Under Armour Inc (UAA) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Under Armour second-quarter earnings webcast and conference call.

(Operator Instructions)

As a reminder, today's conference call is being recorded.

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

Please go ahead, sir.

Thanks, and good morning to everyone joining us for today's second-quarter conference call.

During the course of this call, we will making projections or other forward-looking statements regarding future events are 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 to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

In addition, as required by Regulation G, we need to make you aware that during the call, we will reference certain non-GAAP financial information, specifically currency neutral net revenue growth.

We provide a reconciliation of this non-GAAP financial information in our earnings release, a copy of which is available on our website at www.UAbiz.com.

Joining us on today's call will be Kevin Plank, Chairman and CEO, followed by Brad Dickerson, our Chief Operating Officer and CFO, who will discuss the Company's financial performance for the second quarter and provide an update to our 2015 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 at our website at approximately 11:00 AM Eastern time today.

I will now turn it over to Kevin Plank.

Thank you, Tom, and good morning to everyone.

I am calling in from Munich, Germany where later today we are opening our newest international office from which we will serve the markets in Germany, Austria, and Switzerland.

This is my last stop of a week-long trip that has taken me to multiple cities including Glasgow, Copenhagen, and now Munich.

As we continue to grow our global footprint, these trips continue to provide deeper insight into the markets and how consumers are thinking about our brand.

My visit to Copenhagen reconfirmed and enhanced the excitement around our recent Endomondo acquisition, and the huge opportunity that Connected Fitness provides UA with global consumers.

With today's ribbon cutting in Munich, we will now have 17 regional offices outside the United States which are positioning the brand closer to the local consumer and driving the incredible execution we have seen in the past year, including 93% international net revenue growth just this past quarter.

That strong growth outside the United States helped drive total net revenues for the quarter up 29%, the 21st consecutive quarter of 20% plus net revenue growth.

In addition, total apparel net revenues grew by 23%, marking the 23rd consecutive quarter of 20% plus net revenue growth.

We have traditionally referred to this as our scoreboard, but based on my visit to St.

Andrews earlier this week, maybe we should refer to it as a leaderboard.

Either way, we continue to shoot consistently great numbers.

As we prepare to enter our 20th year in the business of sports, we have learned a lot of valuable lessons.

Some of them have been learned through business, but just as many probably have been learned through sport.

Over the past year, three under Armour athletes have transcended their sports and become known by just their first names, Stephen, Misty, and Jordan.

These three athletes have combined to teach us one incredibly valuable lesson, that we need to think bigger.

For Stephen Curry, Misty Copeland, and Jordan Spieth, being a great basketball player, principal ballerina, and PGA golfer was rooted in their ability to see beyond, to be prepared to not just be great but to be extraordinary.

To plan and practice but also know when to take the risk.

Our lessons out of this are incredibly relevant to this moment in time for the Under Armour brand.

First, our athletes' success pushes us to see beyond just maximizing the revenue opportunities in any given quarter.

It forces us to think clearly about what we need to do better and how we need to organize to be more than just an American sports brand, to go from changing the way athletes dress to changing the way athletes live.

Second, this intense brand key provides us with abundant opportunities to invest in businesses like basketball, women's, and golf, to not only grow our share within those large categories but will also positively impact all of our business across both categories and geographies.

So my two main topics today are how do we invest to capitalize on that momentum and how do we organize to think bigger about the opportunities in front of us today.

Thinking bigger is part of what drives the world's greatest athletes to outperform on the highest stage.

It is hard to think of three individuals who have done more of that recently than Stephen, Misty, and Jordan.

And the best part is that just like UA, they too are just getting started.

Stephen Curry, NBA league MVP, world champion, recently voted best male athlete and best NBA player at the ESPYs.

And most importantly, new father of a baby girl who one day might give her big sister, Riley, some competition for the spotlight.

A pretty good stretch for a great young man and tremendously rewarding for Under Armour to part of his on court success.

We are taking Stephen on a tour of China and other markets in Asia starting late last month, and frankly, we believe he's just beginning to touch upon his potential both in the US and other key basketball markets across the globe.

Misty Copeland, trailblazer, prima ballerina, athlete, named last month as the first female African-American principal dancer with the American Ballet Theatre.

Again, tremendous pride on our behalf to be involved early in Misty's meteoric rise by helping introduce her to an audience beyond the ballet world with last year's, I will what I want campaign.

Jordan Spieth, when we signed him more than 2.5 years ago, we told you to watch out for this young man as we had a strong feeling he was going to turn into a huge asset for our golf business.

It's amazing to all of us that in such a short time, he's gone from being one of the names touted as the future of golf to being the story of golf.

Not just now but we believe well into the future.

And while I would be remiss to not at least mention the great performances by other UA athletes this quarter, not this year, Andy Murray, Carey Price, Bryce Harper, Todd Frazier of the Cincinnati Reds who last week won the home run derby in front of his home crowd at the Great American Ballpark.

The recent accomplishments of Stephen, Misty, and Jordan are somewhat overwhelming and heavily impactful.

Their achievements these past few weeks represent a moment in time for the Under Armour brand.

One that forces us to reassess our opportunities and look deeper to understand what all the success means for us.

There is, of course, the immediate benefit to our brand.

This brand heat is driving huge amounts of incremental traffic toward eCommerce platform across the globe with our basketball traffic up more than 300% year-over-year, while on our social channels we added more followers on Instagram during the recent NBA finals than we did in all of 2014.

The Curry One shoe is a great success on our eCommerce site as we continue to gain share in key footwear categories with our wholesale partners.

Our women's business continues to grow strongly in key areas like capris, shorts, sports bras, and running footwear, while our eCommerce golf business was exceptional growing about 60% year-over-year.

But there is a bigger takeaway for our Company in all of this.

We've learned from these athletes not only about the preparation it takes to be great but the added level of commitment it takes to be truly special.

All three of these athletes started as clear underdogs.

