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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.
But before I hand it over to Patrik, I'd like to take a moment to recognize Carrie Gillard and the fact that this is her last earnings call with Under Armour.
As an eight and a half-year veteran of this iconic brand and my partner in Investor Relations for the past four and a half years, it's been a heck of a journey, to say the least.
On behalf of the entire executive team, your determination, work ethic, and expertise has been truly appreciated, and you will be missed.
We can't wait to see all the great things you'll accomplish in your next adventure.
At the halfway point of 2021, our better-than-expected results continue to validate that our multiyear transformation is working, with a stronger top and bottom line performance relative to our previous outlook.
Perhaps more importantly, we're also driving higher-quality growth, margin expansion, and greater profitability against our pre-pandemic 2019 results.
In fact, diluted earnings per share through the first six months of 2021 are greater than the full-year 2019.
So all in, a great first half.
Reflecting on the past 18 months amid a historically challenging environment due to the COVID-19 pandemic, I am incredibly proud of Under Armour's global team and the way we've worked to hold ourselves accountable to our strategic playbook.
By continuing to sharpen our focus, the operating model and financial discipline we have ingrained within our culture serve as a constant check and balance to deliver premium products and experiences to our consumers and customers.
And by driving higher-quality revenue through a constant lens of operational excellence and applying what we've learned, consistently refining and orienting toward brand-right profitable growth, means we are better positioned today to drive greater returns to our shareholders than we were before the pandemic started.
And yet, with sustained uncertainty related to COVID, which, as of late, is trending unfavorably in key sourcing countries in Southeast Asia, the resiliency we've earned over the last year and a half will continue to serve as an asset while we navigate the second half of 2021.
In this respect, we're focused on the things we can control, staying grounded in our four strategic pillars: strengthening the Under Armour brand, improving our operating model, amplifying a DTC-focused approach, and increasing our capacity to return greater profitability across the company.
Starting with strengthening our brand and the proactive decision we've made to reinvest some of this year's upside into additional marketing efforts.
This flexibility is empowering us to amplify our middle to top-of-funnel activations geared at increasing awareness, attraction, and consideration for the Under Armour brand.
As we work to connect with new athletes and inspire existing ones, we are centered on our brand attributes, resilience, hard work, heart, and edge.
In the second half, this will come to light more holistically as we illustrate the journey to compete through the process of training, setting goals, struggling, and ultimately realizing the results.
Through a team sports lens supported by consistent messaging via The Only Way Is Through, our third-quarter activations highlight the importance of mental strength, an often-overlooked aspect of training, and its relationship to unlocking an athlete's full potential.
Certainly, coming out of a long stretch of COVID restrictions and as team sports hopefully open up more broadly this fall, we believe this is a timely effort to draw consumers into the psyche that is uniquely Under Armour as we work to make them better.
So starting this month, via social media, TV, and streaming, be on the lookout for Chase Young, Trent Alexander-Arnold, Ty Harris, and NICKMERCS, among others, helping to highlight mental training and the role it plays in achieving one's personal performance goals.
As we say at Under Armour, if you train your mind, you train your game.
So while there's still more work to be done to unlock our full marketing potential, I am pleased with the progress we're making in aligning our go-to-market with focused performers and the evolving needs of our key retail partners around the world.
Not to mention the incremental marketing investments we're making in 2021 are really geared at setting us up for more strong lead in 2022, as awareness and consideration should lead to increased conversion as we strengthen our connectivity.
In product, our strategy remains firmly rooted in an athletes' journey to sport, leading with insights and data to provide solutions they didn't know they needed and now can't imagine living without.
With quite a few product highlights during the quarter, I'd start by recognizing the incredible milestone that our partners at Virgin Galactic achieved a few weeks ago with their commercial flight into space.
To play a part in pushing the boundaries of what is possible, we are excited to see what the future holds as new barriers get broken, inspiring all of us to strive for more.
In Apparel, second-quarter highlights included strong sell-through of our Iso-Chill running products, featuring a UA innovation that keeps you cooler in hot conditions.
We also saw strong sell-through in men's unstoppable bottoms and women's leggings, including meridian and our no-slip waistband technology.
