Under Armour Inc (UAA) 2009 Q1 法說會逐字稿

Good day, and welcome, everyone, to the Under Armour first-quarter 2009 earnings results conference call and webcast.

This call is being recorded.

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

Please go ahead.

Thank you, and good morning to everyone participating in this morning's conference 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, intend, expect, plan, 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 factors 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 unanticipated events.

Before we continue, I'd like to direct you to our website, Investor.UnderArmour.com.

There, you will find this morning's press release and on our webcast page, images of the number of products and initiatives we will address on the call.

Joining us on today's call will be Kevin Plank, Chairman and CEO, followed by David McCreight, our President, and finally Brad Dickerson, our Chief Financial Officer, who will discuss the Company's financial performance for the first quarter and provide some commentary on our outlook for 2009.

After the prepared remarks, Kevin, David, Brad and Wayne Marino, our Chief Operating Officer, will be available for a Q&A session that will end by 9:30.

And with that, I'll turn it over to Kevin.

Thank you Alex, and good morning, everyone.

We are very pleased with our results this quarter, particularly with the revenue increase of 27% and the EPS growth of 33%.

We believe this growth is a great illustration of the opportunities that exist for our brand, opportunities that will enable Under Armour to maintain our growth trajectory, even in today's environment.

In fact, when you look at the three key drivers of our revenue growth in the quarter, Running Footwear, women's apparel, and our direct-to-consumer business, all of those categories are areas where we have invested in and built the infrastructure for growth over the past several years.

Our ability to leverage these investments and generate growth speaks to the willingness of our consumer to support our entry into new categories and channels and to the overall strength of the Under Armour brand.

Our growth drivers are intact and they're working as designed -- apparel, footwear, international, and direct-to-consumer.

This past quarter's successful entry into running and our increased presence in the mall are prime examples of how we can combine new product categories with new distribution channels to deliver growth.

There has been a lot of discussion about our entry into Running Footwear, and I would like to spend a few minutes on how we started off and what we have learned so far.

Our entry into Running Footwear has been welcomed by both our retailers and consumers.

As we have discussed, the opportunity in Running Footwear is significantly larger than cleats and training and we consciously decided to wait to enter running while gaining footwear experience in these other categories.

Our internal success metrics in Running Footwear are focused on our ability to deliver a technically sound product to our athletes and our accounts.

Based on the feedback we received from our consumers and our retailers, we are delivering against this promise.

This early acceptance will help us build a solid base with runners for the long term and solidify our early steps into specialty and the mall, an important distribution opportunity as our brand continues to grow.

In the short term, we look at three key measures of our entry into Running Footwear.

First, great product that delivers on the Under Armour promise.

Second, retailer support from our large established accounts, like Dick's, Sports Authority, Hibbett, Academy, and Modell's, and newer partners such as Finish Line and Footlocker, and, of course, our strong foundation of independent and specialty accounts.

And third, and most importantly, consumer acceptance from both our core as well as the broader consumer demographic that running takes us to.

We believe we have gotten off to a great start with all three of these metrics and we believe that we are here to stay.

Just as we are learning to become a better footwear company, we are adjusting our marketing support to ensure consumers are being made aware of Under Armour running on a more consistent basis.

For those of you who watched the NFL draft this weekend, there's a good chance you saw our Athletes Run commercial.

Again, we took a category like running and rather than focus on the narrow target of racers, we opened the market to all our athletes, men and women, with the message that All Athletes Run.

It's our most inclusive campaign to date, yet it's still all about elite performance.

Giving that Running Footwear is a 12-month business and we brought product to market earlier this year than we did with training footwear in 2008, we have been able to spread our marketing support over a broader period.

With our initial launch campaign speaking to a broader audience, we are also able to hone in on our sports-specific campaigns while partnering with national and regional retailers.

In baseball, for example, we feature the New York Mets All-Star shortstop, Jose Reyes in media online and on billboards in Times Square.

We will continue to partner with retailers to drive home marketing messages as we move to the introduction of our running line for back-to-school.

We are in the process of building a great platform for growth in the Running Footwear business and it will remain a focus for us in 2010 and beyond.

We are committed internally to getting better each season in all aspects of footwear and continuing to earn our stripes with athletes who demand the best from Under Armour.

I also want to mention the introduction of Under Armour's soccer footwear.

We are introducing the Under Armour soccer boot in a limited way through soccer specialty accounts here in the states and in Europe this spring.

This begins with a great technical product that we expect to learn a tremendous amount from our consumer in the coming months.

As we gain authenticity on the pitch, we will increase our allocation of product to the market.

This is a bit quieter than we have typically launched product in the past, but an approach that we feel is appropriate for long-term success and helps us add another leg to the growth platform of footwear.

As proud as we are of what we accomplished this quarter in running, I believe the more important story is that we comped up in apparel for the quarter, and did so largely at full price.

We feel that's a strong achievement in this environment and we remain focused on generating growth in our apparel business for 2009 without sacrificing our integrity or the growth we see in apparel in 2010.

For instance, our new TNP T-shirt, which retails for $30, was one of our strongest performers this past quarter.

The fact that we can continue to reinvent the apparel product paradigm is a great testament to the strength of our brand.

At the same time, we believe that we have not built our brand's defining product yet.

And we see numerous avenues beyond new product categories where we will be able to grow our apparel business.