They were able to put themselves in a position where their skills and focus enabled them to transcend their sport.

All of them have proven, as Jordan Spieth stated following his Masters victory when asked why he chose Under Armour, that being aggressive, young, and fearless can be a deadly combination.

Our athletes' ability to see what was needed to be excellent forces us to think bigger.

It requires we accept there are moments in time where we need to accelerate to take advantage of the new opportunities our brand momentum creates.

We understand there are short-term benefits to this unprecedented momentum but we are focused on the long term.

To us, this moment provides a great chance to build a more meaningful connection with our consumer through the power of these transcendent athletes.

That connection can be deeper and more powerful for our brand then any short-term spike in our revenues or our earnings.

Without question, the brand equity we are creating right now will benefit our business more significantly over the long term than it will simply just this year.

Specifically, in a large category like basketball, we've had incredible success with the Curry One footwear including some very hot selling limited releases.

But that brand heat, evidenced by the lines outside our brand house stores on release day, gives us great confidence in the brand we are building with Stephen Curry and our strategy in bringing new product to market.

It has motivated our footwear team and it has given confidence to our retail partners about our expanding presence in the basketball category, amongst others, particularly in the mall.

We recently debuted a new shop-in-shop concept with Champ Sports called The Armoury which highlights not only the basketball category but a broader mix of product and innovation that the athletes have been historically unable to find from our brand in the mall.

This is great evidence of the confidence we have in our product and the continued success we are seeing across our offerings with our key retail partners.

And like basketball, that same foundation and confidence is building in our golf and women's businesses.

We are still developing a wide consumer audience in these three categories here in the US and the opportunity for us in international markets is abundant.

The second element of thinking bigger lies in how we organize our business.

And in this case, thinking bigger means thinking smaller.

Thinking in a way that enables us to be more surgical with how we reach our consumer and the experiences we provide them.

To look at our end use consumer more discreetly and with more discipline.

As the breadth of our product mission continues to expand, we are moving to a sports category focus organizational structure that will enable us to maintain our focus on the needs of that end use consumer.

We recognize that a UA run consumer has different needs than a UA basketball consumer.

And we are now in a great position to harness the overall strength of our brand and innovation pipeline to ensure we are achieving expectations for all of our consumers.

To help drive this initiative, we have recently brought on Terdema Ussery who for the past 18 years has served as president of the NBA's Dallas Mavericks and has prior industry experience in athletic footwear and apparel.

We can speak to this in more depth at our investor day meeting in September but we want to be clear today about our intent.

This category focus will provide the structure to help us sell more shirts and shoes.

This structure has proven successful for us in golf with a combination of great product, a great asset, and a great team helped us double revenues in the past two years.

This increased category will help us drive our core business, a critical component in our long-term growth story.

The last piece I want to cover today is our evolution from a brand that started by just making compression tees to one now focused on perfecting shirts and shoes, as well as creating authentic and relevant sports and fitness experiences every time and everywhere our consumer interacts with our brand.

We can do so because of the strength of our Connected Fitness platform where we continue to add more than 100,000 unique registered users to the platform every single day.

We remain in the early stages of uncovered potential of what the world's largest visual health and fitness community with now over 140 million athletes can do to help us build consumer engagement and drive healthier lifestyles.

We are growing our community at more than 30% year-over-year and so far in 2015, these users have voluntarily logged over 1 billion workouts and more than 5 billion foods have been logged into our apps.

This level and detail of data will empower us to provide actual insights back to our community that will help them lead a healthier lifestyle, and we believe the brand equity that can provide us is immeasurable.

Ultimately, the more people exercise, the more athletic footwear and apparel they will buy.

Again, we will provide deeper detail on our Connected Fitness opportunities in September at our investor day.

We are extremely pleased with the growth of our community and the type of insight we can bring to our consumers' lives.

So just before I hand it back to Brad, I want to reiterate our commitment to growth.

We have delivered 21 consecutive quarters of 20% plus revenue growth.

We are growing in key areas like footwear, women's, and international, and doing so while investing in new opportunities like Connected Fitness, which we believe will be critical to our continued growth.

Most importantly, we have the capacity to adapt, to change course, and to accelerate investments when the opportunity calls for it and to think bigger about what the Under Armour brand can eventually be.

There are so many great things going on at Under Armour today which are difficult to fully articulate in a one hour conference call.

I look forward to seeing all of you at our investor day in September at our headquarters in Baltimore to further showcase the brand that we are building.

We remain aggressive, young, and fearless.

And I'm excited to provide more color on how we are thinking and organizing to become the next great global brand.

And with that, let me turn it over to Brad.

Thanks, Kevin.

I would now like to spend some time discussing our second-quarter results followed by our updated outlook for 2015.

Our net revenues for the second quarter of 2015 increased 29% to $784 million.

On a currency neutral basis, net revenues increased 31% for the period.

Within our product categories, we grew apparel net revenues 23% to $515 million compared to $420 million in the prior-year's quarter.

Many of the same growth drivers that drove our first-quarter apparel business continued during the second quarter including our new Armour base layer, updated training products, and expanded golf and hunting lines.

Second-quarter footwear net revenues increased 40% to $154 million from $110 million in the prior year.

We continue to gain significant traction across multiple footwear categories, most notably within the larger markets of running and basketball.

Speedform remains a key growth story for our brand and we are beginning to introduce this innovation across a wider range of styles and categories this year.

And as Kevin mentioned, we capitalized on the incredible success of Stephen Curry in basketball with new color arrays quickly selling out during his MVP and championship run with the Warriors.

Our accessories net revenues during the second quarter increased 39% to $83 million from $60 million last year, primarily driven by strong consumer demand for our line of bags.

Our global direct to consumer net revenues increased 33% for the quarter representing approximately 32% of net revenues.

We continue to be encouraged with our recent Brand House openings including the first full-quarter results for our Chicago and Mall of America stores as well as of the new second-quarter openings in Indianapolis and Orlando.