We'll also continue to build on this momentum as well with meaningful increases in our infinity and cross-back products.
And we also saw solid results in tops, featuring our RUSH technology.
And finally, Project Rock apparel continued to build on its strong momentum as well, with an excellent response to new drops.
In Footwear, Flow Velociti performed well in all regions, as did HOVR Phantom and Machina 2, including significant growth against last year's already strong performance.
Our Charged Pursuit 2 and Assert 9 footwear offerings also posted substantial numbers, demonstrating continued success in our segmentation strategy to bring premium innovations across all price points.
In Curry, we saw success on and off court with our Curry Flow 8 signature shoe as well as retro styles that we pre-released in APAC, all good signs of momentum as we work toward the launch of the Curry 9 late this year.
And finally, the Project Rock 3 shoe, which combines UA HOVR and TriBase technologies for a highly comfortable and stable training platform, was also a standout.
Switching gears to our next area of focus, which is continuous operating model improvement.
Our second-quarter results demonstrate once again that our ability to service increased demand with efficient, effective execution is getting better.
Creating product at the right price and getting it to the right place at the right time is at the core of how we'll win.
To empower this, the adage holds, "Success is doing the common things uncommonly well".
Simple perhaps, but precisely at the core of our strategic playbook, and what we're obsessing on a day-to-day basis.
Turning to our regions.
We believe it's most helpful to compare our results to 2019 since last year's second quarter was an incredibly unique period, and we believe this two-year stack better represents some of the progress we're making in the overall performance of our business.
Starting with North America.
I'd underscore how happy we are with improving our ability to drive higher-quality revenue through sharper segmentation, tighter inventory management, and delivering consistent service to our customers.
Versus 2019, North American revenue was up 11% in the second quarter and about 3% for the first half of the year.
Now in context, it's important to keep in mind that these comparable periods have some key differences, including a significant increase in our direct-to-consumer business, offset by considerably lower sales to the off-price channel, lower overall promotional and markdown activities and supply constraints engineered to put us in a more advantaged position in the marketplace.
All of this, of course, is geared to continuing to lift the Under Armour brand to a more premium level in our largest market.
And to that point, as evidenced by our gross margin results, this strategy is working.
From a channel perspective, we feel good about the pace we're earning backspace with our key North American wholesale partners, driving full-price revenue and showing up both digitally and physically in a more comprehensive way than ever before.
Revenue from our owned and operated stores is up meaningfully in the quarter versus the same period in 2019 and includes improved quality and composition of sales.
For the full year, we expect our North American business to be up at a low 20s percentage rate compared to 2020.
Versus 2019, North America will be close to the same revenue, which, taking into consideration the factors I mentioned, less off-price, lower discounts and promotions, and tighter supply constraints, along with our exit of undifferentiated retail, which starts in Q3, leaves me confident that we're setting ourselves up for improving brand-right profitable growth in 2022 and beyond.
Turning to our international business.
We expect revenue to be up at a mid-30s percentage rate versus 2020 or up at a high 20s percentage rates on a two-year stack.
In our Asia Pacific region, we remain laser-focused on ensuring our brand remains firmly positioned in athletic performance while staying agile in a quickly evolving marketplace.
With second-quarter revenue up 25% versus 2019 or up 35% for the first half on a two-year stack, our results gives us confidence that the additional investments we're making into marketing, CRM, digital activations, and store expansions are working to drive greater brand affinity amid a highly competitive backdrop.
Next up is EMEA, a region that is also seeing pockets of COVID resurgence, but also delivered strong growth for Under Armour.
Second-quarter revenue was up 43% over 2019 and up 44% for the first six months on a two-year stack.
Within DTC, we recently upgraded our eCommerce site platform to improve our capabilities and functionality as we focus on driving more seamless shopping experiences for our consumers.
EMEA wholesale growth was balanced across our full-price and distributor businesses.
Looking at the rest of the year, we remain confident that our strategies to drive greater reach and connection to our consumers are working well.
And finally, our Latin America region, where second-quarter revenue was up 17% over 2019 or is up 7% for the first six months on a two-year stack.
As discussed on our last call, we have begun transitioning our business in certain countries to a strategic distributor model, which we expect to impact revenue more negatively in the back half of this year.