Innovation will be at the heart of this.

I want to pass it over to David in a moment, but want to leave you with one final thought.

Under Armour was founded on a very simple idea with a pretty straightforward business model.

What set us apart in that first phase of growth was that we brought the concept of performance to athletic apparel.

That original insight got us a long ways, women's and kids businesses, product categories beyond our core compression.

Established businesses in Europe, Japan and Canada.

But now it's time to evolve into the next phase of the Under Armour growth story.

Just as it was when Under Armour started, the key driver of this next phase will be product innovation.

But it will no longer just be about Under Armour, the compression brand.

The time has come to change the definition of performance.

We believe it is up to Under Armour to create the next generation of performance products for athletes.

Our consumers expect that from us and it will be our primary pursuit as we move into this next stage of growth.

As we bring this new level of performance to consumers, we will evolve our Company with new ways of looking at how we tell the Under Armour story and new approaches to achieve operational excellence on a par with this next generation of performance product.

I am confident this next phase of our growth story will be as compelling as the first, and we will build our team to ensure we balance our focus on athletes and achieving profitable growth.

I will pass it over now to David, who will give you color on some of the additional steps we are taking to build our long-term growth platform.

David?

Thank you, Kevin.

As we continue to evolve our long-term growth platform, it has become clear to me that the opportunities that exist for the Under Armour brand remain near the top of our competitive space.

This quarter's results provide evidence, particularly as it relates to our ability to sell through at full price amid broad and consistent discounting activity in our marketplace.

While volume may be impacted by the current consumer environment, our pricing integrity and brand position remain intact.

The willingness of our athletes to pay a premium for performance product is a great indicator of our brand strength.

As time goes on, we feel our ability to balance pricing integrity and bottom-line profitability will ultimately prove to be one of our business model's strongest assets.

As Kevin mentioned, we enter 2009 with our growth platforms underdeveloped.

There lie meaningful opportunities within all our platforms, including our apparel business.

While evolving our apparel model from a year-round basics assortment to one that includes more seasonal flow in collections, we have been disciplined around both distribution and category extension.

This discipline and model evolution provides us with many levers for generating mid to long-term apparel growth.

But while the marketplace looks for the consumer environment to normalize, we should be able to gain floor space in categories such as women's and youth within our existing distribution, as well as strategically move into new channels where consumers will begin to expect our brand to be.

Another example of how our opportunities are manifested from our growth drivers is our entry this quarter into the multi-billion-dollar Running Footwear category.

Following last year's successful training shoe launch, we entered Running Footwear with the intent to build, over time, a scalable and profitable platform that helps us reach even more athletes, both domestically and internationally.

This is a new business and a new model for us and one we plan to perfect in the coming years.

On the margin side of our business model, it is time we revisited our supply chain structure.

We plan on moving from a sourcing model that, due to our rapid growth, needed to emphasize reliable delivery and quality to one where we continue to deliver high-quality premium products but at a better value to the Under Armour shareholders.

Wayne and team are beginning to develop networks, analytic tools and skill sets that will support this vital initiative.

One natural example is a significant opportunity to take costs out of the manufacturing processes as we gain experience in categories such as foot wear.

We believe long-term, these efforts will help offset some of the gross margin pressure we anticipate from the higher mix of footwear as well as higher markdowns related to seasonal apparel.

As Brad will review with you, we are being diligent in managing our SG&A, working to align our assets and investments with our growth drivers.

We have recalibrated our marketing spend for this macro economic environment.

But we will continue to drive our consumer into our retail partners stores at an appropriate level, and, where necessary, spend to remain the brand most relevant to this generation.

We believe that by continuing to prioritize investments and make the ones that will generate growth like Running Footwear, we are setting ourselves up appropriately for the long term.

It's important to understand that our future model is not simply about entering new categories for growth.

With each season, we expect to gain valuable insight that makes us better operators and strengthen the platform to reach more customers.

This will help us ensure that the revenue growth we see in 2010 and beyond will be more profitable and provide a strong return on our investments.

2009 is a year of balance for our organization.

Cutting costs in some areas while accelerating investments in others; balancing our long-term business view and decisions with the right calls for the business and our financial strength in 2009.

We will continue to focus on brand and pricing integrity as we understand the importance of our brand equity to our long-term growth.

At the same time, we will protect our balance sheet and liquidity.

We believe that our wholesale partners continue to adjust to the changing consumer environment.

We are not planning on a significant increase in consumer activity for the balance of the year.

On the other hand, we do have the benefit of sports being the primary driver of our business and team sports like baseball, football and soccer, continue to be played every day.

we believe this makes the Under Armour brand a less discretionary purchase than our pricing might lead one to believe.

In the past, we were a company that relied on hyper revenue increases to generate our profitability.

The discipline we are building around investments -- in developing investments and cost management today is making us a better, more athletic and powerful company for the future.

We believe that this conservative approach in 2009 is not only the appropriate tract for this year, but sets us up well to generate meaningful profitable growth as the difficult consumer environment improves.

While we are very confident in our future long-term prospects, we remain cautious on the outlook for 2009.

We have a great brand, a strong team.

We are focused, dedicated, and committing to doing what's right for this brand in the long term.

With that, I would like to turn it over to Brad Dickerson, our CFO.

Thanks, David.

As Kevin and David have taken you through some highlights and strategies for our business, I would now like to spend some time on our first-quarter financial results.