From a global standpoint, we ended the second quarter with 160 owned stores, including 139 factory house stores and 21 Brand House stores.

Our eCommerce business had a standout quarter, and we are seeing the return in our investments in mobile optimization across our expanding list of global sites.

While an ongoing focus on mobile is key, we were also able to drive strong trafficking through more effective email communications as well as by leveraging the incredible success of our athletes during the period.

Looking at our regions, North American net revenues increased 22% to $681 million in the second quarter compared to $558 million in the prior year's quarter.

On a currency neutral basis, North America net revenues increased 23% based primarily on the drivers I highlighted for the overall Company.

International net revenues increased 93% $89 million in the second quarter and represented 11% of total net revenues.

On a currency neutral basis, international net revenues increased to 112% for the period.

In the EMEA division, we continue to focus in the three core markets of the UK, Germany, and France, while also developing distributor agreements in the region including the Middle East.

In Asia-Pacific, our partner store expansion in eCommerce grew up in China remain key stories and we also benefited from the rollout of our distributor agreement in Southeast Asia.

In Latin America, we are seeing balanced growth throughout the region following our market entry into many of these countries during 2014.

Moving on to margins.

Second-quarter gross margins contracted 80 basis points to 48.4% compared to 49.2% in the prior year's period.

The following factors were the primary drivers during the quarter.

First, as we previously outlined, the continued strength of the US dollar negatively impacted gross margins by approximately 60 basis points in the second quarter versus the prior year.

Second, we incurred higher air freight expense in the second quarter primarily due to our efforts to normalize product flow from the West Coast port disruption and better service for the back-to-school selling season which negatively impacted gross margins by approximately 50 basis points.

Partially offsetting this margin pressure were better margins at our Factory House business combined with our higher-margin Connected Fitness revenues benefited gross margins by approximately 20 basis points in the second quarter.

Selling, general, and administrative expenses as a percentage of net revenues deleveraged 80 basis points to 44.3% in the second quarter 2015 from 43.5% in the prior-year's period.

As a reminder, starting last quarter in an effort to simplify and streamline our conversation, we consolidated our SG&A detail into two primary buckets, marketing and other SG&A.

SG&A details for the second quarter are as follows.

Marketing costs decreased to 11.4% of net revenues for the quarter from 11.6% in the prior-year period with modest leverage driven primarily by the strong net revenues during the second quarter.

Our SG&A costs increased to 32.9% of net revenues for the quarter from 31.9% in the prior year driven primarily by our Connected Fitness acquisitions and investments in our Brand House strategy.

Operating income for the second quarter decreased 8% to $32 million compared with $35 million in the prior-year period.

Interest and other expense for the second quarter increased to $4 million compared with $1 million in the prior-year period primarily reflecting increased interest expense associated with the financing of our Connected Fitness acquisitions.

Our second-quarter tax rate of 46.7% was favorable to the 47.5% rate last year, primarily due to certain tax planning strategies.

Our second-quarter net income decreased to 17% to $15 million compared to $18 million in the prior-year period while our diluted earnings per share decreased to $0.07 from $0.08 in the prior-year's period.

On the balance sheet, total cash and cash equivalents for the quarter decreased 43% to $171 million compared with $300 million at June 30, 2014.

Inventory for the quarter increased 26% to $837 million compared to $662 million at June 30, 2014.

Total debt increased to $716 million as compared to $197 million at June 30, 2014, primarily reflecting the financing of our Connected Fitness acquisitions.

Looking at our cash flow, our investment in capital expenditures was $91 million for the second quarter compared to $29 million in the prior year's period, driven primarily by our investments in our SAP platform and our global retail strategy.

Now moving on to our updated 2015 guidance.

Based on current visibility, we expect 2015 net revenues of approximately $3.84 billion, representing growth of 25% and 2015 operating income in the range of $405 million to $408 million, representing growth of 14% to 15%.

We have long stated that we'd be opportunistic with our investment levels if and when the right situations present themselves.

In a period where we have seen unprecedented success from our athletes on a global stage, we believe we have a unique opportunity to position ourselves more aggressively in key long-term growth categories such as basketball and golf, which we believe can curate brand halo's across the Under Armour portfolio.

As a result, we expect to spend more than originally planned in marketing throughout the remainder of the year, and this is the primary reason we are raising our full-year net revenues guidance while maintaining the upper end of our previous operating income guidance.

We believe this will better position our brand in delivering long-term sustainable growth.

As a reminder, our operating income guidance includes the diluted impact of the Connected Fitness acquisitions consisting of one-time transaction costs in the first quarter, operating losses from these businesses, and non-cash amortization charges of the intangible assets generated from the acquisitions.

Below operating results, we continue to expect a full-year effective tax rate of approximately 41% compared to 39.2% in the prior year, primarily given the strengthening of the US dollar, which continues to negatively impact our international profitability.

I would also like to provide some additional color on several items, starting with revenues.

We expect the growth rate in footwear to continue outpacing the growth rate for the overall business during the second half the year.

International growth is expected to ease from the growth rate achieved in the first half of 2015 as we begin to cycle through our entry into Latin America as well as new distributor partnerships launched during the second half of 2014.

From a cadence standpoint, we expect relatively consistent net revenue growth rates during the third and fourth quarters.

Now looking at gross margins, we continue to expect our full-year gross margin be roughly in line with last year's 49% rate.

During the third quarter, we continue to expect an approximate 50 basis point contraction primarily due to the negative impact of the stronger US dollar.

In SG&A, we expect the combined impact of higher planned marketing spend I previously discussed, and ongoing other SG&A expense pressure will result similar year-over-year growth rate in the third quarter as experienced during the first half of the year.

Finally, a quick look at our planned capital expenditures.

We continue to plan 2015 capital expenditures in the range of $330 million to $340 million, consistent with our prior guidance.

Approximately $140 million of this total is allocated across three large areas to support long-term growth including our new domestic distributions center, the expansion of our corporate headquarters in Baltimore, and a new and expanded SAP platform.