So still working through this transition as we rearchitect this business for improved consistency and, we believe, better profitability.
Switching to our third pillar, which is our focus on elevating our DTC business.
With a 33% increase in revenue for the second quarter and a 32% increase for the first half versus 2019, we're pleased to see the results of our multifaceted strategies come to fruition.
In conjunction with consumer behavioral shifts throughout the pandemic and an even greater appetite for product and brand experiences that are personalized, unique, and premium, we are advancing how we show up in stores and online to meet their needs.
All of this, of course, starts with our retail and distribution teammates who are at the backbone of our business, playing an essential role in how we serve focused performers.
Ensuring that they feel valued and appreciated, we increased our minimum pay rate to $15 per hour in our U.S. business as part of a larger effort that includes professional learning and development opportunities and additional incentive plans.
In combination, these actions will allow us to drive better connectivity across the consumer journey.
From an owned store perspective, we experienced improved traffic trends and higher average selling prices in the quarter, driving better productivity and more normalized promotions.
Longer term, we remain focused on building the capabilities necessary to become a best-in-class retailer by creating incredible experiences in our full-priced brand house stores and better leveraging our factory house locations to drive greater overall profit.
In our e-commerce business, revenue was down 18% in the quarter, a result that we anticipated being the most challenging of the year considering the shift to online in 2020 following the retail lockdown.
That said, given the work we did to exit the highly promotional elements that this business experienced in 2019, along with the investments we've made in our platforms and teams over the last 18 months, and we're very encouraged by a 53% second-quarter increase versus 2019 or a 55% increase for the first six months on a two-year stack.
Throw in that we expect our eCommerce business to be up at a high single-digit rate in 2021, and that puts our growth up nearly 50% on a two-year stack.
So to wrap it up, I'll end with our last area of focus, driving profitability to increase shareholder value over the long term.
Based on our updated full-year outlook, which includes revenue being up at a low to mid-single-digit rate versus 2019, and our adjusted earnings per share being up meaningfully, our strategy to return to profitable brand-right growth is working.
With a high quality and composition of revenue, including significantly reduced off-price sales and less promotions and discounting, we're driving more productive dollars through our P&L, dollars that are contributing nicely to margin improvements and greater EPS, demonstrating the results of our transformation and the stronger foundation we have built over the past couple of years.
And with that, I'll hand it over to Dave.
At the halfway point of 2021, our second-quarter results demonstrate that the strategies we've been executing against, and the foundation we've worked hard to reset to increase Under Armour's capacity to return sustainable profitable growth to shareholders, are working.
Our operational execution has never wavered against an incredibly challenging and dynamic global market, punctuated by COVID over the last year and a half.
Our attention to Under Armour's focused performers and delivering best-in-class innovations and premium experiences have never been sharper.
And all of this has come together to target full-year top line, bottom line, and working capital performance at better than pre-pandemic levels.
In the second quarter, revenue was up 91% to 1.4 billion compared to the prior year.
Versus our previous outlook, this overdrive was primarily due to higher demand across our wholesale and factory house businesses.
And of course, in general, our second-quarter results were up against last year's significantly restricted retail environment due to the peak of COVID-impacted store closures.
From a channel perspective, our wholesale revenue was up 157%, driven by broad-based growth, as we lap the most significant impact from the retail door closures in the prior year.
Additionally, most of our Q2 wholesale overdrive was due to stronger sell-through and higher demand in North America.
Our direct-to-consumer business increased 52%, led by 234% growth in our owned and operated retail stores, partially offset by an 18% decline in e-commerce, which faced a difficult comp as it was the primary business driver of last year's second quarter.
Our licensing revenues were up 276%, driven by increases in our North American partner business.
By product type, Apparel revenue was up 105%, driven by strength in our train, golf, and run categories.
Footwear was up 85%, driven by our run and team sports categories.
And our accessories business was up 99%, driven by hats, bags, and sports masks.
From a regional and segment perspective, second-quarter revenue in North America was up 101%.
In wholesale, we continue to drive lower markdowns with tighter inventory, enabling fuller-priced sell-through.
Within DTC, we saw strength in our owned and operated stores given the easier comparison to the prior year when most of our locations were closed for the quarter.
