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Text: It's important to note that the ongoing uncertainty related to COVID-19 and its potential effects on the global retail environment could continue to impact our business results moving forward.
You may also hear us refer to amounts under U.S. GAAP.
In the third quarter, higher-than-expected demand for the Under Armour brand and outstanding execution from our global team allowed us to drive strong top and bottom-line results.
Everything we do at Under Armour is based on driving sustainable long-term growth while at the same time, ensuring we're setting a solid foundation to deliver near-term value to our shareholders.
This is the balance you should expect from us and is the commitment we work toward every day.
We strike this balance by leveraging our strategic playbook across key elements of our business, including a consumer-centric strategy to drive deep, authentic and emotional connections with focused performers, innovative products and experiences that advantage and inspire an athlete's journey, a constant focus on operational excellence to ensure we manage the marketplace efficiently and steady financial discipline to create meaningful levers to drive greater profitability.
These strengths were evident in our third quarter results with revenue up 8%, gross margin up 310 basis points to a record 51% and solid adjusted earnings per share performance at $0.31.
In this spirit, as we work to close out 2021, I feel good about the progress we've made, the resiliency we've earned and the potential we have to do even better in the future.
Demand for our product and consideration for our brand is growing.
That gives me confidence that despite potential impact from near-term headwinds, the long-term opportunities before us and our ability to compete and win in an ever-changing global landscape are stronger than ever.
Of course, it all starts with brand, so with that, let's get into some third quarter highlights, starting with the incremental investments we're making in marketing and how they're translating to improving brand affinity from our focus on consumer awareness, attraction and consideration.
As part of our holistic journey to compete strategy, which centers on goal setting, training and what it takes to earn results, we use the team sports lens to focus on the importance of mental strength as an unlock to realize one's full potential.
Through uniquely Under Armour execution by our social media, TV, retail and digital activations, the only way is through and train your mine train your game showed up as one global brand and voice across categories, channels and our marketing funnel.
Coming off this effort, we've now shifted gears into fourth quarter activation, which is centered on cold weather training.
Knowing athletes sometimes see cold as their kryptonite, our human performance research lab is helping equip them and reshape this type of training as an asset to take their performance to new levels.
Validated by the experiences of our most elite athletes, we're inspiring and educating focused performers for the winter ahead with powerful storytelling, workout routines, product reviews and premium retail capsules, our ecosystem is well set to inspire and capitalize on growing demand.
Given the third quarter bridge summer and fall, we realized success on both sides of the temperature spectrum, including solid sell-through of our Iso-Chill apparel products, which cool you and fleece, which saw strength in men's and youth as athletes gear up for the cooler months ahead.
There's also continued momentum in men's unstoppable bottoms and women's leggings, including Meridian and our No-Slip Waistband technology.
And finally, the Project Rock collection and tops featuring Rush also built on their year-to-date momentum, so consistency in some of our best sellers.
In footwear, our core running products, including Pursuit, Aurora and Assert saw strength in all regions globally.
Additionally, Project Rock footwear performed well and we had success in our slides business.
Regionally, a few of the highlights included the Curry HOVR Splash and Mega Clone in APAC, HOVR Strt and Bandit Trail in EMEA and Flow Velociti SE and cleated footwear in the Americas, driven by better-than-expected back-to-school demand as team sports returned.
Let's turn next to our regions, starting with North America, where revenue was up 8% to $1 billion, indicative of improving brand health in our largest market, we had stronger-than-expected back-to-school and direct-to-consumer demand.
In fact, North America drove the majority of the third quarter overdelivery for the company, so encouraging to see continued progress here.
Compared to 2019, North American revenue was up 2% in the third quarter.
It is important, however, to revisit some key differences in these comparable periods, 2021 North America versus 2019, including a significant increase in our direct-to-consumer business, substantially lower off-price sales, reduced promotional and markdown activities, proactive supply constraints and undifferentiated wholesale exits.
So all in, meaningfully higher quality and more productive dollars going through our P&L now than just two years ago.
Turning to our international business.
Revenue in our Asia Pacific region was up 19%, driven primarily by wholesale growth.
Given some of the recent market trends, particularly in China, where traffic continues to struggle, our consumer insights data tells us that our brand health is holding steady in an otherwise dynamic environment.
We attribute this to the investments we're making into marketing, CRM and store expansions, including opening our 1,000th store in the region.
Versus 2019, third quarter APAC revenue was up 37%, so solid progress on a two year stack.
Next up is EMEA, where revenue was up 15%, driven by wholesale, which saw continued momentum from our distributor partnerships and a solid direct-to-consumer performance.
In our two most prominent countries in this region, the U.K. and Germany, we remain focused on brand development, building long-term relationships with our key wholesale partners and strengthening our direct-to-consumer team and retail capabilities.
EMEA wholesale growth was balanced across our full price and distributor businesses.
Versus 2019, third quarter revenue in EMEA was up 50%.
And finally, our Latin America region was up 27%, driven by strength in our full-price wholesale and distributor businesses.
Versus 2019, third quarter revenue in Latin America was up 8%.