We have also accelerated our investments in key areas that will drive revenue growth including the rollouts of our global re-trough strategy and new eCommerce site.

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

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

Operator?

Thank you.

(Operator Instructions)

Erinn Murphy, Piper Jaffray.

Great.

Thank you.

Good morning.

I guess I was curious if you could talk a little bit more, Kevin, about the Connected Fitness space.

The wearable space probably just continues to expand whether it's [Quick Fit] or whether it's Nike.

You guys already have the largest platform globally.

How do you think just about maintaining that leadership position, driving engagement, and then what are those key metrics that you're focused on?

Is it unique user?

Is it logged workouts?

Help us think about how you're thinking about this bigger picture.

Thank you, Erinn.

First of all, we see this as a -- just a massive white space.

For me personally, I remember how I felt when I had this idea for a T-shirt, more importantly a piece of equipment to be worn underneath athlete's uniform or equipment that in the past, had always just been a short-sleeve cotton T-shirt or a long-sleeve cotton T-shirt, depending on the weather.

It just felt like, how come no one has done this before, and for me personally is when we looked at this opportunity to begin with, it felt like there was this massive white space and that no one in the world is measuring an athlete's performance.

You start to see the this things coming around whether it's wearables and biometric measurement, et cetera, and we dabbled in that all the way back to 2008.

We quickly came to realize the value for us was not going to be in the equipment side of it but the value for us was going to be in the community.

We feel like we've really locked that up.

The fact that consumers have no barometer for their health today is a mistake.

And then frankly that's where we see this massive opportunity and we feel that we're the best ones to take advantage of it, really because the acquisitions that we've made over the last two years.

The sheer size and scale of the community that we've made, it marks us as the clear leader by a factor of as much as four, three, or at least two times, now having more than 140 million unique registered users.

As I mentioned in my script, adding more than a 100,000 users are downloading one of our four apps today.

MapMyFitness, Endomondo, MyFitnessPal, or Under Armour Record.

And again, from the stats that I read off as well, I want to drive them home because I think it's incredible.

We logged more than 1 billion workouts were logged into one of our four apps over the last -- just since beginning of the year.

More than 5 billion different foods have been logged as well.

In giving scale, MyFitnessPal, which is the largest of the four apps that we have, and as we continue to merge them, that voice will continue to come out as we articulate it, but this is the world's largest database in the history of mankind of food.

I mean just think about it for a second, that we logged more than 5 billion foods that we know in over 80 countries, what people are eating and what they're putting in their body.

So we now believe we've got the ability to be relevant across all of our platforms, and we're going to work to merge them into a consistent product that reads the daily dashboard.

I mean ultimately, that's where we're heading.

We think that the consumer needs a dashboard that just says, how am I doing.

If I can look on my cell phone and I can figure out my bank balance, my stock price, or the weather in a given city.

The fact that I have no measure or barometer for my health except for going to see a doctor every 12, 18, or 24 months, we think is really a crime.

So we were identifying that as through four key plays that the consumers should be measuring themselves, the athletes should be measuring themselves.

Sleep, how much did I sleep last night; fitness, did I exercise or not and if so to what degree; daily activity which is typically like the steps, like how much am I moving around; and then fourth and probably most importantly, what am I putting in my body, my nutrition.

And we've thought a lot about this and I think one thing I really want to get across is the way that we're thinking about defining success.

And we do believe that there needs to be a daily dashboard and so we will -- you'll continue to see that articulate itself through the Under Armour Record platform and we've got few -- many things coming for that, particularly we'll showcase for you at investor day.

But if you ask us to sum it up, we're looking for an engaged user community that relies on Under Armour and the Connected Fitness ecosystem we are building to help them measure those four essential areas of sleep, fitness, daily activity, and nutrition.

And more importantly, we want to empower people.

This isn't just about knowing that I took 8,000 steps yesterday, but because I took 8,000 steps, how did it make me feel.

And more importantly, how did that work with how I slept or whether I exercised or what I ate that next day.

And we think that having that information is going to allow them to make better decisions to live healthier and enriched lives.

I mean, affecting I think ultimately, obviously, fitness the way that'll work but we think there is the outlook for us to affect global health and that's what gets us so excited.

And by doing this of course, we believe that real time is the company that focuses on selling shirts and shoes.

We believe that we're going to create engagement with consumer to give them a reason to interact with our brand multiple times, and I think all those things lead to this energy that you're feeling from us.

And frankly, the resources that we've expended over the last couple of years position ourselves I think really uniquely and unlike any other brand, especially in our space but frankly anyone who's looking at biometric measurement for the athlete, and ultimately for any end consumer.

So as I said, this is going to be a big part of the focus that we'll have at our investor day in September and I encourage you to come and see what we have coming on but incredibly exciting for us, and I think there is a lot more to come.

Great.

That's helpful.

Thank you.

And then I guess just my second question would just be, as we head into the back-to-school season here domestically, could you just talk about how your guys are feeling broadly about the environment, and then I think last year, one of your major retailers received product later in the season, so just help us think about if there's any key nuances in the order pattern flow this season as we lap that?

Thank you.

Yes, I can take that one, Erinn.

Definitely, we're focused on delivering back to school in a much better fashion.

I think we are doing that in a better fashion this year.

I think still not quite at the level that we'd like but definitely incrementally better than last year.

So I think we should look much better on the retail floor in a more timely fashion for back to school this year.

So we're looking -- we're thinking pretty well about that.

As we get into back half of the year also, just to remember also in our guidance, consistent with how we look at things in the past years, too, especially when you look at fourth quarter.

In our guidance, we've been consistent I think in the last couple of years talking about being very prudent in how we forecast the fourth quarter relative to weather and holiday and so forth and not taking things for granted there in our guidance.

So, I'd say those are the two things in the back half of the year revenue guidance, a better flow in back to school and also consistent of how we're approaching the fourth quarter revenue guidance.

Thank you.

Best of luck.