Our net revenues for the first quarter of 2009 increased 27% to $200 million.

Driven by our entry into Running Footwear as well as shipments of Performance Training Footwear, which launched in the second quarter of 2008, footwear revenues in the quarter increased $40.3 million to $56.9 million.

Our apparel revenue growth rate in the first quarter improved slightly from the rate reported in the fourth quarter of 2008.

Year-over-year apparel net revenues were up 2.4% to $132.2 million in the first quarter with our women's business generating the strongest growth rate.

Our direct-to-consumer channel continues to be a strong performer and was up 38% for the quarter.

First-quarter gross margins were 45.3% compared with 47.6% in the prior year's quarter.

There were several puts and takes that impacted the gross margin for the quarter.

First was the impact of the higher proportion of footwear sales in the quarter.

As we have discussed, footwear has lower product margins than apparel.

In addition, footwear has an increased level of markdown allowances associated with it due to the seasonal nature of the business.

As our footwear business matures, we expect to improve our planning of product flow.

Second, on the apparel side, margins were impacted by a less favorable product mix, as well as some higher product costs.

Finally, due to trends in the current environment, our license business declined 7% in the quarter, adding to gross margin pressure year over year.

Driven by strong top-line growth in the quarter, selling, general and administrative expenses as a percentage of net revenues decreased to 41.3% in the first quarter of 2009 compared with 44.9% in the prior year's period.

SG&A dollars increased $12.2 million to $82.7 million during the first quarter with nearly half of the growth driven by increased marketing expenditures.

As a percentage of net revenues, marketing declined to 16.5% in the first quarter compared with 17.8% in the first quarter of the prior year.

For the full year, we still expect to invest in marketing at the high end of the range of 12% to 13% of net revenues.

Operating income during the first quarter increased 84% to $7.9 million compared with $4.3 million in the prior year.

Operating margin was 4% compared with 2.7% in the prior-year quarter.

Below the operating income line, there are a couple of items to address.

Net interest expense for the quarter was $860,000 compared with expense of $90,000 in the prior year's period.

As discussed during our previous call, in January, we entered into a new $200 million revolving credit facility.

In connection with this, we terminated the prior $100 million facility, which resulted in a $400,000 write-off of unamortized deferred financing costs.

The balance of the interest expense primarily relates to interest on our subordinated debt.

The hedging strategies implemented at the end of 2008 allowed us to limit our exposure to foreign currency exchange fluctuations.

During the first quarter of 2009, we recognized a slight foreign currency gain.

Although the gain was much smaller than the $600,000 gain recognized in the first quarter of 2008, it was much improved from the $4.6 million foreign currency loss reported in the fourth quarter of 2008.

With that said, there is no perfect hedge and there is still risk that our results in future periods could be impacted positively or negatively by foreign currency fluctuations.

Our effective income tax rate in the first quarter was 43.8% compared with 40.3% in the first quarter of 2008.

Based on certain tax strategies being implemented in 2009, we are estimating our full-year tax rate to be improved from our 45.3% effective tax rate in 2008.

Our resulting net income for the first quarter rose 38% to $4 million compared with $2.9 million in the prior-year period.

First-quarter diluted earnings per share increased 33% to $0.08 compared with $0.06 in the prior year.

Now, a few moments on the balance sheet.

Total cash and cash equivalents at quarter end increased $48 million to $65.6 million compared with $17.6 million at March 31, 2008.

Cash net of debt increased $48.1 million at quarter end to $46.9 million compared with net debt of $1.2 million at March 31, 2008.

We currently have no borrowings outstanding on our $200 million credit facility.

Net Accounts Receivable grew only 3.9% on a year-over-year basis, which was significantly below our net revenue growth for the quarter.

In addition to the timing of shipments in the quarter and the slightly higher mix of direct-to-consumer sales, net A/R was also impacted by a year-over-year increase in the allowance for doubtful accounts during the first quarter.

Inventory at quarter end decreased 2.1% to $164.4 million compared with $167.9 million at March 31, 2008.

Running Footwear was an allocated program, and as such, much of it shipped directly from the factory to the customer, which benefited our inventory balance at the end of the first quarter.

Additionally, we continue to focus on three main components of inventory management.

One, managing our inventory buy; two, reducing our production lead times; and three, selling excess inventory through our outlets and other liquidation channels.

Proper inventory management is critical to both our financial strength and brand integrity, especially in this environment.

We need to continue to focus on improving our inventory turns by year end.

Our investment in capital expenditures in the first quarter was $8.7 million.

During our last call, we announced that we would be taking a more conservative approach in 2009 and would plan our CapEx down year-over-year.

Based on our current plans, we now anticipate 2009 CapEx to be in the range of $30 million to $35 million, below the $41 million invested in 2008.

In addition to the six to ten outlet stores we're planning to open this year, significant portions of our investments will go towards improvements at our distribution center and additional in-store fixtures and concept shops.

Although in the past we have stated that we would anticipate future CapEx to grow in line with our top line, we believe this year-over-year reduction in CapEx is appropriate in the current environment.

We are pleased with the results we delivered to date in 2009, and we continue to believe in the growth opportunities that we have this year and in future years.

We have shown discipline around cost management with the continued willingness to invest in the areas of our Company that will be most critical to our near and midterm growth.

