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Under Armour (NYSE:UA)

Q1 2012 Earnings Call

April 20, 2012 8:30 am ET

Executives

Tom Shaw -

Kevin A. Plank - Founder, Chairman, Chief Executive Officer and President

Brad Dickerson - Chief Financial Officer and Principal Accounting Officer

Analysts

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Joseph Parkhill - Morgan Stanley, Research Division

Pamela Nagler Quintiliano - Oppenheimer & Co. Inc., Research Division

Kate McShane - Citigroup Inc, Research Division

Omar Saad - ISI Group Inc., Research Division

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

Taposh Bari - Jefferies & Company, Inc., Research Division

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

Operator

Good day, ladies and gentlemen, and welcome to Under Armour, Incorporated First Quarter Earnings Webcast and Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference call, Mr. Tom Shaw. You may begin, sir.

Tom Shaw

Thanks, and good morning to everyone joining us to today's conference call.

During the course of this call, we'll be making projections or other forward-looking statements regarding future events or 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 Factors section of our filings with the SEC. The company assumes no obligation to update forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Joining us on today's call will be Kevin Plank, Chairman, CEO and President; and followed by Brad Dickerson, our Chief Financial Officer, who will discuss the company's financial performance for the first quarter, followed by an update of our 2012 outlook.

After the prepared remarks, Kevin and Brian will be available for Q&A session that will end at approximately 9:30 a.m. Finally, a replay of this teleconference will be available at our website at approximately at 11:00 a.m. Eastern Time today.

And with that, I'll turn it over to Kevin Plank.

Kevin A. Plank

Thank you, Tom, and good morning, everyone. We had another quarter of solid revenue growth in Q1 as we continue to lead our industry in bringing true innovation to athletes. All 3 of our product engines: apparel, footwear and accessories grew more than 20% with total revenues up 23%. That marked the eighth consecutive quarter where our top line has grown above 20%. Brad will provide more color on our results in a moment, but I want to focus my comments this morning on 2 broad themes that we believe are driving our results, and more importantly, setting us up for continued profitable growth in 2013 and beyond.

The first point is a simple equation. When we innovate and add value for the athlete, we win. And importantly, when we do that, we do not see consumer resistance to price, a critical piece for us as we expand distribution while maintaining our premium brand status.

Second, we've done a very effective job over the past 2 years of balancing the need to improve our competencies in critical areas like supply chain, planning and design, while executing to deliver the 20-plus percent growth that we have accomplished. While our brand strength continues to drive our connection with consumers, we believe its ability to focus on investments in people and systems, while also delivering solid top and bottom line growth is a critical element to the Under Armour story.

Let me cite a few examples of how investments we made in the past 2 years paid off in this quarter and how we continue to make new investments that we believe will help drive results 2 years out. While innovation for athletes will always be at the core of how we build products, over the past 2 years, we've begun to deliver a more Under Armour-specific design language throughout our assortments. We invested significantly in both our team and tools around design, bringing industry expertise to help bolster this dimension of the Under Armour brand. This focus has specifically helped drive improved results in our Women's business and the introduction in Q1 of the Armour Bra, Sports Bra, is a great example of the right blend between performance and style.

Our team talked extensively with our consumers to understand what was lacking with their existing sports bra. They also went into the lab to better understand how a sports bra could offer ultimate support and comfort. From that work, our design team reconstructed the sports bra and the results have been great. We've had a very successful launch with the Armour Bra with our wholesale partners and early sell-through on our e-commerce site was as strong as we've seen for new women's products.

By increasing our investments and design over the past 2 years, we're now seeing stronger products across the Women's business with new items like the Perfect Pant, with soft, breathable fabric that has superior stretch with a great fit. Our sweat-wicking Moisture Transport System accelerates dry time as well. The true benefit is longer term as we're introducing our brand to a new Women's consumer who may have previously seen us as solely focused on team sports.

As I mentioned upfront, when we innovate, we win. And we are able to drive higher price points with better products. We saw it last year at the introduction of Charged Cotton that dries faster than your old cotton T-shirt. On the Women's side, we focused on improving the fit of our Charged Cotton T-shirt in year 2, and the early results have been very strong sell-throughs.

We saw it first quarter with the Armour Bra introduced at that $58 price point. And we also saw strong consumer reaction to our new Tech tee, where we've brought a new fabrication making it softer, while keeping it extremely lightweight and taking the price up to $23 from just $20 a year ago. We believe these are all great indicators that the consumer continues to view us as a premium performance brand and reinforces the thought that as long as we continue to innovate, we will win.

The other major apparel store that hit in Q1 was ColdBlack. This latest technology from Under Armour not only blocks the sun's UV rays, the ones that causes sunburn, but also reflects infrared heat keeping you more comfortable on a hot and sunny day. Our success here is enabling us to drive higher price points in our polos, and eventually, at other products as well. Hunter Mahan has been wearing ColdBlack to great success in the PGA Tour this year. Winning 2 tournaments so far this year and moving up to #5 in the world, his highest ranking ever. ColdBlack is a great example of Under Armour incorporating additive technology to a premium product, and we see consumers truly starting to embrace it as the weather heats up.