Camilo Lyon, Canaccord Genuity.

Good morning, guys.

Great quarter.

Really great job.

Kevin or Brad, you guys talked about spending more on marketing here in the third quarter capitalizing on the success of your athletes, and rightly so.

How do you guys think about balancing being in stock in these categories with an increased level of advertising?

Are you planning on speeding up production using more air freight to get product to stores?

How do you balance that supply/demand equation?

Yes, Camilo.

This is really much more about beyond 2015 than it really is about the back half of 2015 from a revenue and product perspective.

Taking advantage of the opportunity that's in front of us from a brand perspective is really what we're talking about here.

So the ability for us to invest in our stories here, tell our stories, take advantage of the unique environment we're in, and say that we're going to drive much, much more top line in the back half of the year because of that, I think there's no doubt that we'll see some benefit and we expect to see some benefit and that's included our guidance.

But the real story here is about beyond 2015.

It's about 2016 and beyond of what this does, especially in key categories, again, like basketball and golf.

And if you just think about basketball for a second and you take Stephen Curry and the ability for us to tell a story in a category that is influential not only in the basketball category but just the younger consumer and what that can mean for our youth business in 2016, 2017, and beyond.

That's what we're really talking about here is just the longer-term opportunity versus the shorter-term opportunity.

Okay, and then following up on that, and the basketball commentary and Steph Curry's success.

Clearly, the shoes have been a runaway success selling out in pretty much every color where that you've come out with.

I think you have spoken in the past about wanting to get the footwear right, the category right, before fully expanding in the mall with the biggest basketball malls-based retailer.

Do you feel that you're now at that point you can start to really get all of those doors penetrated and if you could remind us where you're at from that penetration perspective and what the opportunity is?

Yes, Camillo.

Let me take this as an opportunity to just talk about our footwear a little bit, and without question the performances of Stephen and really breaking through.

I mean, he's -- since we signed Steph three years ago, he was always an underdog but he was always the best everywhere he went and so getting credit for that is something we're really proud of him doing whether it was as first of all, the most important thing to him was winning the championship but then the league MVP and then his acknowledgement at the ESPYs where I think among all athletes, he has broken through.

And that's a really difficult thing to do, particularly in a sport like basketball.

And so we're proud of what that means but it's not a one way ticket to all of a sudden, you've arrived.

Like there is a lot of work for us to be done, and there is a lot more.

One thing I learned a long time ago when I remember the first time an Under Armour logo popped up on the front cover of a US Today's sports page, and I thought I was going to walk in the office and the place would be flooded with orders.

It's just not the way it goes.

And so brands are built on consistency.

Consistency is built in trust, and trust is built in drops and is lost in buckets.

And so, what you see is we had a great big pouring, I think of credibility in the sport of basketball and which Steph brings to us on a day-to-day basis, but that's going to require a lot more investment and it's going to require a long-term commitment.

And so, we want to let everybody know, particularly our consumer, but frankly our competition as well that we are moving into basketball.

We've been working on this for -- it's not an overnight success.

We're working on this for years if not a decade, and we're incredibly proud of where we've gotten to but we're really just getting started.

So as far as basketball as a category goes, we've been working.

We've had great support from our sporting goods partners, first and primarily where I think we really have that kid who is buying product to play at the high school level.

And we've had -- we've been working on with the right assortments there and really getting behind footwear for us as an initiative, particularly in basketball.

And then in the mall channel, whether it's Finish Line or Foot Locker, and I described what we're doing with Champs Sports through Foot Locker with The Armoury series, it's going to be a really neat opportunity for us I think to change the way that consumer is looking at the brand and the way that they see us is that breaking through and having people see you as a basketball brand.

Again, it's just taken lot of time and the chance for us to I think really differentiate ourselves in the brand and maybe people have seen us as to the brand that we see ourselves to the brand we're going to be.

So Steph's a big part of that.

Great.

Thanks a lot.

All the best for the back half, guys.

Okay.

Great.

Scott Krasik, Buckingham Research.

Hi, everyone.

Thanks for taking my question.

Just first, can you give a rough mix of your international sales by region, EMEA, Asia, South America, Brad?

And then outside of partner stores, what's the strategy at this point on opening owned retail?

Thanks.

Sure.

On the mix of international roughly at this point in time, you are going to look at EMEA being about half of the international business, and then the other half broken out fairly evenly between the Asia Pacific countries and Latin America for the most part.

And then owned retail?

Owned retail by region?

Going forward.

I think Kevin can take this one, too, but owned retail right now for us outside of North America, a large majority of the owned retail for us is going to be in China, in Latin America.

In Europe, we really don't have too much owned retail yet.

We'll be starting to get getting in there in the next year to two.

But you are looking at mainly Latin America and China with owned retail.

Let me use this as an opportunity to talk about international for a second.

Let me take a minute to do that.

I let footwear get away so hopefully when somebody asks another question about that, we can circle back on footwear.

But international as I'm sitting here in Munich opening this new office and cutting a ribbon this afternoon, first of all what Charlie has done for our international business in really helping us accelerate and think about ourselves as a global brand, but more importantly beginning to act like a global brand.

We're fast in the way of doing that.

This will be our 17th office that we've opened up.

I think our fifth or sixth this year.

In a way that relates to our brand, incredibly authentic.

And if you were here, it basically it feels like Baltimore in Munich.

In the beginning, of course, with the esthetic the way the place looks but the team, the people, the energy just incredibly, incredibly proud.

And you're seeing that at retail, too.

We went and walked stores.

We saw three of the largest sports stores and retailers that are here in Germany and throughout Europe over the last couple of days, and the excitement we have for the very tops of these organizations and the belief they have that Under Armour can penetrate where we are very, very -- we are very young and we are just getting started here.

While we've been doing business in selling stuff probably for the last 8 or 9 or close to 10 years now, we're really beginning to do business, and I think it's reflective obviously in our revenues.

I mean, 93% revenue growth in the second quarter alone.