As we look forward to the remainder of 2009, there are a number of factors that can impact our full-year results, which I would like to discuss.

Beginning with the top line.

Overall, I would like to point out we have not assumed an improvement in the environment this year and are planning our business conservatively, especially around our US apparel business.

With our entry into the Running Footwear category, footwear remains planned as our largest revenue growth driver in 2009, and the next key indicator will be the performance of our updated running line for back-to-school.

We are pleased with how our training footwear performed at retail during the first quarter.

With our entry into Running Footwear, we have planned this business down in 2009.

Finally, one note regarding the seasonality of net revenues in the back half.

As you will recall, in the fourth quarter of 2008, we saw a meaningful slowdown in the environment which caused back-half revenues to be much more heavily weighted towards the third quarter.

We do not anticipate back-half revenues in 20009 to be as heavily skewed towards the third quarter.

Moving on to gross margins.

As we have previously discussed, footwear gross margins are lower than apparel gross margins.

With the majority of our top-line growth anticipated to come from footwear in 2009 and lacking significant offsets to other components of our gross margin, we anticipate full-year gross margin to be down year over year.

Additionally, we anticipate the fourth quarter to be our highest gross margin quarter for the year.

As we said during our last call, we would like to protect operating margins on a full-year basis.

However, we are still being impacted by visibility challenges to the top line as well as market uncertainty.

One item that we do control is our level of SG&A investment this year.

We continue to balance the need for tight cost controls with the importance of key investments to our long-term growth, and we're currently planning 2009 SG&A dollars to grow in the low teens on a percentage basis year over year.

Additionally, we do not anticipate any significant change in the timing of our SG&A spend as compared to 2008.

I would also like to provide you with some color around the second quarter.

Similar to previous years, our second quarter is anticipated to be the lowest quarter from both a top line and earnings perspective.

In addition, in 2009, we are comping last year's second-quarter Trainer launch, which will offset much of the growth in other areas of the business.

We continue to remain cautious in our view of the business this year, and, like many companies in this environment, we are adjusting our outlook for the mid-term horizon as we cannot predict when the environment will improve.

However, we have many untapped growth opportunities and remain positive on our long-term prospects.

We are focused on the health of our balance sheet, driving liquidity and effective cost management.

Our commitment to our shareholders remains as we drive long-term value creation through financial discipline and investments in our growth platform.

At this time, we would now like to open the call for your questions.

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

Operator?

(Operator Instructions).

Michelle Tan, Goldman Sachs.

Thanks and congratulations on a very impressive quarter in a tough environment.

I had two questions.

One was, is some color on the growth in the apparel business.

Any kind of more breakout you can give us between new doors, new products and the sellthrough on the core products?

And then my second question was just any additional color on on the timing of the running shoe shipments through the rest of the year.

Michelle, I'll let David take that one.

We are generally very pleased with how we performed in apparel for the first quarter, especially considering the very promotional environment we've seen out there and Under Armour's ability to sell primarily at full price.

In the categories, as we look across, we saw some solid trends across there, nothing that really was unexpected for us.

But, as Brad said, we do remain cautious as we look at the balance of the year.

What we have seen though is when we introduce new and compelling product, the consumer accepts it.

As Kevin had mentioned, even the TNP T, which is a $30 price point, has come out of the box and done very well and has not cannibalized other product offerings.

So we are focused on continuing to drive innovation across all areas.

This is Brad.

The second part of your question, on the timing of the running shoe, Q1 will be the largest quarter for running shoe for the year.

As we stated previously, running -- the entry into Running Footwear will be larger than our training launch last year.

But we do see Q1 being the largest portion, but obviously we will be selling running shoes throughout the year.

Also, as I said in my prepared remarks, remember that we are planning the training footwear business down year-over-year also.

Okay, great.

And then any kind of color on the lumpiness on running through the balance of the year?

Is it more kind of even for the next few quarters or bigger in Q2 and then smaller in the -- or bigger in back-to-school and smaller in the other two?

I think if you look at the year, Q1 and Q3 will be the biggest quarters of the year with the entry in Q1 and back-to-school in Q3.

Great.

Thank you very much.

Chi Lee, Morgan Stanley.

Brad, question for you on the provision.

Can you give us what the absolute level of provisioning was during the quarter for the receivables?

Right now at the end of the quarter, we have about a little over $4 million in bad debt reserves.

I think the increase in the quarter itself was about $0.5 million.

Okay, great.

And as I look at your SG&A growth rate, it seems that non-marketing expenses was very well controlled.

Can you just give us directionally what [thought gives] you are seeing the greatest levels of opportunity as you progress through the year?

Yes, what we would look at with SG&A right now is our controllable costs, so we look at those incremental costs that we haven't spent yet and what we can hold back on and defer on.

So just year-over-year is trying to control those incremental costs.

Also, any other semi-controllable costs that we have an opportunity to go back and get some savings on, we're looking at those also.

In general, you have to remember though also in Q1 that we had a 27% top-line growth, so that definitely helped leveraging of SG&A in total.

Great, thank you.

Robby Ohmes, Banc of America.

Just two quick questions.

The first, I was wondering if you could elaborate a little bit more on the cautious business outlook for the year.

Is it backlog driven or are you concerned about G.I.

Joe's closings and other regionals going out of business?

Maybe just help us think about where the apparel business, what the risks and issues are that keep you so cautious coming off a good first quarter like this.