This was partially offset by a decline in our e-commerce business, which, conversely, was up against a particularly tough comparison to last year.
In EMEA, revenue was up 133%, driven by growth in wholesale and DTC, with significant strength across our wholesale and distributor partners.
Revenue in Asia Pacific was up 56%, with balanced growth across all channels.
And in Latin America, revenue was up 317%, driven primarily by lapping the store closures in the prior year.
As we move into the back half of the year, we expect the transition of certain countries to distributor models to negatively impact top-line performance, particularly in the fourth quarter.
Second-quarter gross margin came in better than expected, improving 20 basis points to 49.5%, driven by 570 basis points of pricing improvements due to lower promotional activity within our DTC channel, along with lower promotions and markdowns within our wholesale business, which was significantly impacted by the pandemic in the prior year, and 100 basis points of benefit due to changes in foreign currency.
Offsetting these improvements was a 460 basis point negative impact from channel mix, primarily driven by a lower mix of e-commerce and a larger mix of wholesale, including a higher percentage of off-price sales than last year when this channel was essentially closed for most of the quarter.
Additionally, we realized 170 basis points of negative gross margin impact related to the absence of MyFitnessPal, which will remain a headwind throughout 2021.
And finally, a 10 basis point negative impact within supply chain as our continued benefits and product costs were more than offset by higher freight and logistics costs due to developing COVID-related supply chain pressures.
Overall, versus our previous outlook for second-quarter gross margin, we experienced lower-than-planned promotions enabled through higher demand, along with driving more favorable pricing.
SG&A expenses were up 14% to 545 million, primarily due to higher marketing costs and expenses tied to store operations, given most retail locations were closed throughout the second quarter of 2020.
Relative to our 2020 restructuring plan, we recorded 3 million of charges in the second quarter, an amount less than we had anticipated due to the timing of specific executions such as the realization of lease and contract terminations.
Throughout the plan thus far, we've realized 483 million of pre-tax restructuring and related charges.
As detailed last September, this plan contemplates total charges ranging from 550 to 600 million.
It's important to note that all remaining charges are related to initiatives outlined in 2020, meaning nothing new has been added in 2021.
For the quarter -- for the third quarter, we expect to realize approximately 40 to 50 million in charges related to this plan.
Our second-quarter operating income was 121 million.
Excluding restructuring and impairment charges, adjusted operating income was 124 million.
After tax, we realized a net income of 59 million or $0.13 of diluted earnings per share during the quarter.
Excluding restructuring charges, loss on extinguishment of 250 million in principal amount of senior convertible notes, and the non-cash amortization of debt discount on our senior convertible notes, our adjusted net income was 110 million or $0.24 of adjusted diluted earnings per share.
In this respect, we are proud to report that in the first half of 2021, we have already surpassed our full-year 2019 diluted earnings per share.
So in a great position to finish out 2021 with strength against pre-pandemic levels.
Inventory at the end of the second quarter was down 26% to 881 million as we continue to drive improvements throughout our operating model, along with experiencing some 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 second quarter, we entered into exchange agreements with certain convertible bondholders for 250 million in principal amount of our outstanding convertible notes and terminated certain related capped call transactions.
We utilized net 247 million in cash, issued 11 million shares of our Class C stock, and recorded a related loss of approximately 35 million, which is captured in other income and expenses.
Post this transaction, 250 million of our convertible bonds remain outstanding.
Next, let's move on to our updated 2021 outlook, where, based on better-than-expected performance in our second quarter, we flowed through the upside for a meaningful increase for our full year.
That said, although recent consumer trends continued to track positively, we remain cautious with demand and the overall marketplace due to both the COVID-19 pandemic and developing manufacturing and logistics challenges in key sourcing countries in Southeast Asia.
Accordingly, today's outlook is subject to our business continuing under the same general macros we've seen most recently, with no significant shutdowns of manufacturing partners or retail or logistics disruptions, along with continuing improvements within the global retail landscape as we progress through the second half of 2021.
That said, let's start at the top with revenue, which we now expect to be up at a low 20s percentage rate for the full year.
This reflects a low 20s percentage increase in North America and a mid-30s percentage increase in our international business.