83% revenue growth in international year to date.

94% growth in 2014.

So that idea of coming close to doubling and the plans we talk about is growing by about 50% a year in international, and it's something I think that we get really excited that is incredibly realistic to happen.

A number of things that we have from a product standpoint, we remain positioned really in the premium way, the way the consumer sees us, and so I think that's way the retailers want us as well.

We are a full price brand basically everywhere we do business, and that's no different abroad.

We've learned a lot of this about how our brand translates through Japan and learning that Under Armour moves outside of North America.

And we're just seeing that reinforced, especially here in Europe.

We're doing a lot of that around strategic accounts in core markets with premium shop-in-shop investments that we can have, and that's been a real positive for us with the right market retailers.

From a retail standpoint as well, we've opened 18 Brand House stores in the second quarter in places like Chile, China, Taiwan, Malaysia, the Philippines.

We're targeting more than 100 additional global Brand House stores opening in 2015, built off of a base of 73 in 2014, three-quarters of which are going to be located in Asia.

85% of those, that will be doors where we'll be leveraging distributor partners that we'll be opening those up.

And just some perspective, the majority of those stores are obviously I guess going to be in China.

I guess that would be obvious.

But just for some perspective, in the month of September alone, we're going to be opening roughly one store per day in the month of September.

So it's going to be a big month for us, and it's something we've been perfecting for the last five and six years.

There and really globally with Susie McCabe and Henry and our retail team are really becoming expert in how to open and translate our store and have a consistent message for the brand everywhere we show up.

So not to be lost in all the physical manifestation of the brand that we're putting at retail is I think some of the success that we're seeing eCommerce.

In the second quarter alone, we launched new sites in Thailand, Austria, Ireland, Belgium, Portugal, and I think we've also been working on translating our sites as well and making sure they are open.

The new markets continues to be a real big opportunity for us.

One thing I don't want to get lost in this message is it's not all roses either.

This going globally is not an easy thing.

It's a slog, it's an investment, and it's something where we're continuing to get better.

So while we're pleased with the results that we're seeing, we still see that there is a tremendous amount of meat left on the bone with the opportunity for us to improve is that our fulfillment rates are not where they need to be.

The wholesale partners have been incredibly patient with us as we get this settled and organized, but things like Brad mentioned with our new SAP upgrades and implementations.

They are going to make a big difference with systems and processes, and this is part of the shift to becoming a global brand.

So across the world in EMEA, as I mentioned, having spent the last couple of days here in Europe, a lot of excitement, a lot of energy of course driven in part by our sports marketing assets, the success we've seen there, but I think really it's the teams in the ground and it's the energy and it's the culture of the brand that -- it's really leading the way.

Asia, a lot of incredibly exciting things happening there.

Japan continues to be a stalwart force and leading, but as I mentioned things like China where all the stores we're opening up and what we're doing in September.

We're going to drive a lot of energy from the Stephen Curry tour that we'll be taking him through for about seven days over there between Japan and obviously three stops in China and then a few other stops as well.

So it will be very exciting.

And then Latin America, I think energy is still building around Brazil, especially with the Olympics coming back and things we have there.

We opened our first Brand House in Sao Paulo, in the Morumbi Shopping Mall and that's doing very, very well.

And really every place that we've opened stores, I think we're outperforming.

So we haven't seen any surprises to the downside.

Just a tremendous amount of heat and energy to the brand.

I'm living and feeling that today, and excited for about 350 to 400 of our closest friends and media partners are going to come over and help us cut a ribbon this afternoon, so a lot of energy about Under Armour being here in Germany and really every place we're opening offices and stores around the world.

So it's a good story, it's good news, but as I said, there's still room for us to improve and you'll see us viciously go after that.

That's great.

Thanks, and good luck.

Thank you.

Omar Saad, Evercore ISI.

Good morning, guys.

Congrats on another great quarter.

Two questions.

First one on the sports category alignment, Kevin, that you mentioned.

Could you talk about the way you're going to reorganize the Company's work structure?

What are the different keys or categories you're going to be focused on?

Is it going to be kind of soup to nuts, designer, design teams for each of the sports with P&L responsibility, managers for each of the sports categories, even down to the innovation levels?

Will that be sports specific marketing, et cetera?

Help us understand how that's going to -- the organizational structure is going to change?

And then I've got one more follow-up.

Great.

Great question, Omar.

One we were anticipating.

So we've been talking about this for years.

We've tried implementing it for years, and then we got to this point where it's hard.

It's not easy to change things as that we are -- we've not been end-use driven in the past.

We are basically -- we've got an apparel team, we have a footwear team, we have an accessory team, and we think that that obviously has worked in getting us started but we're at the point where we're reaching the size and frankly the scale to be able to afford and more importantly, not be able to not afford to go after really addressing category management.

And the thing we used was the sport of golf, which really got us excited several years ago where we implemented this.

And we identified a leader and they really took the bull by the horns and started with products in organizing everything from the way that we showed up in our sporting goods and our wholesale partners, the way we showed up in the green grass golf course, and also given the same control over to how are we going to spend the marketing dollars, and that meant in addition to the way we've showed up with things like POP in marketing all the way to the assets that we signed.

So it was a great story that led us to getting us to Jordan Spieth.

The thing for all of this and as we are going to think about category management, it's going to come down to leadership.

And what we wanted was accountability and where golf started is that I remember after a golf tournament several years ago, sitting there on Sunday and I'm watching and not feeling great about the way that one of our golfers was outfitted, and I write an email and say this isn't working well.

And I think I had 18 people cc'd on the email.

And saying this is ridiculous, we should get this to much more consistent manner where we can flow the information in a better way that'll be more effective and ultimately is going to better serve the end use consumer and the athlete.

So I use that theme of thinking bigger and that's where us hiring Terdema Ussery who's going to join us and has great experience in this industry, someone who knows everyone, who's got a five-star resume of leadership and success and frankly, a really great person.