As previously detailed, we are transitioning certain countries in this region to a strategic distributor model, of which most of this change takes place in the fourth quarter.
Accordingly, we expect top-line pressure in Latin America as we finish out 2021.
Another highlight is the performance of our direct-to-consumer business, which was up 12%.
And although traffic trends were somewhat mixed in our own stores and mirrored various COVID restrictions around the world, we continued to see improvements in average selling prices and productivity.
Due to higher-than-expected demand during the quarter, we further reduced promotions and realized higher price sell-through, which, of course, you see in our gross margin results.
Versus 2019, direct-to-consumer was up 31% for the third quarter.
So in summary, we're pleased with our third quarter performance and our ability to close up Under Armour's and split adjusted earnings per share here in our history.
In the near term, however, we remain both confident and cautious with several fluid headwinds continuing to impact nearly every sector, it's important to remember that Under Armour is battle-tested and mission proven.
I am incredibly proud of our global team and how we work to maintain balance and trajectory regardless of what has thrown our way.
We continue to get sharper, smarter and more efficient.
Across our business, by channel, product or region, there remains one constant.
We obsess the intersection of Under Armour serving focused performers, industry-leading innovations, premium experiences, heart-led but data-driven, we empower those who strive for more.
And with that, I'll hand it over to Dave.
With three quarters of the year behind us, our strong third quarter results demonstrate our ability to execute quickly to meet the needs of our consumers and customers, all while driving toward record revenue and earnings in 2021.
So let's dive right into our results.
Compared to the prior year, revenue was up 8% to $1.5 billion.
Versus our previous outlook, this overdrive was primarily due to higher demand across our full-price wholesale and factory house businesses in North America.
Patrik covered our regional performance earlier, so now let's click down into our channel results on a global basis.
Third quarter wholesale revenue was up 10%, driven by higher-than-expected demand in our full-price business, particularly in North American wholesale, which was tempered by a reduction in sales to the off-price channel as we continue to work to elevate our brand positioning.
Our direct-to-consumer business increased 12%, led by 21% growth in our owned and operated retail stores, partially offset by a 4% decline in e-commerce, which faced a difficult comparison to last year's third quarter.
But I would also note that when compared to the third quarter of 2019, our e-commerce business was up over 50%.
And licensing revenue was up 24%, driven by improving strength within our North American partner businesses.
By product type, apparel revenue was up 14% with strength across all categories, particularly in train and golf.
Footwear was up 10%, driven primarily by strength in running.
And our accessories business was down 13% due to lower sales of our sports masks compared to last year's third quarter.
Relative to gross margin, our third quarter improved 310 basis points over last year, landing at 51%.
This expansion was driven by 400 basis points of pricing improvements due primarily to lower promotional activity within our DTC channel, along with lower promotions and markdowns within our wholesale business and 120 basis points of benefit due to channel mix, primarily related to lower mix of off-price sales versus last year's third quarter.
Partially offsetting these improvements was about 100 basis points of negative impact related to the absence of MyFitnessPal and 90 basis points of negative impacts from higher freight and logistics costs due to COVID-related supply chain pressures.
Versus our previous expectation, our higher-than-expected Q3 gross margin improvement was primarily due to lower than-planned promotional activity within our DTC business and more favorable pricing related to sales to our off-price partners.
SG&A expenses were up 8% to $599 million due to increased marketing investments, incentive compensation and nonsalaried workforce wages.
Relative to our 2020 restructuring plan, we recorded $17 million of charges in the third quarter.
So we now expect to recognize total planned charges ranging from $525 million to $575 million.
Thus far, we've realized $500 million of pre-tax restructuring and related charges.
As a reminder, all remaining charges are related to initiatives outlined in 2020, meaning nothing new has been added in 2021.
We expect to recognize any remaining charges related to this plan by the first calendar quarter of 2022.
Our third quarter operating income was $172 million.
Excluding restructuring and impairment charges, adjusted operating income was $189 million.
After tax, we realized a net income of $113 million or $0.24 of diluted earnings per share during the quarter.
Excluding restructuring charges, loss on extinguishment of $169 million in principal amount of senior convertible notes and the noncash amortization of debt discount on our senior convertible notes.
Our adjusted net income was $145 million or $0.31 of adjusted diluted earnings per share.
In this respect, we are excited to report that the $0.71 of adjusted diluted earnings per share that we've realized year-to-date has surpassed our highest previous full year split adjusted earnings, thus solid traction and excellent progress.
Inventory was down 21% to $838 million, driven by improvements in our operating model and inbound shipping delays due to COVID-related supply chain pressures.
Our cash and cash equivalents were $1.3 billion at the end of the quarter and we had no borrowings under our $1.1 billion revolving credit facility.
With respect to debt, during the third quarter, we entered into exchange agreements with certain convertible bondholders for $169 million in principal amount of our outstanding convertible notes and terminated certain related cap call transactions.
We utilized net $168 million in cash, issued 7.7 million shares of our Class C stock and recorded a related loss of approximately $24 million, which is captured in other income and expenses.