And the second question is, I don't know if you gave it, but if you could tell us what international revenues were for the quarter as a percent of sales, I might have missed it.

And then maybe update us on if there's any change or anything going on in the international side of Under Armour's business.

Thanks.

It's Brad.

I'll take the first part of this and then Kevin and David might want to chime in after me.

But on the international revenue piece first, international revenues were 4% of our total revenues in Q1, first of all.

Second of all, just on the customer credit side of being cautious going forward, obviously, we did see some issues in Q1 with some of our customers.

And with our increase in our bad debt reserve in Q4, we anticipated some issues in Q1.

So, so far, what we've seen from some, I'd say mid-size customers and smaller customers hasn't really surprised us.

We do think that we are adequately reserved right now.

And looking forward though some of our cautiousness and conservativeness around our credit was a part of our overall top-line conservatism.

It's Kevin.

Let me just follow up a little more and give you a little more about the way that we are seeing the balance of the year.

Particularly for us, what's so important is the apparel side of things.

First and foremost, as I mentioned in my prepared remarks, our growth platform, we believe, is intact.

We are though, we're aware of what's happening out there in the market and we are planning our growth accordingly and, frankly, rather conservatively as well.

The first and most important thing that we are doing is we're preserving our brand equity and our pricing integrity.

And we want to position Under Armour for when the environment does change because we do believe it will, although we are not making any predictions as to what that timing might be.

The good news is that we continue to be one of the top performing brands in the market if not the top performing brand in the market.

And given that we are the leaders in the category, the difference that we see, typically what we are investing heavily in right now, is innovation.

Some of the things, and you heard David mentioned things like our TNP T.

We also have a couple of great new programs, exciting programs, coming out this fall, like a reversible HeatGear ColdGear strategy.

We've got a new product called Recharge, which is about getting athletes on the field quicker and faster.

So I think you're going to see not only as continued to drive around the core basics that have sort of built this company, but more importantly, what's probably even the bigger part of our foundation is innovation.

And I think if there's anything you will see in the evolution of Under Armour, is the fact that we continue to evolve away from being just a pure compression brand into being more of a performance brand.

And so the place where and how we define what is performance I think is what gets exciting around sports like golf and of course running and some other places that we see we can take it.

Not only from apparel, but obviously now from a footwear standpoint too.

And Kevin, just a very quick follow-up on that commentary.

So when you look at the sort of mid-level and smaller regional sporting goods chains, is that a business that you think you might actually have to reallocate to another channel over the next year or two?

Or is it a situation where you think enough of them will make it through this environment that they will just sort of come back when the environment upturns?

Well, first and foremost, as a company, our distribution is very, very clean.

So we obviously have a lot of different levers if we should ever decide to pull on any of those.

First and foremost though, we are committed to our core distribution, and I think you are going to see, without question, consolidation will happen.

We've already seen two of them occur this year.

But we continue to see I think our bigger players in the Dick's in particular in the Sports Authorities and Academies of the world, these guys are really driving as well.

So we're out there.

We want to support those smaller independent accounts, and we want to give them every opportunity.

And it's, again, I think you will see a limited amount of consolidation.

But at the end of the day, I think you will see a healthier market.

So we are planning for that.

We've reserved for that.

We've got all the worst-case scenario in there for that, and we are, of course, optimistic and trying to support wherever we can, but also protecting our own sales in the face of everything that's going on out there too.

Great, thanks a lot.

Tom Shaw, Stifel Nicolaus.

Nice quarter.

Kind of a continuation of the last question.

Where are the opportunities in distribution throughout the rest of the year?

Obviously, the mall has been a focal point.

But so not only in the US, but also in Europe where some of the other retailers are having their own set of issues?

Tom, it's David McCreight.

We are -- right now we have -- when you look at our -- we break out into several different areas.

One is looking at it within our existing distribution.

When you look at Under Armour's position in the floor space, while we are the dominant player in our existing distribution, we believe there are product categories, flow, and opportunities to gain more floor space within existing distribution.

So we're focusing increasingly on that as we are smarter with flow, and as Kevin said, introduce new and innovative products.

Secondarily, we know Under Armour has fewer touch points from the customer than many other larger companies.

And we're going through a relatively detailed and analytic review of that and beginning to map the sporting goods spend and performance apparel spend across America.

And we are going to identify those pockets and then wait to discuss that.

And then finally, you've heard us mention, as we introduce the mall channel this year with the running shoes and we think we have a big opportunity to take advantage of that contact point.

And then finally, we have our direct-to-consumer.

All of them are a very potent arsenal of growth opportunities for distribution to bring our brand to more athletes.

And let me pile on, if I could.

The best way and thing that we have going for us as well and what we have found is that there is such an unbelievable pull of support for our brand, too.

You know, not only from our distribution of again, having someone step up, so we really at this time and I think you heard within my comments, we are appreciative of the sport that we received on our running launch from our critical partners there.

And as they continue to, I think they have a lot to gain in Under Armour's success that only on the apparel side, but obviously on a footwear side.

So it takes a village, that's for sure, and I think that's what you are seeing with the success pull forward of Under Armour.

Okay.

And David, you talked about recalibrating the marketing spend.

And I think Kevin you mentioned that at the same time you are adjusting some marketing to support the improved awareness of the running launch.

You are still maintaining kind of the high end of the 12% to 13% range on marketing spend for the year.