In our Footwear business, the impact of our prior investments have been equally important. We preached patience on our Footwear business, and we continue to make the type of progress that will position us long term as a leader in this space. Our first and most important consumer is on field, and our baseball cleats business has been exceptional this spring. We've taken market share at the greatest rate since our introduction of baseball cleats over 5 years ago. We are now the official performance footwear supplier of Major League Baseball. We've got our cleats on many of the game's rising stars, like Buster Posey and Ryan Zimmerman. And our premium product is performing extremely well.

Next up, our premium product for the football field is coming with the introduction of the Highlight cleats, the super high and ridiculously light cleat that Cam Newton wore exclusively this past season. Visually, this $130 cleat will look different from any footwear you'll see in the NFL this season. But it provides additional support that reduces the need for taping ankles. The limited pairs we've made available on our e-commerce site were quickly sold out, but will be available next month at Dick's Sporting Goods, Foot Locker's Eastbay catalog and website, as well as limited numbers with other select retailers.

We've talked about establishing the right cadence in our Footwear business, building off our early success in our on-field product, improving it each year and taking those learnings to more acceptable categories like running. Our recent success with the Charge RC running shoe is evidence that we are establishing the right pace of innovation at the right price in the right distribution. We've seen continued strong sell-through on the $120 Charge RC running shoe. As we bring new colors to the assortment, we are seeing strong results for the Charge RC in both Men's and Women's in both specialty run and our direct consumer channels. And the Split II Running Shoe performing very well within our own sporting goods distribution.

So while we're in a very strong product cycle entering 2012, we think it's important to understand where that product came from. It came from investments. Ones that were made over the past 2 years and ones that were made as we simultaneously delivered 20-plus percent top line growth. We believe this illustrates not only the power of the Under Armour brand, but also the efficiency of our business model in harnessing that brand's strength. We believe this is a critical element in the understanding of the Under Armour investment story.

Simply put, this is what you're going to see from us over the next several years. Our growth will be driven by smart and early investments in people, systems and technologies and a high level of execution to ensure the best possible return on those investments.

As we have stepped up the pace of innovation on the product development side, we've also been making investments in our supply chain and planning functions. We're starting to see early benefits from the years of industry experience that we've brought to the organization in our supply chain and planning teams. While you're now just starting to see the early fruits of their labors, we believe more meaningful financial benefits will be seen later this year and into 2013.

Equally important is that these business leaders are driving new competencies and improving our cross-functional communications that would be essential as our organization grows. We have consistently stressed the importance of building a great team and continue to add experience from outside Under Armour with the recent hires of senior leaders in both supply chain and Human Resources.

As we begin to aggressively execute in places where we've made some initial investments, we're building the teams that will be contributing meaningfully to our growth in 2014 and beyond. This past quarter, we announced the hiring of Charlie Maurath as the new President of Under Armour International. Charlie has over 20 years of experience with athletic brands internationally. Most recently, as head of the Latin America business for Adidas. We believe that the best time to invest in our international business is when our core U.S. business is strong, so that new markets like China, South America and our business in Europe will bring an entire new population of consumers to the Under Armour brand.

So in summary, our business this past quarter was very solid. We continue to lead the athletic apparel industry in the pace of meaningful innovation, thought leadership. And we're establishing the right cadence of product flow at premium price points in Footwear.

New technologies are helping us bring new levels of performance in style to our Women's business. In Men's apparel, we're reaching new consumers with Charged Cotton and our new underwear program and expanding the definition of performance with ColdBlack. We're successfully transitioning from a tight T-shirt company to a fully integrated athletic brand, capable of servicing the full needs of the athlete, men's and women's, head to toe globally.

But more important, we continue to invest to ensure the next Armour Bra, the next ColdBlack and the next innovation in Under Armour footwear are already somewhere in our product pipeline. And we are investing in a team that will be able to execute on these opportunities and continue to drive the type of growth that you've come to expect from Under Armour.

With that, I'll turn it over to our CFO, Brad Dickerson. Brad?

Brad Dickerson

Thanks, Kevin. I would now like to spend some time discussing our first quarter financial results, followed by our updated 2012 outlook. Our net revenues for the first quarter of 2012 increased 23% to $384 million.

Apparel grew 23% to $283 million during the quarter, and we experienced relatively balanced growth across our Men's, Women's and Youth categories. New Product Innovation was well received, including the reinvented Tech tee, ColdBlack apparel and our Women's Studio line and Armour Bra. Our Direct-to-Consumer net revenues increased 49% for the quarter, representing approximately 25% of net revenues compared to 20% in the prior-year period. In our retail business, we opened 4 new Factory House stores during the first quarter, increasing our Factory House store base to 84, up 33% from 63 locations at the end of the first quarter of 2011.

On the e-commerce side, we completed our first full quarter with our new platform. We will continue to add efficiency and functionality to the site throughout 2012. Footwear net revenues during the first quarter increased 24% to $64 million from $51 million the prior year, representing nearly 17% of net revenues.

Growth during the period was driven by the introductions in running footwear, including the Split II and Charge RC as well strong performance with our baseball cleats. As we have now fully lapped last year's transition of our hats and bags business in-house, our accessories' net revenues during the first quarter increased 26% to $30 million from $24 million in the prior-year period. International net revenues increased 32% to $22 million in the first quarter and represented approximately 6% of total net revenues.

Now looking at margins. First quarter gross margins contracted 80 basis points to 45.6% compared with 46.4% in the prior year's quarter. While we had some small puts and takes during the quarter, the primary factor driving results was higher input cost in our North American apparel and accessories businesses, which negatively impacted margins by approximately 100 basis points.