I think that just as importantly as anything is his expertise and his smarts is the culture fit that he's going to be at Under Armour.

So there's a lot to happen there, but I think we have to almost force the issue.

And while we've been working through these pieces, we're going to give you a lot more color at investor day as well, that'll tell you a little more specific how we're thinking about it, but alternatively the idea is we're not going to just pull the plug and eliminate our apparel and our footwear groups.

There's going to be a bit of transition there.

The first way we're to start though is identifying the category leadership across it's roughly nine different categories that we have right now that we've identified, where we want a true general manager to run each of these that will have both in some instances clear P&L responsibility, and other instances a bit of virtual P&L responsibility.

But the most important thing is we're going to create accountability across each of these divisions where hopefully it'll drive and prevent us from things that may be perceived as in-authentic and making sure that we preserve the Under Armour life.

But again, I use that example of golf.

In just the sport of golf in the last two years, our revenue has more than doubled.

We're seeing key category growth throughout the rest of the year.

It's things like on our website, it's a -- our playoff polos a number one item at our Brand House and our eCommerce site.

The business is basically up everywhere.

Where we have our key asset, which is the one thing which led us is the ability to find the right asset with Jordan.

They're really leading the way out there.

It's been an absolute killing and home run for us, too.

And it also allows us to launch new categories like we'll have an authentic golf shoe coming out.

You're seeing Jordan wearing our golf glove out there on the course, so all these things, from the right asset, from the right marketing, from the right positioning, being in a right retail distribution, it's all really led us to get this.

So we're excited what we've seen.

The success in golf is something we'll hopefully see us translate through in things like basketball and running, and really the obvious category that you'd imagine we'd be looking for, sport and use in global football, of course, things like that.

So we want to win.

We think that the opportunity for us to do that is not defined by what anybody else has done, and we're going to carve a bit of our own legs but still at the same time there is lot of good lessons to learn from other people that have done this before us, too.

So I think we're going to take the best of all worlds, and we're going to do what's best for the Under Armour brand.

Very helpful.

Thanks, Kevin.

And then a quick question on The Armoury concept.

I have been to it but I've seen a couple pictures.

Is it more of a shop-in-shop or it almost looks like a store -- standalone store.

Can you help us understand the dynamic there, what it is, and obviously there is I think 400 and plus Champs locations throughout the country.

How you're thinking about the rollout of it, at least what the plans are at this point in time?

I think we've been highly successful in sporting goods.

The mall has been different.

I think Champs is a great -- it's a bit of a step from sporting goods into the mall.

And because they play that bit of a [tweener] role, but Champs and Foot Locker as a whole has been an amazing partner for us and something I think where we can translate our existing consumer.

It helped get them to used to thinking about us in a mall environment.

We still see ourselves as a holistic head-to-toe brand, and our philosophy remains that we're going to go where our consumers want, and frankly where they expect us.

And so what we're looking forward is further ways where we can build relationships with our wholesale partners to elevate the product story, offer best Under Armour.

We're only in roughly 25% of the 3,400 global footing stores today, but obviously we're working with their team and aligning with that.

The Armoury at Champs is a great example of how we can grow our business and the relationship together.

We're testing a handful of these premium shop-in-shops over the next couple of years, starting in our own backyard in Maryland.

And the early reads that we've seen of this thing, the first several weeks that are very, very encouraging.

The merchandising is going to consist of a mixture of inline product, mall specific product, in addition to some product not found elsewhere in the mall, too.

Things like that we're putting our highlight cleats into the mall channel, into The Armoury, and it's giving just as a deeper breadth of the Under Armour experience in a mall environment.

I think it's exciting.

I encourage you if you get a chance and we can put out a listing and Tom and the team can let you know where we got some of those to go see one for yourself as well.

Thanks, Kevin.

Good luck for the rest of the year.

Operator, we have time for one more question.

Randy Konik, Jefferies.

Thanks a lot.

So I guess Kevin, I just wanted to kind of go back to international there that you're in Germany.

So as you go along this journey of globalizing the business and the brand, what have you taken away over the last few years that's changed about the I guess the perception of the brand from an international standpoint?

How do you think you have to market differently or the same from the United States market, or just curious you talked about the brand evolution, what do you think needs to change there from an international standpoint?

Thanks.

Well, I think we've been doing it.

It's all the way back to 1998, the first time that we went outside the United States and that was in Japan.

The first partnership deal that I signed was with the NFL Europe League.

So we're no stranger to international business.

It's becoming good at it.

More importantly, I think in a lot of places, particularly here in Europe, continuity is an incredibly important lesson and attribute of any brand.

Consistency is very, very important.

Doing things the same way.

I mean, it's a continent that's defined by history.

And brands have come in, live today, and are gone tomorrow.

I think everyone's seen a lot of that.

So a lot of it's a bit of questioning, the waiting you out, and wondering are you going to make it, are you going to be there.

And what we've seen is the brand is -- it's taken a while.

It doesn't happen on the first handshake.

It doesn't happen on the first introduction.

And we came over to Europe for the first time back at the end of 2005 and in 2006, and it was a -- it's been a slog.

We weren't really understanding completely what we had going on.

At the same time, we're also organizing ourselves in North America.

The thing we think about with Brad and my job is and our entire executive team's job it's again, it's defining and deciding how to deploy the resources, the time, people, and money.

And there's only so much of any one of them, and we're torn with the fact that it's always international such a small part of our business.

And so US and North America would usually dominate the amount of time we spent.

So as we've grown, you seen us going all the way back to 2009 and 2010.

I think we fielded a lot of questions of why are you pouring this money into Europe, why are you pouring this money, and where is the return going to come.

And so we had this long story of long-term investments in things like women's, long-term investments in things like footwear, long-term investments in something like international.

And this year, and we said it and I don't know if it's a big enough comment, but we're going to be profitable in Europe this year.

And that was something if you went back five years, you may have fielded questions on why not throw in the towel, can you really be successful there, and why not just focus on North America.

