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.