Selling, general and administrative expenses as a percentage of net revenues leveraged 40 basis points to 39.2% in the first quarter of 2012 from 39.6% in the prior year's period. Details around our 4 SG&A buckets are as follows:

First, marketing cost declined to 11.5% of net revenues for the quarter from 13.3% in the prior-year period. Expense leverage during the period was a function of strategic decisions to move certain media costs later in the year. I'll provide more details on full year marketing timing shortly.

Second, selling costs increased to 9.8% of net revenues for the quarter from 8.9% in the prior-year period, primarily driven by the continued expansion of our Factory House stores and e-commerce platform.

Third, product innovation and supply-chain cost increased to 9.8% of net revenues for the quarter from 9.3% in the prior-year period, primarily reflecting higher expenses related to our distribution facilities and accelerated spending around innovation.

Finally, corporate services remained unchanged from last year at 8.1% of net revenues.

Operating income during the first quarter grew 15% to $24 million compared with $21 million in the prior-year period. Operating margin contracted 50 basis points during the quarter to 6.3%. Below the operating line, net other expenses increased to $1.3 million in the first quarter from $1.1 million in the prior year's period as a result of the debt assumed for our acquisition of our corporate headquarters.

Our first quarter tax rate of 36.6% was favorable to the 39.5% rate in last year's period as we received a state tax credit during the quarter benefiting our tax rate by 170 basis points.

Our resulting net income in the first quarter increased 21% to $15 million compared with $12 million in the prior-year period. First quarter diluted earnings per share increased 20% to $0.28 compared with $0.23 in the prior-year period.

Now switching over to the balance sheet. Total cash and cash equivalents at quarter end decreased 3% to $107 million compared with $111 million at March 31, 2011. We had no borrowings outstanding on our $300 million revolving credit facility at quarter end. Long-term debt increased to $76 million at quarter end from $14 million at March 31, 2011, reflecting the acquisition of our corporate headquarters.

Inventory at quarter end increased 30% year-over-year to $324 million compared to $249 million at March 31, 2011. A portion of this growth in inventory dollars is being driven by higher cost per unit as the growth rate in inventory units approximated our net revenues growth rate during the quarter.

Our investment in operating capital expenditures was approximately $9 million for the first quarter. We continue to plan for 2012 operating capital expenditures in the range of $60 million to $65 million.

Now moving on to our updated outlook for 2012. Our prior outlook called for 2012 net revenues growth at the low end of our 20% to 25% long-term growth target and operating income growth at the higher end of our 20%, 25% long-term growth target. Based on current visibility, we are updating our net revenues outlook to a range of $1.78 billion to $1.8 billion, representing growth of 21% to 22%. Also, we are raising our operating income outlook to a range of $203 million to $205 million, representing growth of 25% to 26%. With this updated outlook, I would like to provide additional color on several items for the year.

First on gross margins. We continue to see first half margins, primarily impacted by higher product costs offset in the second half by our continued efforts to rationalize our SKU base, add discipline and processes to our planning functions and enhance our sourcing capabilities. We continue to expect our full year gross margins to remain relatively flat with year-ago levels.

Switching to SG&A, we continue to see the opportunity for moderate leverage, while we sustain investments for our future growth. We now have better visibility on the timing of these investments and how they will impact the remaining quarters in 2012.

In marketing, we are planning a greater rating of our annual spend, primarily related to media and production costs to shift to the second and third quarters to better align and support our brand stories. We now see approximately 100 basis points of marketing deleverage year-over-year in the second quarter and approximately 200 basis points of marketing deleverage year-over-year in the third quarter. For the full year, we continue to expect a similar marketing spend rate as in 2011.

Across our other 3 SG&A buckets: selling, product innovation and supply chain and corporate services, we generally see sequential decelerations in year-over-year growth rates throughout the year. This deceleration largely reflects the lapping of incremental investments during 2011 in areas such as e-commerce. We relaunched the site last November and sourcing and planning where we enhanced our organizational structures. In aggregate, we continue to see moderate SG&A leverage as the driver of higher operating margins implied in our updated outlook.

Below [ph] operating results, we reiterate our prior outlook, including higher year-over-year interest expense giving a full year of the additional long-term debt for our headquarters' acquisition, a full year effective tax rate of 37.5% to 38% and fully diluted weighted average shares outstanding in the range of 53.2 million to 53.4 million.

Before opening up to Q&A, we would also like to reiterate our confidence in our inventory trajectory throughout 2012. While we expect the second quarter inventory growth rates to look similar to the first quarter growth rate, we anticipate the inventory growth rate will come in below the net revenues growth rate starting in the third quarter.

Our team continues to make great progress with our three-pronged approach of reducing our SKU count 20% by the end of the year, building discipline and collaboration in our forecasting and planning process and strengthening our global supply chain.

We would now like to open the call to your questions. [Operator Instructions] Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Robbie Ohmes with Bank of America Merrill Lynch.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Two questions. First question is just on the apparel business. I thought it was interesting that it was balanced between Men's, Youth and Women's. And I would have expected or was expecting Youth and Women's to be outpacing Men's kind of going forward here. And I was hoping that you could sort of remind us or elaborate on what happened in the quarter and if you expect core apparel to grow similarly across those or if we should expect that to change going forward? And then my second question is just under new leadership that you've hired for international, can you give us any more detail on what we should expect to see, what the steps we should expect to see over the next couple of years in Europe and Asia and Latin America?