It sounds like, if you are changing the awareness around running and keeping the range, does that imply that you are perhaps pulling back somewhere else when budgeting for the year?

No, it has to do with the shift in the timing between quarters as well as within categories and then with the way we break out our spend.

Okay, I'll leave it at that.

Thanks, guys.

Omar Saad, Credit Suisse.

Thanks, good morning.

Kevin and David, actually, I wanted to follow up on some of your comments from the prepared remarks.

Kevin, you talked a lot about the next phase, the new ideas balancing the growth and the discipline.

I wanted to see if you guys would take this opportunity to be a little bit more specific and go into more detail about how you are going to manage this Company, how you are thinking about managing this Company over the next couple years, and where are you going to put your resources and emphasis behind and what are some of the areas at least in theory that you might have pulled back from.

And because as a growth company that's really enjoyed such strong growth to this point, I think at this point in time your kind of at a crossroads, if you will, where you can continue to press the accelerator button and chase a lot of things or you can kind of be a little bit more specific about what you pick.

Omar, let me be crystal clear, first of all, with the fact that we remain a growth company.

We have not given up on that, and I think again, our performance in the first quarter is demonstrative of our ability to be able to execute on that as well.

We learned a lot of lessons in 2008, though.

And from a company who began with -- we've always had a top line that would always be there for us.

And one of the lessons learned is that when things do become greater or out of your control, the macroeconomic environment that we felt at the end of the year, we have a different, obviously, place that we need to focus.

We need to figure out how to manage our business.

And while we've been working toward that, one of the greatest examples of things I'm probably most proud of from 2008 was our ability to demonstrate our ability to manage inventory.

In the marketplace, though, we continue to first and foremost protect the brand and protect our pricing integrity.

You did not see Under Armour in a highly promotional way in a very promotional environment at the end of Q4 and frankly through Q1.

We are continuing to outperform and we are not necessarily giving up market share while we continue to sell at full price.

We believe that these -- the difficulty that people are seeing right now in difficult times are going to make us a better company, and I think we are executing on that.

So what you're going to find with Under Armour, where maybe in the past we've been more of a top-line story, we believe that we're a lot more than a top-line story.

We are demonstrating our ability to manage our business as well.

And, frankly, that's with the addition of David to not only be able to A, have someone else who is with me pounding our fists and saying we're going to continue to grow, but also ensuring that with David and Wayne and Brad's help, we continue to make sure that we deliver on the bottom line too.

And let me let David add onto that too.

As Kevin had indicated, we are beginning to take advantage of this incredible opportunity we have with this high-growth brand and make sure we are smart in how we sequence and stage this growth.

An example of that is Kevin, Wayne and I put together a series of goals for the Company, which are all around, we're going to be a growth company.

We're going to grow profitably.

We're going to focus on innovation, consumer insight and becoming excellent in operations.

And all of those things make us a well-rounded, and very potent force in the sporting goods space to take advantage of this incredible brand we have.

And we will share more with that in the coming calls.

Okay, excellent.

I was also intrigued by the soccer launch, kind of this quiet soccer launch.

There hasn't been much fanfare on it, and I know it's not a lot of distribution, especially in the US it sounds like.

But what was the thought process there?

Is this something we might see more of in the future as the brand branches out into new areas?

Well I think, Omar, it comes back to just the approach.

It's what was needed for this market.

A good analogy that I will use there is that if I'm playing around at golf and I need to take more out of my bag than just my driver.

And in this situation, we thought we needed to do was to get into market and begin to just start operating.

So we look at this more as an introduction with a limited allocation of product.

And frankly, probably if we made any mistakes on the running "launch" it was probably calling running a launch.

We spent a fraction of what we spent in training a year ago.

And the results were looking for was something -- we effectively -- we opted for three or four more months of selling season versus a sort of larger launch in the April, May time frame.

So we feel that it was the right decision, looking back on it, but we think that we may have created expectations that might not have been as realistic.

We've been a little more quiet on the soccer boot side because again, it's a hyper competitive market that we know that we need uber-technical product with latest and greatest.

And what we want to do is we don't want to come out beating our chest, but we want to go and we want to build a ground swell of acceptance among athletes, and we're seeing that.

We've got dozens of premiership players now that are moving, and we hear this.

And again, these are established players that have been wearing other brands for years that are moving into our boot and really like the boot.

Now, more importantly, we are targeting, it's that younger generation who isn't as brand-consumed yet.

And that's again, the position that we believe we can play in.

So that's why we're starting with some very high-end product.

You are talking about a $200 shoe and some very specialty product that we'll give a shot to.

So again, we believe that we can be successful there.

Okay, so just to make sure I understand, it sounds like there's a little bit of shift in the mentality and how you approach new categories, where there's going to be less of this emphasis on a big fanfare-driven loud in the marketplace type launch and you're going to be a little bit more strategic about how you enter some of these new categories?

Omar, we definitely plan to be -- continue to be strategic.

But what we will do is modify our approach based on the marketplace, the environment and where we are in it.

And so you may hear us trumpet loudly.

We're not going to shy away from big, bold marketing in the future, but we are going to enter categories with what we think is the appropriate level of marketing.

And some may build to a crescendo and other categories we may come out of the box hot and strong.

At the same time, we're not going to apologize for the company that we have been, but we also believe we are a bit more diverse than big guys in tight shirts screaming at you to go buy Under Armour.