For gross margin, on a GAAP basis, we expect the full-year rate to be up 50 to 70 basis points against our 2020 adjusted gross margin of 48.6%, with benefits from pricing and benefits from changes in foreign currency being partially offset by the sale of MyFitnessPal, which carried a high gross margin rate, along with higher expected freight expenses.
The gross margin improvement relative to our previous outlook is due to improving benefits within pricing, partially offset by increased freight expense related to port congestion and logistics costs, which remains a rapidly evolving situation.
Versus 2020, we expect a high single-digit rate increase in SG&A, a rate that is less than half that of our revenue growth.
As laid out previously, it's important to remember that specific to 2021, we are taking advantage of our improved outlook and proactively making incremental investments, particularly in marketing, to build even deeper connections with our consumers.
Additionally, the other significant part of the overall increase in SG&A is higher incentive compensation, which is up against 2020 when we realized significant reductions against target levels.
All in, of this expected high single-digit rate increase in SG&A in 2021, on an absolute dollar basis, about one-half of this is related to incremental marketing, one-third related to higher incentive compensation, and the balance related to our other underlying SG&A.
On a two-year stack, the most significant drivers of SG&A dollar growth are the incremental marketing investments and higher incentive compensation we expect in 2021.
Beyond these items, our underlying SG&A is planned to be up only slightly against 2019's base.
As we look ahead, remaining disciplined around SG&A and striking the right balance between growth, productivity, and profitability is our top priority.
With that, we now expect operating income to reach 215 to 225 million this year or 340 to 350 million on an adjusted basis.
Translated to rate, we expect to deliver an operating margin of approximately 4% or an adjusted operating margin just north of 6% in 2021.
All of this takes us to an expected diluted earnings per share of 14 to $0.16 or, excluding restructuring charges, the loss on early extinguishment of convertible senior notes and noncash amortization of debt discount on these convertible senior notes, we expect adjusted diluted earnings per share of 50 to $0.52 in 2021.
In summary, our full-year outlook reflects the combination of the overdrive we've realized in the first half of 2021, along with improvements across our business, positioning us to deliver growth and stronger profitability relative to 2019.
Next, before giving more color on how we're thinking about the balance of the year, I'll highlight some headwinds that impact us more directly in the second half of 2021, including lower expected sales of our sports masks, supply and demand constraints, the absence of MyFitnessPal, lower expected sales to the off-price channel, changes to our Latin American operating model, and the exit of undifferentiated retail, which began in the third quarter.
Looking at quarterly flow, we expect third-quarter revenue to be up at a low single-digit rate and the fourth quarter to be relatively flat to finish out the year.
Next, we expect third-quarter gross margin to be up 130 to 150 basis points due to pricing benefits and channel mix as we anticipate lower promotional activity and lower sales to the off-price channel.
These benefits will be partially offset by the absence of MyFitnessPal, higher expected freight costs, and changes in product mix driven by lower sales of sports masks.
For the fourth quarter, we expect gross margin to be down due to negative impacts from the absence of MyFitnessPal, channel mix driven by lower licensing revenue, and product mix driven by a higher percentage of footwear and lower sales of sports masks.
Bringing this to the bottom line, we expect third-quarter adjusted operating income to be 95 to 105 million or 13 to $0.15 of adjusted diluted earnings per share.
So to close out, operational excellence, flexibility, a strong balance sheet, and consistent financial management, when combined, form a model that's allowed us to transcend pandemic challenges proficiently.
Looking at the next six months and the set up all these accomplishments provide for us going into 2022, we believe Under Armour is well-positioned to deliver on our next chapter of profitable growth.

user
compname posts q2 adjusted earnings per share $0.24.
sees fy adjusted earnings per share $0.50 to $0.52.
sees fy earnings per share $0.14 to $0.16.
q2 adjusted earnings per share $0.24.
q2 earnings per share $0.13.
q2 revenue $1.4 billion versus refinitiv ibes estimate of $1.21 billion.
fy 2021 revenue is expected to be up at a low twenties percentage rate compared to previous expectation.
expects to recognize approximately $40 million to $50 million in charges related to restructuring plan in q3.

assistant