Kevin A. Plank

Robbie, it's Kevin. So first and foremost, I'd start with that big statement in my script that said when we innovate, we win. And I think we're continuing to do that, specifically on the apparel side. So start with the basics. These core basics of HeatGear T-shirt, ColdGear mocks. And you're seeing us come back and reinvent these. Most specifically this past Spring, we're seeing it with the Tech tee. This isn't a million unit program. This is millions and millions of units program. And number one, going back and taking a program that's heritage to us, going back 4, 5, 6 years and reinventing it with the consumer first with a better product, softer hand, better fabric, better performance. And then also taking the price point up from $20 to $23. It's obviously -- it's a value add for our customers, meaning our distribution and then, of course, a huge value add for us, but especially great for the consumer. So they're voting with increased performance in sell-through, in some cases 1.5x to 2x of sell-through that we saw on the old products. So it means that, number one, in creating these heritage programs, which have these franchises, we need to keep reinventing and bringing them back. We see the ability to continue to augment our existing apparel business and the message that I talked about with ColdBlack of bringing technologies to basics like take our performance polo, and here is a product that's doing very well for us. But then we add a new a technology like ColdBlack, which effectively gives you the feeling of keeping yourself about 10 degrees cooler than wearing a shirt that doesn't have the ColdBlack technology in it. So it's constantly finding ways for us to innovate around that. And I'll get to the Footwear answer maybe a little later in the call. But I think what's you're seeing from us is this constant commitment to innovation and having it come through and having it really pour out in everything that we're doing. So on the youth side, I agree. We think there's huge opportunity there. One of the biggest struggles we have is really from a distribution standpoint. We'll continue to find the right stride within our existing distribution, so we've been talking to our partners, the big guys specifically and everybody wants the Youth business. Nobody's really sure exactly how to get at it. At the same time, though, we are leading the way there. We're the #1 Youth brand virtually everywhere we're doing business. And I think that we're the ones that are really carrying that lantern and really trying to blaze trails there. So I don't know if we have it perfected, but we are seeing great growth. We're seeing that youth kid continue to vote for our brand as well, and so we think there's a lot of opportunities. So there's more to come, we think, within our existing distribution, first and foremost, but we also think there's some ways for us to be creative there. On the leadership front, we're really excited first of all about the announcement we made with Charlie coming here. This is an executive who's been doing this for 20-plus years. They know the industry. They know the people, they know the players, they know the manufacturers. It's something, which we think we are perfectly positioned to take advantage of. So we're excited for Charlie to get here and get onboard and what that's going to mean to our global business. And so speaking about that for just a second, we've been in Europe now for -- coming up on 6 years. And again, Charlie is a German national. And so he'll bring great experience. He's spent time in Europe, as well working for the other brand. And so what he brings to the table, we think that there's ways [ph] for us at that tipping point. I think I said it on the last call, we believe it's getting closer and closer for us. And we're waiting for it to accelerate. But meanwhile, we've got a team of people in Amsterdam that are working for us in our European business just doing an amazing job. And we continue to look at the examples of some of the things we've done with success that we've found in Japan, which this year, we'll close on a USD $200 million business for us in Japan. So again, it was 7 years to $35 million, and then the business began to double. So as we sit here in our European business, we think there's great upside to come. And global, on a leadership standpoint, we made a couple of other really important hires, too, that will give the human resource and planning and supply chain functions a real kick that will give us a much better global perspective as well. So evolving from a pretty good North American wholesale apparel brand into a truly global brand, I think is something that you're seeing coming from us right now.

Operator

Our next question comes from Joseph Parkhill with Morgan Stanley.

Joseph Parkhill - Morgan Stanley, Research Division

I was wondering if you could talk a little bit more about the process you're going through from a SKU rationalization. How the retailers are responding to this initiative and if you think it's having any impact at all in your sales growth in 2012?

Brad Dickerson

We obviously we talk about SKU rationalization in our last call, too, and it was all built into our guidance. To be honest with you, it being in the early stages of this, a lot of the rationalization we're doing has very, very little impact to the top line. And it has very little impact relative to our retail partners. So our goal, as we kind of stated, was to get to a 20% reduction in SKUs by the end of this year. And I'm happy to say that it looks like right now, that we'll probably be a little bit ahead of that, especially in the style side. But on the color side, be pretty much right on that target, maybe a little bit ahead. So that was a process that was started probably about 1.5 years ago. And on the product side, led by Henry Stafford, and we've done a great job there.

Joseph Parkhill - Morgan Stanley, Research Division

Great. And also just operationally speaking, I know last year, you had some margin drag from sales allowances due to missing on-time deliveries. If you could give us any update on how on-time deliveries are trending this year, and should you get any gross margin benefit from that?