So I think that you will, again, you'll see a lot more from us.

You'll see a lot more breadth and a lot more diversity from us going forward particularly in our marketing messages.

Thank you, thank you.

Best of luck.

Jim Duffy, Thomas Weisel Partners.

Thanks, good morning.

Couple of questions.

Kind of a follow-up to the latest line of this dialogue here.

David, where you guys in the process of presenting apparel collections?

And then, help us with some of the thoughts on new channels of distribution for the apparel business.

Are you going to take us outside of the traditional sporting goods channels?

And what would the timing of all this be?

Is it an '09 thing or something we are not likely to see until 2010?

As it relates to collections, with the recent hire of Suzanne Karkus and Kevin's charge to grow the women's and youth business, we looked at our model and decided and recognized how that athlete shops.

And so you are beginning to see some of the collections, primarily this fall season.

We will start to see an increased flow and a different sort of rhythm to how we deliver product.

If you were to walk the floor today, you would see a different assortment and a different approach to women's than you have seen the year before.

So I think you're going to see it continue to build in the coming deliveries.

As it relates to distribution, we feel confident that we can continue to grow and comp within our existing distribution.

And it is largely going to be around our content and the strength of our offer that helps us get there, while we do remain cautious for the balance of the year based on how our partners are viewing this space.

And outside the existing channels, primarily what Kevin has challenged us to think about is to look at how to bring Under Armour to more athletes.

And so we are still early in the analysis.

But when you do the broad overview and measures, you can see pockets and many actually large areas and athletes that we have yet to touch with our current approach.

So we think, as I was discussing earlier, we have many arrows in the quiver still, and that analysis and decisions are being done in the coming quarters.

Okay, interesting.

In the collections, so we should look for maybe a shorter window for some of the collections that we will see in the fall line, or maybe you will cycle things through?

You will -- it's probably -- it will just be more apparent.

The flow of freshness will increase.

The amount of print and pattern and the innovative technology that is being introduced will be very visible.

But you will start to see that rhythm.

And we have had it but it's been more quiet in the past.

Great.

Thanks so much, and good luck.

A way to think of it is we are evolving beyond sort of a basic year-round business and building on top of that, adding incremental opportunities to think of the athlete head to toe.

Got you.

Thank you.

David Glick, Buckingham Research.

Good morning.

Just a follow-up question on the apparel business.

I was trying to get a better sense for the sell in versus the retail sellthrough.

The apparel business certainly ticked up in the quarter, low single digits, possibly due to some new distribution in the mall.

But can you give us a sense for the trends at retail in your more existing sporting goods channel, how you are trending versus last year and plan, how the margins are -- natural margins are trending?

Just a better sense or some more color on really what's happening at retail.

We have -- Q1, we were, as Kevin said, pleased with the results of apparel.

We benefited from some cold weather in that time period, as well as the delivery of fresh new collections.

We have made increased investments with our partners in certain strategic categories that we have already discussed.

And it is still very sort of early in the spring season to see how the balance of this season is going to play out.

But we think we're in a pretty good position in apparel.

Okay.

Appreciate that.

And any difference you are seeing in the selling either by category or just any trends that you see differ between your new mall distribution and the selling there, in footwear and apparel versus your more mature sporting-goods channel?

No, they are very different assortments, and they're not really necessarily comparable.

But what we are seeing is when we deliver newness and freshness, it's being well received.

Okay, great.

Thank you very much.

Sam Poser, Sterne, Agee.

I just have a couple questions regarding -- one, the updates that you are making to the running shoes, can you give us some indications as to what you are doing both from a color pattern and from possibly tweaking the existing shoes themselves?

We're going to follow the flow.

Really, we're going to continue to deliver fresh colors through the balance of the spring season.

And then in back to school you are going to see another new addition of styles delivered, starting with [7/1] on floor.

So is that going to ship in your third quarter then -- in your second quarter then?

Those new styles will ship in Q2?

Yes, this is Brad.

There will probably be some at the end of Q2 but I think Q3, as I said before, will probably be a little bit bigger.

Okay.

And then regarding -- we're hearing lots of talk about your basketball shoes on court in Europe right now and a couple of players and so on.

Can you talk to where you are right now with that?

We remain -- frankly, we love the fact that you are hearing about it.

And we also have no designated date as to when we will be launching basketball, other than the fact that exactly when we are ready.

But you will continue to see basketball shoes show up on Under Armour Undeniable teams, our collegiate teams like the University of Maryland and Texas Tech and some of the other properties that we will be adding as well.

You will continue to see it on some of our high school Undeniable teams, as well as branded Brandon Jennings, who is our only professional athlete that we have today as well.

But again we believe that we are going to be very important in basketball.

We also believe that we have the luxury of being patient as to the point when we decide to enter that market.

And we will do so, frankly, first and foremost and only when the product is 100% ready.

So we're biding our time and going to make a strategic decision around that.

And lastly, could you break -- could you give us the specific components of the SG&A for the quarter, either by dollars or percentage?

Yes, this is Brad.

I can do it real quick.

Marketing was 16.5% versus 17.8% last year, like I discussed.

Selling was 7.3% versus 7.6% last year.

Product innovation and supply chain was 8.6% versus 9.5% last year.

And corporate services was 8.9% versus 10% last year.