Following this transaction and our actions in the second quarter, $81 million of convertible notes remain outstanding.
Now moving on to the balance of the year.
Factoring in the current supply chain challenges emanating from Southeast Asia and logistics challenges being experienced worldwide, we're staying appropriately cautious in the near term.
However, it is important to note that today's revised outlook assumes no additional shutdowns of manufacturing partners or further retail sector disruptions as we close out 2021.
Now, turning to our updated 2021 outlook.
Let's start with revenue, which we now expect to be up approximately 25% for the full year.
This reflects a high 20s percentage rate increase in North America and a mid-30s increase in our international business.
From a channel perspective, wholesale is expected to be up at a mid-30s rate and our DTC business up at a mid-20s rate with e-commerce up at a low single-digit rate for the full year against 2020.
Concerning our top-line expectation for the fourth quarter, the same significant headwinds from our last call remain in play.
In addition to the developing COVID-related supply chain issues currently facing the sector.
Turning to gross margin.
On a GAAP basis, we expect the full year rate to be up approximately 130 basis points against our 2020 adjusted gross margin of 48.6%, with benefits from pricing and changes in foreign currency being partially offset by higher expected freight expenses and the sale of MyFitnessPal, which carried a high gross margin rate.
The gross margin improvement relative to our previous outlook is primarily due to pricing benefits, partially offset by increased freight expenses related to supply chain challenges, which we continue to monitor.
Versus 2020, we now expect that full year SG&A will be up 6% to 7%.
As laid out previously, specific to 2021, we have taken advantage of our improved results and proactively made incremental investments, particularly in marketing, to build even deeper connections with our consumers.
We also expect higher incentive compensation, which is up against 2020 when we had significant reductions against target levels as well as higher nonsalaried wages.
With that, we now expect operating income to reach approximately $425 million this year or $475 million on an adjusted basis.
Translated to rate, we expect to deliver an operating margin of just under 8% or an adjusted operating margin of approximately 8.5% in 2021.
All of this takes us to an expected diluted earnings per share of approximately $0.55 or adjusted diluted earnings per share of approximately $0.74 in 2021, with an average weighted diluted share count of approximately 468 million shares.
And finally, from a balance sheet perspective, we expect to end the year with inventory relatively flat against 2020's year-end and we expect to close the year with approximately $1.5 billion in cash and cash equivalents.
Looking forward, a reminder that we are changing our fiscal reporting year in 2022.
Mechanically, the first calendar quarter will serve as a transition period until we begin our new fiscal year 2023 and on April 1.
That said, there are supply chain pressures that are challenging the industry in the near term.
And while we believe the impact to our P&L in 2021 are expected to be relatively minimal, we are taking precautions to navigate some of the volatility and anticipated business disruptions in the first half of 2022, including the work we began in the second quarter of 2021 to adjust orders and shipping with our factory partners and logistics suppliers, working with wholesale customers to narrow and edit our spring, summer 2022 order book and assessing various mitigation offsets for inflationary pressures, including elevated logistics costs and higher wages.
Given that the situation is still fluid, it is difficult to estimate the full extent of potential effects on our business at this point.
However, on what we know, based on what we know today, we are forecasting material impacts to the first half of 2022.
And therefore, with respect to the first calendar quarter, we expect revenue to be up at a low single-digit rate.
Concerning a longer-term view, as of this week, nearly all factories that Under Armour does business with, including those in Vietnam are open.
So definitely encouraging news.
Of course, full capacity will take some time to ramp back up and this is only one part of the equation.
Over the next several quarters, we expect longer-than-usual transit times as backlogs and congestion find balance.
So this may create some variability in our results.
That said, the proactive strategies we're employing, greater operational agility and overall demand for the Under Armour brand give us confidence in our ability to navigate effectively through the coming environment.
With that, I'd like to close today's call by returning to Patrik's opening thought and the balance we are committed to striking between driving sustainable long-term growth while delivering near-term value to our shareholders.
All global companies operate in a constantly changing environment.
And over the past few years, through our transformation and the pandemic, Under Armour has demonstrated its ability to effectively manage our business under a range of conditions.
Lastly, as we look to close out the strongest top and bottom-line performance in our history, the work we've done to rearchitect our strategy, operations and financial discipline sets us up well to leverage this balance and thus create improved value for our shareholders over the long term.

user
sees fy adjusted earnings per share about $0.74.
sees fy earnings per share about $0.55.
sees fy revenue up about 25 percent.
q3 revenue rose 8 percent to $1.5 billion.
qtrly gross margin increased 310 basis points to 51.0 percent.
sees fy2021 revenue to be up about 25% versus previous expectation of a low-twenties percentage increase.
sees fy2021 operating income to reach about $425 million versus previous range of $215 million to $225 million.
inventory was down 21 percent to $838 million at quarter-end.
under armour - sees fy2021 gross margin to increase about 130 basis points.
qtrly revenue was up 8 percent to $1.5 billion.
q3 earnings per share $0.24.
q3 adjusted earnings per share $0.31.

assistant