Brad Dickerson

Yes, we always talk about turning that dial pretty slowly on the inventory management side. And as we have talked over the last year or so of inventory management improvements and our planning processes and how we're buying our inventory, always balancing that with the fill rates and how we're servicing our customers. And to your point, we called some issues out that we had last year. So the good news here is that both of those metrics are heading in the right direction. Obviously, as you've seen, the inventory growth rate coming down as we mentioned in the last call from growth rates last year. And our fill rates are pretty much coming in as expected, so they're improving. They're still not where we want them to be longer term, but the good news is, is they are improving as we expected. So from a benefit to the sales allowances and discounts, a lot of that was built into our original guidance we gave 3 months ago for the year. As we anticipate and have more confidence in our inventory management abilities, we put some of those benefits in our guidance. So a lot of those are already built into our future guidance and margins.

Operator

Our next question comes from Pam Quintiliano with Oppenheimer.

Pamela Nagler Quintiliano - Oppenheimer & Co. Inc., Research Division

I have a few things. Could you just remind us about the cadence of new product introductions for the rest of the year? And then also, I know this is a very broad question, Kevin, but just what are you most excited when you're looking ahead over the next year and why, in terms of new product that's coming out?

Kevin A. Plank

Yes, I think I'd probably put them -- put those 2 products together, those 2 questions together. Cadence is very important. I think what you're seeing from the brand really across all functions is that we're growing up as a company. There's a lot less volatility. The company is becoming much more quiet in delivering a pretty consistent product. First of all, from an investment story with the 20-plus percent top line growth is something we're very proud of and now have 2 years of running consistency there. And I think you're seeing it on the product side especially. Again, I keep going back to this idea of when we innovate, we win. And just a couple, again, to underscore some of the points and the products that we've introduced so far this year in the last several months that are working for us. The consumer is telling us that if we put a better product out there, they're willing to pay more money. This is not -- it's not a chase to see who is the cheapest price. That's not where Under Armour plays. But we are a premium brand, and I think we bring a lot to our existing distribution with the ability to continue to elevate and raise price points. And it's doing it with things like the Tech tee example I used before. But we're seeing it with ColdBlack. I mean, that's a product of $60 and $70 polo shirt that we're bringing out there. We're seeing it with Armour Bra, which is a new technology on the Women's side, that we have and I spoke about in the script. And it's a $58 sport bra, which is head and shoulders above any other price point. And, frankly, we have some one-off examples where we're seeing great success up at Forzani, for instance, and one of their chains is a SportChek chain. They're seeing it as one of their top-selling styles that they're seeing in their entire store. So at $58, they're really breaking new ground with doing that. And again, it just goes back and underscores that message. If we bring great innovation to the table, we have a terrific platform that the consumer is comfortable with exposing. And again, we're the beneficiaries for that. We've had some conversation out there about what we're most excited about going forward. And I think footwear probably comes to mind, first and foremost. We've got a great new introduction that we'll have this summer with the new midsole technology that is yet to be introduced specifically. So more to come on that. But I think that our distribution is very excited about it. We have terrific buy-in from some of our key partners, like Hibbett Sports and obviously, all of our big partners from Dick’s to Sports Authority and Foot Locker across the board. So we're winning there. We're beginning again. We're not declaring victory, but we're certainly in a much bigger and better position. And all that comes back to the team. I've used this 2-year cycle, and so when people see things, they sort of have immediate reaction to it. It literally takes us 2 years to react to that to put it in the market. And so a lot of these things, we were biting our lips on a couple of years ago. We're putting the team in place, we're putting the systems in place. We're putting the design in place for us to be able to have something that comes out and articulates for the consumer in a way that they're voting for us. So I think that our performance this quarter is pretty indicative of a lot of those things working. And more excitedly is that we've been constantly doubling down the investments that we've been making since the last 2 years as well. So as I mentioned earlier, our product pipeline is certainly full.

Operator

The next question comes from Kate McShane with Citigroup.

Kate McShane - Citigroup Inc, Research Division

My two questions for you. One, focused on inventory. It was really encouraging to see the inventory level this quarter. And I wondered if you could walk us through how you were able to work through some of your inventory over the last quarter. Obviously, you have your built-out outlet chain, which helped. But are there any other channels you're using or saw more success over -- from reducing this inventory?

Brad Dickerson

Yes, Kate. Really, Q1 for the most part probably came in a little bit better than we anticipated. But again, we were guiding towards the growth rate to come down from growth rates last year. I think when you look at -- probably the 2 metrics you'd look at is the excess inventory that we created during the first quarter and the excess that we sold during the first quarter. And both of those metrics came in a little more positively than we had originally planned. So we created a little bit less excess than we thought, and we sold a little bit more than we thought. But the big driver of the sales of that is really our Factory House store base. There's -- we do use some other channels, and we've talked about them in the past. They're relatively minor to our overall mix of our revenues. The Factory House base for us is the primary driver of excess sold. So as we talked about for the rest of this year, relative to inventory, even though we had some positive developments in Q1 with the sales of excess, we're going to be leaning a little bit heavier on the Factory House in the back half of the year relative to moving excess inventory. So even though we saw some positive developments, more of that's going to be in the back half of the year.

Kate McShane - Citigroup Inc, Research Division

Okay, great. And then my second question, it goes back to international discussion. And I know it's early days, but with Dick's investment in JJB Sports, I think you already have some representation there. Is there any indication of how this could impact your business over the longer term in the U.K.?