Obviously, you will see those in the Q, too.

And is that something -- is that a look that we can -- can we expect that kind of relative pattern for the rest of the year?

Yes.

I think because the top line grew 27% in Q1, that's going to skew some of those a little bit.

So I think you're going to see similar SG&A year over year, the timing of SG&A in percentages year over year.

Okay, great.

Thanks so much.

Dan Wewer, Raymond James.

Thanks.

Brad, did I understand your comment correctly, that you are planning Performance Trainers to be lower in '09 than '08?

Yes, Dan, that's correct.

Was that starting in the second quarter of '09 compared to the second through the fourth quarter of '08?

Or are you talking about because -- or are you saying that all of fiscal year '09 will be less than the three quarters of '08 the product was available?

Dan, I'm going to let David add some color to that, but now what we're planning is for the whole year, our training footwear will be down year over year and we plan that down year over year with the entry into run.

David might want to expand that a little bit.

Dan, as we entered -- really added our second non-cleated footwear category, we wanted to be very cautious with our expectations around training year over year year and wondered to what degree people have participated in buying training shoes because it was the first way to get Under Armour footwear on their feet and not be on field.

So we entered the season very cautiously and actually have been pleasantly surprised and actually very heartened by the response of the training business to date.

That being said, we are cautious for the balance of the year on training and do expect it to be down year on year.

As we build, we are new in the running space and as we build the non-cleated footwear business, we are expecting to, in the future, begin to grow all versions of Running Footwear, including cleats, slides, training and running.

So, to make sure I understand correctly, some of your running or customers who are buying running shoes are doing so perhaps instead of buying Performance Trainers?

That's what -- we had planned some of that cannibalization in.

So we had gone out with a smaller offering in anticipation of that in order to avoid any type of balance sheet issues, and have been impressed with the sellthrough in training in the first quarter.

The other question I had is on the comment that the second half of 2009 will be less skewed towards the third quarter, I guess, [inferring] that would imply the fourth quarter for the bigger piece of the second-half revenues.

If that's correct, I just want to understand why the shift in the seasonality.

Sure.

I think, Dan, if you remember, late in Q4 of last year is when we saw some impact due to the macroeconomic environment last year.

So as we planned out 2009, we anticipate it to look a little more like previous years relative to the mix between Q3 and Q4.

But you are not expecting the economy to improve, though, right?

We're not expecting the economy to improve, so what you have is you have a Q3 comp over last year's Q3 environment and a Q4 comp over last year's Q4 environment.

Okay, I think I understand.

Okay, thank you.

We have time for one more question.

And I request that someone ask a question to Wayne.

Mitch Kummetz, Robert Baird.

I think I may let Wayne off the hook this one time.

He's sitting here quiet.

I can't believe it.

Unless he wants to jump in and answer one of these.

But two questions.

One on gross margin.

Brad, you mentioned three factors dragging down the margin in the quarter -- footwear, apparel, mix and cost there and then license a smaller percentage of your overall business.

I'm assuming you mentioned those in order of magnitude, and then how should we be thinking about those factors going forward?

I mean obviously footwear growing as a percentage of the business is going to impact the balance of the year.

But what about apparel, either the mix, and I would think that the cost outlook might improve in the back half.

And then license, do you still think that comes down as a percentage of the total?

Yes, Mitch, I think to your point, yes I did kind of list them in the order of magnitude.

As far as apparel going forward, I think as we talked about in the past, we tend to lock our costs in well in advance.

So although we can obviously get better at renegotiating costs going forward, we locked our first half of the year costs on the apparel side in really during the summer of last year, when the environment was a little bit different from an inflationary perspective, with the price of oil and labor tightness across the world.

So as we get into fall/winter '09, we lock those prices in after the environment changed in September of 2008, so we should see that change a little bit on the apparel side.

Licensing business, we anticipate our licensing business, although it was down in Q1, probably to be kind of more in line with our apparel business as far as visibility and challenges at the top line.

It's been a little bit choppy and volatile just like our apparel business.

So it's a little hard to say right now how licensing will impact our margins going forward.

Okay.

And then he second question, your direct-to-consumer business was very strong in the quarter.

Could you maybe talk a little bit about how that performed, e-commerce versus stores?

How did your outlets comp in the quarter?

And I know that you said on your Q4 call you expect direct-to-consumer to be a bigger impact on (technical difficulty) in the back half; it's a bigger percentage of the business in the back half, I think.

So if you could talk a little bit about how you would expect that to play out over the balance of the year.

Mitch, this is Wayne.

I'm actually going to finally answer one here.

But I think the first one is we're not going to get into specifics when it comes to the direct-to-consumer businesses.

What we can say is that in all our channels of direct-to-consumer, the outlet as well as our web business, we have seen very positive results whenever we have gone to the consumer directly.

The outlet business serves two purposes really.

It's been helping the liquidation of our inventory, but it's also been delivering great profitability and strong balancing to us.

As far as the web, we are continuing to see growth in the web business as well.

That's helped with what David has brought to the table in terms of reaching out to consumers.

Our service, and, of course, the addition of new products on the web.

So we would expect that trend to continue.

And I would also want to point out that the ASPs are really holding, which is a real credit to the price and the integrity of the brand.

That's helpful.

All right, that's all I had.

Thanks and good luck.

That does conclude today's conference call.

Thank you for your participation.

Thank you all very much.