So we're now looking at A, our profitability and it's been one asset at a time and it's been things from joining EPL football with people in places like Tottenham Hotspur and then finding ways to make investments.

The recent announcement we had with the Sao Paulo Football Club down in Brazil, it's not an immediate return for us.

I've always said I don't really see us as a licensed jersey manufacturer.

I don't like that idea of growing sport by simply selling fan gear.

We want to be on the authentic athlete.

We want to be on the pitch, on the court, on the field.

But there is ways for us to get in and so finding the resource that we can splinter off to make an investment in the market is very new for us like Brazil, it's a big deal.

And so we're -- I think we're very patiently doing that around the globe where we're finding assets that make sense and especially where we can reinforce it in markets that we can create an ROI that's sooner than later.

So it's a big -- running something global, and we've said that a long time but really understanding what it means to be a global company, that takes time, but it takes experience and it takes maturity and it takes patience and the things that maybe you would characterize this as not having in the first few years as a company.

But I think that we've been developing that skill set and most importantly, that we've been developing that leadership team.

So Terdema is a great example of that coming on board, and I think you're seeing and feel about throughout our Company and something that will only continue to get bigger and better for us, the brand.

We're learning a lot of lessons.

As I said, there are mistakes in there, believe me, but when it come through with I think the performance of the 90% plus revenue growth that we saw this quarter and is reflective of I think what you're seeing happening.

One thing I can tell you is there is a tremendous pull, there's a tremendous demand for the brand right now.

It's a matter of our execution.

There is a lot of places we can improve, we can enhance, we can get better.

I called out supply chains specifically, is that it's difficult figuring out how to move product that duty conscious and being careful and being able to make money and not getting crushed on margin and learning how to manufacture locally.

And so, we've been learning all these lessons.

The good news is this isn't something we've been doing for the last three or six months; this is something we've been doing for really the last 6 to 10 years.

So we're certainly not claiming to be experts right now, but we feel great about our trajectory, we feel great about our team, we remain humble and hungry and we got a shot.

The mission here is to be the next great global brand, and you're going to see us bite, crawl, and scratch and do everything we can to make that happen.

We'll keep running hard for you, that's for sure.

That's very helpful.

Can I just ask one more question then?

As it relates to the Connected Fitness, in terms of the long-term vision, is it something where over time you say we have these 100 plus million users and we can see that person A runs consistently at 5:00 in the morning 10 miles a day, and person B runs or doesn't run, what have you, and over time you can tailor your marketing, customize marketing to these people whether it be your footwear or apparel, what have you.

How do you think about leveraging this data base from a from marketing standpoint to help further drive more connectedness towards the brand but also towards specific categories to help accelerate those?

Yes, when we first did the, I don't think I answered that when I did my Connected Fitness either.

It's the way that we're thinking about measurement of growth and things like that.

When we made the announcement at what we called Digital Day a few days past following our 2014 earnings call, we told you there were 120 million people roughly on the platform and then it was about a month or so later, I was on a -- I did a talking heads show, and we said 130 million, and now today we're telling you it's over 140 million people.

We will be careful to quantifying these things in terms of number of users we have.

Our next job is really figuring out how to make them good quality users as well is that I take 40 million hyper engaged people that really were getting benefiting from the brand using our apps and our ecosystem, using that as a learning place that we could grow that out to a broader audience.

At the same time, the scale that we're growing is nothing we want to ignore but we think the definition of success is not just the total top line number of users.

However, growing north of 30% and seeing that consistently happen, that is going to be something that's positive.

But what I think you'll see from us and again, we're going to go deeper on our own investor day into what the story of Connected Fitness means for the Under Armour brand is that there is a high level of engagement that we're going to be able to drive with that.

And without doubt, our Gear Tracker side alone, which is something that's exclusive to the MapMyFitness platform, there is more than 400,000 people that are actively tracking products and whether it's a pair of shoes that they wear or whatever item that they use.

I think it's close to 2,000 people a day are signing up for Gear Tracker.

So people are interested in this idea of the Internet of Things that, that theory being that eventually everything that we have is going to have a chip in it.

So 1 billion connected things in 2010, and I think the projection is by 2020, it's going to be over 25 billion or 30 billion connected things in the world.

So we obviously want to use that to make ourselves smart and to honestly to help enrich and improve the lives of our consumers.

So we think we now have the ability to do that.

We think getting smart in everything we do.

Again, the thing I'm probably most proud of with these acquisitions is of course is the community we built and the team we built, but also I think the level of engagement that we're creating with the consumer of giving them a reason to think about themselves holistically.

This idea of approaching help and arming people with the ability to make better decisions for themselves is a pretty powerful, powerful thing that I think who is going to own that information or who is going to help give you that and organize that information for you should it be a healthcare provider, should it be a drug store, should it be a health insurance company, or should it be a sports brand that you trust.

So we think we have a great connection with the athlete.

We think that we can test and prototype this at the highest levels.

Most people like the University Notre Dame football team, and if it's good enough for them we think it's and some of our other marquee athletes, it should be good enough for the consumer.

So building that trust is going to be paramount in doing this and yes, we think we're going to be able to sell more shirts and shoes ultimately, but we think we're going to be able to continue to transform what the Under Armour brand is and we'll continuously be able to do that.

Thanks so much.

Thanks very much for your time.

We have a few closing comments from Kevin.

With that, I think we've talked a lot today.

I wish I could've gone a little deeper into footwear.

Regardless, I think we remain very excited about the athletes that we have today, the team that we've assembled.

That begins, of course, with the internal leadership team that we have, I think the consumer base that we're growing, and then of course the assets that we have in our athletes stable.

So we're very proud of what Jordan, what Steph, what Misty, what frankly all of our athletes have done.

The best news of all is that we do believe they are all just just getting started just as the Under Armour brand.

With that, I went to greet you all a good morning, and have a wonderful day.

Thank you all very much.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program and you all may disconnect.

Have a great day, everyone.