Kevin A. Plank

Yes, let me use this opportunity just to give you a little more detail on the international business as a whole. So today, Under Armour is doing business in 61 countries. So today, as we think about what's our opportunity as we're looking at growth, and I cannot but start this with, we're so excited about our new leader that we have in Charlie joining our team. And what he is going to be able to bring to us, as, most importantly, to help us evolve our culture from a very U.S.-centric brand and continue to underscore the fact that our opportunity is global. And so we have a really good person we think that is, again, can do a great job for us. But as we think about the way we're prioritizing what we'd like Charlie to do for us is, it's first and foremost, it's to help us continue to build out our operational excellence and expertise. Secondly, we think that e-commerce is a huge opportunity for us because if you look at a brand 10 years ago, thinking about going international, the opportunities that exist today are far different than the opportunities that a brand had as recent as the last decade. And so we don't think that the book has been written on the way that we have to go global. So we're going to look at a lot of different opportunities. And of course, we're going to use some of the existing opportunities that others have done before, but I think there are some ways for us to be pretty creative and pretty innovative. The international experience or what we're doing in Europe, Dick's is our #1 partner here in the U.S. and JJB is our #1 partner in the U.K. And so obviously, it's a natural fit. We think that there's a -- it's not a great market in the U.K. today. It's extremely promotional. It's very discount driven. The brands are rarely full priced. And we think, frankly, that knowing the mindset of Dick's Sporting Goods and specifically Ed Stack, that the leadership and the point of view that they will bring to that business is only a major positive. So we're very excited. We're very excited of linking up and partnering with JJB and all the entities that, that will mean in the future. But they're good people, and we think there's a great market that's available there. It's just not a great market today.

Operator

Our next question comes from Omar Saad with ISI Group.

Omar Saad - ISI Group Inc., Research Division

Kevin, wanted to ask you about the Olympics. I haven't heard you guys say much. I know in the Winter Games, Under Armour brand has been pretty prominent historically, especially in the last one. Anything up your sleeve for London this summer we should keep our eyes out for?

Kevin A. Plank

Well, first of all, the global events are going to continue to become a larger part of our mix as we grow internationally. But think about just 4 years ago, when Beijing took place, Under Armour was a $600 million company. Since that time, we've added nearly $900 million in revenues. And we did it without an Olympic presence. So all that being said, we'd love to be in the Olympics but these are things that take time. And so we've had our team add it, and as we continue to think about ourselves and project ourselves as a much bigger, broader or better brand in the future, the Olympics will continue to become added importance to us. This year though, we, of course, have great athletes with Michael Phelps going back to become the all-time leading medal winner in the Olympics. Chris McCormack, 2-time Ironman world champion will be participating for Australia in the Men's triathlon. Natasha Hastings who won in Beijing as well as American sprinter, Alicia Sacramone on the gymnastics team. Lauren Cheney in soccer. So we have athletes, and we'll have presence in London. But I think that we're staying away from that 3-week span and saying, there's other ways for us to invest our money, and we are looking forward to Brazil. And we're looking forward to the years to come in front of that. Also, it's timely that it happens in London, the announcement of our Tottenham Hotspur relationship is something that's a big deal. That deal commences July 1, and the team will be making a U.S. tour amongst other things. But more importantly, they have that huge presence in North London. And being in the EPL and what it means to be in and be a part of premiership is a very big deal for us. So I think you'll see, without tipping our hats too much, you'll see some exciting things about the launch around Tottenham and what we're doing, upgrading some pretty exciting storytelling, utilizing the assets that we have to talk about and explain our technological benefits that we have in our product and in the kit that you'll see there. So, we certainly won't be quiet, but we're not a ring sponsor yet either.

Omar Saad - ISI Group Inc., Research Division

Great. That's helpful, Kevin. And then can I also ask about the Charged Cotton and the cotton programs? Last year was the first year, we're into year 2 now. I think it was mostly, there was a lot of basic products out there. How is that evolving? Are taking that kind of fabric technology to new categories and styles? I know you had some issues on the Women's side as well. For those of us who think it could be a big opportunity, really big opportunity. And I know you guys have talked about the closet and the T-shirts business, especially for Youth today and the graphics piece, but where are we in that evolution and how far have you come and how much more is there to do on that cotton business?

Kevin A. Plank

One of the things that has really driven our business, Omar, is these core basics. These franchise programs that we have. Again, a $25 HeatGear full T-shirt, $50 ColdGear mock. And so Charged Cotton had the exact same intent as that, what we've built with the $20 and now the $23 price point with Tech Tee. And so launching Charged Cotton at $25 is that we want to get in that key item and we wanted to demonstrate that we could build and make it. And so we are very simplistic and very basic in our first year out. And we did it on the Men's side and it came out, and it was a great success. And the Women's side, we learned a couple of lessons that I think we were probably a little bit too basic. And so we really, we took what I call the rules off. Rules are very dangerous in a business that's growing, is that when you start putting rules in as you get bigger. It's important to have guardrails. It's important to have the guiding principles of a brand. But you have to be careful that whether it's the length of a shirt or the depth of a V-neck or anything else, there's no written rule. It's just the thing that you put on the athlete for the intended end use and you say, "What looks great?" In the Women's case, you say what looks great, what looks sexy, what looks cute? And so we're really taking a much more keen eye to doing that. And I think you saw us recover in year 2 with the relaunch of our Women's Charged Cotton. And, frankly, the sell-through is proving out that, that actually works. So we're very happy about it. We've taken some of the rules. It doesn't mean that the Women's shirt needs to like the Men's shirt. We also started with it because it was a new manufacturing process for us with getting into cotton is that we didn't have the experience with many of the manufacturers. So now that we're in year 2, heading into year 3 of this product, we can become much more sophisticated. So we're going from just one basic weight into multiple weights. And so from just one T-shirt into multiple styles that you'll see about cotton. So we believe that cotton is a huge platform for our business, and one that we can probably have one of the biggest upsides for us. So we share your excitement, your enthusiasm. And I think the consumer's demonstrating that too. They're just saying give me something that looks great and when you tell me that it has the Under Armour seal of approval, the Under Armour guarantee that it will work and do something and will perform, and as well most importantly probably, it will look great and at the same time, we're going to win.

