can make a difference for our brand.

  • We are seeing that through little small things like exclusive color [raids] we're doing at some of our key partners like Foot Locker and Finish Line.

  • As they're blowing out -- and these are several hundred units -- but they're blowing out in a matter of minutes selling online and other things with these player exclusives.

  • We are finding when we are doing the work to figure out how to crack the code, but we believe we've got a lot of momentum going in the right direction.

  • I want the world to know we're becoming great in running with things like SpeedForm platform leading the way, and continuing to find the sweet spot within our existing wholesale sporting distribution, and inside the development mix we have to make ourselves important with our key mall partners.

  • We're down this road.

  • We're on it every day.

  • We've got great people that we're not making the calls having to make the calls.

  • We have people coming to us and saying -- I want to be a part of what is being built at Under Armour.

  • I think the energy, the heat, the momentum is there; it's just a matter of our execution.

  • I feel pretty good about the team we have in place to make that happen.

  • - Analyst

  • Great, and just a final question for Brad.

  • Brad, on the guidance and how to think about the core deceleration you're talking about here in Q2, Q3.

  • Could you help us understand why the strength we are seeing in Q4 on the top-line and now in Q1 should not continue into Q2 and Q3?

  • Finally, on the fourth quarter, could you remind us what you think the benefit from weather was in the fourth quarter of 2013?

  • Really that seems to be the tougher comparison of the business.

  • If you could provide color on that, that would be great.

  • - CFO

  • Sure.

  • As far as the flow from first quarter to second quarter, couple of things going on there.

  • One, there's just some timing in the quarter on seasonal basis, front half of the year in some of our business.

  • Footwear, international, we're seeing stronger growth in Q1 versus Q2.

  • It is just a timing issue in the season.

  • Both of those businesses will have strong growth rates for the full-year but a little more escalated in Q1 versus Q2.

  • That's part of it.

  • Also in the second quarter, if you recall last year, we kind of relaunched our bags business with better margin product in the second quarter of last year.

  • That would be the first quarter that we are comping that over the last four quarters.

  • We had a little bit of a benefit there in Q1 of comping our bags business where we were kind of pulling back last year in anticipation of our relaunch in Q2.

  • The supply chain performance which I talked about earlier, Q1 probably the last quarter of some pretty decent year-over-year comparisons just in performance of how we're getting product to the retail floor.

  • By the time you get the second quarter, we start to see tougher comps as we started doing much better than that last year in second quarter.

  • Those three things are why you are seeing some of the growth from Q1 to Q2 changes in Q2.

  • As far as back half of the year, specifically around Q4, couple of things in Q4.

  • You mentioned the weather, that was definitely one thing we're taking into consideration.

  • I believe on our last earnings call at the end of January, we talked about Q4 and the impact of weather in our strong growth rate in Q4 last year.

  • It's really tough to say how that impacts the business.

  • We said it could have had an impact of a couple of percentage points, possibly growth rate in Q4 last year by having a cold winter in Q4.

  • Also I think when you look at the fourth quarter, it's important to note how we're looking and how we are approaching planning our direct-to-consumer business.

  • 40% of our direct-to-consumer business for the whole year was sitting in the fourth quarter of last year.

  • DTC is huge in the fourth quarter for us.

  • Obviously, weather played a part in that last year in the fourth quarter, but we do have some nuances there also as you look at fourth quarter this year versus last year.

  • We know Q2 and Q3 were actually -- we have a positive comp on two new stores in Q2 and Q3 with New York opening today and Tysons Corner being opened where it wasn't opened last year.

  • As we get to the fourth quarter, we just have a positive one-store comp there with New York in the fourth quarter because Tysons was opened by then.

  • We also have square footage growth in Factory House.

  • We talked about the door count growth going down and started to focus more on square footage growth.

  • The reality in total, when you look at new doors and square footage growth, last year in the back half of the year, we were up in the upper [20s] as far square footage growth.

  • Factory House for this year will be more down in the low teens.

  • That is, obviously, impacting especially fourth quarter where a lot of our DTC business sits.

  • Our approach to the fourth quarter, right now, for this year is, we don't want too approach it like the weather will be a tailwind like it was for us last year.

  • We don't want to approach it that the strength we saw in DTC last year will necessarily be duplicated this year.

  • That doesn't mean we are not putting ourselves in the position if those two things turn into tailwinds for us that we can't deliver on it.

  • We're definitely putting ourselves in a position we can deliver if things work in our favor.

  • As far as how we're approaching the plan right now in our guidance, we're not assuming as much of that in our earnings guidance.

  • - Analyst

  • To be clear, you will have the ability to change product and go after more sales if those headwinds you're planning for become tailwinds?

  • - CFO

  • Yes.

  • Yes, we're putting ourselves in a position -- if weather is cold again this fourth quarter, we're putting ourselves in position to be able to deliver.

  • And we're also putting ourselves in position if DTC is in overdrive like it did last year, we're putting ourselves in a position to be able to deliver.

  • We want to be careful in how we approach that relative to our guidance and expectations.

  • - Analyst

  • Sounds prudent.

  • Thanks a lot, and good luck with the rest of the year, guys.

  • - CFO

  • Thank you.

  • - Chairman & CEO

  • Thanks again for everyone joining us on the call today.

  • We look forward to reporting to you our second-quarter 2014 results, which tentatively has been scheduled for Thursday, July 24, at 8:30 AM Eastern time.

  • Thanks again, and goodbye.

  • Operator

  • Thank you, ladies and gentlemen.

  • This does conclude the program.

  • Thank you for participating in today's conference.

  • Everyone, have a great day.