The EMEA was the shining region for Under Armour in both the fourth quarter and the full year 2021. In the final period ended Dec. 31, the company’s EMEA revenues rose by 23 percent on a currency-neutral basis to $200.2 million, driven mostly by wholesale gains, lifting the operating margin by 1.7 percentage points to 12.1 percent. For the full year, the operating profit jumped by nearly 119 percent in the EMEA region to $132.6 million, or 15.7 percent of sales, which increased by 40.8 percent to $842.5 million, driven by nearly 50 percent growth in wholesale and continued momentum in Direct-To-Consumer.

Under Armour - Net revenues by Region
Quarter ended Dec. 31 ($ thousands)
  2021 2020 % change
North America 1,063,290 923,731 15.1%
EMEA 200,203 161,156 24.2%
Asia-Pacific 217,223 230,811 -5.9%
Latin America 44,045 56,252 -21.7%
Corporate other 4,444 31,816 -86.0%
Total 1,529,205 1,403,766 8.9%
Year ended Dec. 31 ($ thousands)
  2021 2020 % change
North America 3,810,372 2,944,978 29.4%
EMEA 842,511 598,296 40.8%
Asia-Pacific 831,762 628,657 32.3%
Latin America 195,248 164,825 18.5%
Corporate other 3,573 137,911 -97.4%
Total 5,683,466 4,474,667 27.0%
Source: Under Armour

Overall, Under Armour reported an 8.9 percent revenue increase to $1.53 billion in the final period, generating a 54 percent improvement in operating earnings to $86.1 million. The gross margin rose by 1.3 percentage points to 50.7 percent, aided by 3.5 percentage points from better pricing and 0.9 points from lower restructuring charges, but pulled down by a negative 1.9 percentage points from higher freight expenses and other Covid-related impacts.

Higher full-price sales helped the company raise its wholesale revenues by 16 percent in the quarter after exiting about 2,500 off-price stores. DTC revenues rose by 10 percent with gains of 14 percent in the company’s physical stores and 4 percent in e-commerce, which represented about 20 percent of the total turnover. The company spent an estimated $200 million on marketing during the holiday season quarter. The bottom line for the quarter showed a net profit of $109.6 million, 41 percent below the level of the year-ago period, when the company booked an extraordinary gain of $178.6 million from the sale of MyFitnessPal.

Full-year revenues rose by 27.0 percent to a record of $5,683 million, leading to operating income of $486.3 million, or a ratio of 8.56 percent of sales. North America contributed the highest operating margin at 25.5 percent, Asia-Pacific at 16.0 percent, EMEA at 15.7 percent and Latin America at 11.5 percent. Net earnings of $360.1 million for the year compared with a net loss of $549.2 million in 2020, which came after more than $500 million in restructuring charges.

Under Armour - Income
Quarter ended Dec. 31 ($ thousands)
  2021 2020 % change
Net revenues 1,529,205  1,403,766  8.9%
Cost of goods sold 753,272  710,144  6.1%
Selling, general and admin. expenses 675,666  585,778  15.3%
Income (loss) from operations 86,131  55,846  54.2%
Interest expense 7,595  15,008  -49.4%
Other income 24,037  178,646  -86.5%
Pre-tax 102,573  219,484  -53.3%
Tax (benefit) (6,798) 34,690 
Net  109,657  184,454  -40.6%
Year ended Dec. 31 ($ thousands)
Net revenues 5,683,466  4,474,667  27.0%
Cost of goods sold 2,821,967  2,314,572  21.9%
Selling, general and admin. expenses 2,334,691  2,171,934  7.5%
Income (loss) from operations 486,290  (613,438)
Interest expense 44,300  (47,259)
Other income (expense) (51,113) 168,153 
Pre-tax 390,877  (492,544)
Tax (benefit) 32,072  49,387  -35.1%
Net  360,060  (549,177)
Source: Under Armour

Wholesale and DTC went up by 36 percent and 26 percent last year, respectively, with online sales accounting for about 16 percent of total revenues. The company’s annual apparel sales rose by 33.3 percent to $3.84 billion, with the segment’s fourth-quarter results driven by training and outdoor. Footwear sales improved by 35.3 percent to $1.26 billion for the year and were 17 percent higher in the final period on strength in running and training. Sales of accessories went up by 11.5 percent to $461.9 million but were down 27 percent in the fourth quarter due to planned lower sales of sports masks. Annual licensing revenues grew by 6.5 percent to $112.6 million.

Pointing to a record year-end cash-on-hand total of $1.7 billion, Under Armour’s CEO, Patrik Frisk, said that the company remains “both confident and cautious in this operating environment.” But market concerns over the brand’s supply chain woes possibly lingering into the summer instead of ending sometime in the spring sent Under Armour shares down by more than 3.6 percent before Wall Street’s opening bell the next day.

The company’s present quarter, ending March 31, will be a transition period since Under Armour’s new fiscal year 2023 will commence on April 1. The current outlook for the quarter now calls for operating income of $30-35 million on a revenue increase in the mid-single digits versus prior guidance for a low-single-digit gain. The projection includes revenue headwinds related to reductions in Under Armour’s Spring/Summer 2022 wholesale order book due to supply constraints related to ongoing pandemic impacts, which will result in about 10 percent of outstanding orders being canceled.

Longer-than-usual transit times, backlogs, and higher freight and logistics costs are predicted to continue into fiscal year 2023, but Under Armour senior executives say the company will be both cautious and agile as it has been thus far.

To protect the brand’s premium DTC business and the company’s top wholesale accounts, senior executives have already worked with vendors to understand capacity issues and cancel purchase orders for production, subsequently terminating orders with less important clients to avoid having products being delivered late. Like some of its competitors, Under Armour intends to raise some prices this year, but the approach will be more surgical than across-the-board.

The company’s CFO, Dave Bergman, told analysts that Under Armour will spend more on air freight during the current transition quarter and for the first two quarters of fiscal 2023 - a factor that will impact gross margins - but the issue should subside in the second half of fiscal 2023.

Under Armour has lowered the budget for its 2020 restructuring plan to a cost ranging from $525 million to $550 million from a previous $525-575 million range. It has recognized $514 million in pre-tax charges to date, only $138 million cash-related. Any remaining charges related to the plan will be taken in the April-June 2022 period.