Operator

Our next question comes from a Dan Wewer with rate Raymond James.

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

My, 2 questions. First, looking at the revenue guidance for 2012, it appears that you're expecting a rate of revenue growth to decelerate during the next 3 quarters compared to what you achieved in the first quarter. And then further digging in, it looks like your wholesale business is slowing [ph] to around a 15% rate year-over-year. Yet I would think that the inventory levels with your key retailers are probably a little better shape than they were 3 months ago. So just wanting to see if you could talk about why you would think that the rate, or that revenue growth would decelerate rather than improve?

Brad Dickerson

Let's go back a year and look at what year-over-year, some of the changes that we have talked about 3 months ago, too. Obviously, from an accessories perspective, obviously, coming in-house last year was part of our growth rate last year. That being the case, when you focus more just on the apparel side of the business. Remember from a Factory House growth perspective, there's a big data point there, too. As far as the percentage growth in doors year-over-year. So I believe we grew our doors about 50% last year in 2011 in increasing doors. And this year, our guidance with new doors is probably about a 20%, 25% growth rate in new Factory House doors. So that, obviously, has a play in the growth rates year-over-year, especially in the apparel side. And also Charged Cotton launched last year, I think, so you have that kind of, first, kind of input of Charged Cotton into the marketplace last year. And, obviously, as Kevin spoke about, we're taking that to a few different places and growing it this year. But there is an impact year-over-year of putting that marketplace as an introduction last year and growing that this year. So those are probably the biggest drivers of the difference in growth year-over-year, and they were all anticipated and planned for and we've been talking about those for a while.

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

In your financial disclosures, you breakout the revenues from customers, A, B and C and assuming customer B is Sports Authority, there's been a fairly meaningful deceleration in your business from TSA. Do you think that's actually having a meaningful impact now on your wholesale growth?

Brad Dickerson

We had talked about, again, prior about the management at the retail level of inventory and so forth. And obviously, you do see some changes with some of our larger customers and how they're managing their business and going forward. That was built into our guidance, again, earlier in the year. So from a Sports Authority perspective, they're still a great partner of ours, and they're still, obviously, a very large partner of ours. And although they're going through some things right now in looking at their business, we are still growing our business with Sports Authority.

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

And just a final follow-up question. If you could on Footwear, talk about gross margin performance. I know that is an inherently lower margin business than apparel. Margins on Footwear probably even lower than where you would hope that they would like to be. But if you could talk about what kind of trends you're seeing in that category now that the sales trends are beginning to ramp better?

Brad Dickerson

Yes, probably the most positive thing on the Footwear side for us, and this is kind of built into -- I didn't want to get that into the little nitpicks of the puts and takes in the quarter and the puts and takes for the rest of the year because the major story around gross margin is really relatively the same, so we said before. But one maybe positive thing that was unplanned for in Q1 from a margin perspective was inventory reserves related to Footwear. And that really stems from the fact that our baseball cleats sell-through was so strong in the first quarter, above our expectations. And cleated footwear's been an area in the past we've had to take inventory reserves on just because of the more -- they're more challenging to liquidate. So that strong sell-through with baseball cleats enabled us to not have to put reserves on the books that we maybe had planned for relative to baseball cleats in Q1. So I think that's probably the most positive story around Footwear. Overall margins in Footwear, as we've said over the years, they will continue to get better as our volumes get better, in general. And as our mix shifts more and more towards non-cleated, they would continue to get better and absolutely you started to see in our business over the last couple of years as overall growth in the business. And non-cleated starting to take more and more bigger percentage of the overall mix. So if we keep doing that going forward, the margins will keep heading in the right direction for Footwear.

Kevin A. Plank

Dan, thanks for asking about Footwear actually. If you don't mind, let me jump on that because I'd like to just, I'd like to go a little deeper there, if we could. So -- topic as it gets. So our thinking about Footwear again, we preach this patience model about our Footwear business. And as I've said, we're not declaring victory. Our goal that we have is that Footwear will match the thought leadership that we continue to demonstrate on the apparel side of our business. Two years ago, we made a few changes here and moved some people around. And Kip Fulks took over our product function. And we sat down and we talked about -- Kip's my original partner. We said, "What do we want to do?" And we said, "Plain and simple, let's put a dollar amount to it." We said, "Let's sell shoes above $100," which means it's going to be innovative. It will be creative, it will be thoughtful. It will be something that the consumer hasn't seen or can't get from anyone else. And so in doing that, I think we're very proud of some of the successes that we've had. Launching the Charge RC on the running side of our business, what that means. The new midsole technology we'll have out this summer. It's a $100-plus product as well. On the cleated side, as Brad spoke about our baseball business and what's happened there, it's great and it's something, which is an indicator. Again, we grab significant market share again this year, continue to squeeze the smaller competitors out and continue to align ourselves up to make sure that we are going -- that we're beginning to go head-to-head and more importantly, we believe we can win when we take that head-to-head battle. So this fall, you'll see us do it. I mentioned the Highlight cleat, this is a $130 football cleat that we put out this past Tuesday or Wednesday, and within a couple hours, our website was sold out. You had people blowing up the blogs, asking where they could get more. Could they paid more money for them? It's the kind of hype and excitement that, frankly, we haven't seen around our Footwear business. And so while we can say "well, that's just our cleated category" or something else, cleated is a 6-year old, or football cleats specifically, are a 6-year old business for us. As we sit here, looking at running, which today is 3 or 3.5-year-old business, what we're telling you is that there are good things come on the running side, too. We're going to continue to create that momentum and create that excitement throughout all of our Footwear with things like visible Footwear technologies that are important. But finding that right cadence of product flow is something where, we're not putting it all out there at once. What you'll see is when we took that reset back in 2009 into 2010, that we moved positively forward in 2011 we're moving positively forward throughout 2012. And you'll continue to see us move positively forward into the near future as well. We've had some great partners that have been very supportive of what we're doing. I mentioned Hibbett Sports before. Academy has been a terrific partner for us, as well as, of course, the big guys have been great, from Dick's and Sports Authority to Foot Locker and Finish Line, of course, who's been a great partner for us. So we had some -- we really have a great opportunity. It's about us executing, about us putting the right products in the right place and giving the consumer a chance to vote. But this is not just us showing up with a shoe and putting an Under Armour logo on it and hoping the consumer likes it. This is us coming with innovative technology, things like the Highlight cleat that Cam Newton and many others in the NFL this year will be featured and will be wearing. It's going to be a very exciting product for us. So we think it's a lot of good things to come, but we'll do it the right way with the right cadence.

Operator

Our next question comes from Taposh Bari with Jefferies.

Taposh Bari - Jefferies & Company, Inc., Research Division

Kevin, I wanted to ask you a question about full priced retail. I know you guys have 4 stores, along with a mountain store in Vail and then the one out in China. But as you see the brand evolving, as you tell more of a story built more, even more on technology, raising that price envelope, catering more to that female customer, do you feel like Under Armour needs the full price retail store at some point to really get to that next level, whether that be with that female customer or internationally? Just wanted to get your thoughts on the vertical model at the full price level?

Kevin A. Plank

Sure. Well, our distribution has been terrific to us. And there's no lack of a wanting or willingness to put these big programs. It's things like E39 that we featured at the NFL Combine. And again, you'll see our partners skip behind and tell, but the challenge we always have is what's the depth of the storytelling that's available. And so that's always difficult through translation, but we're focused on utilizing, first and foremost, our existing distribution and leveraging them and allowing them to leverage us into great partnerships that will drive the traffic and sell some of our other not quite as big stories. So we've now, from a factory outlet standpoint, we've got 84 stores today. As we said, we expect 95 to 100 by the end of the year. So we're adding there, and again, unfortunately, in a lot of cases, that becomes the most comprehensive experience that a consumer is walking into an Under Armour outlet. And so we are working fast with our existing distribution to continue to build out these shops. I was just in Chicago a few weeks ago in the Dick's Lombard store, which is probably one of the most comprehensive Under Armour brand experience that you can find. Or up at Roosevelt Field in New York. So we are building out shops, but we're doing it at the right pace. We have a great -- we provide a great experience for our consumer, a consolidated Under Armour brand experience built on our website and what we're doing in stores. And so we have the 4 stores today. We just opened that new concept in Vail. Again, the stores are doing very well. The consumer's asking for more from us. But at this time, we'll continue to support, we'll continue to look for places. And frankly, this isn't -- there's no one hard answer here. The last thing we want to do is trade dollars. And so if anything, what we do will always be additive and always be supportive. And so where our distribution will give us the brand storytelling that we've acquired as a company, we think that we're going to win there. So we believe that there's more opportunity. We believe that we have a lot of different options, we have a lot of different levers that we can pull. But right now, we're driving 20-plus percent growth with the partners that we have and we're very happy about it and so are they.

Taposh Bari - Jefferies & Company, Inc., Research Division

Got it. I appreciate that color. And the second question I had was, hearing a lot of focus or commentary on the call here on innovation and the customers' willingness to pay for a better product. So within, I don't know if you guys care to comment, but within that 23% revenue growth that you had in the quarter, do you care to comment on how much ASP contributed to that? And within that, assuming there's obviously a piece of new higher-priced introductions like ColdBlack and Under Bra versus just like-for-like increases from higher product cost, if you can comment on that?

Kevin A. Plank

Armour Bra. I just drew up on that data plan, ASPs in general. We had talked about raising some prices, MSRPs, in Spring/Summer '12 anyway, again, to kind of offset some commodity price pressures that were generated from last year. So I think in general, the ASPs are up in the low- to mid-single digits, in general, which is consistent level with what we've been saying for the last 6 or 9 months or so.

Operator

Our last question comes from Mitch Kummetz with Robert Baird.

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

I'm hoping just to get a little more, Brad, hoping to get a little bit more color on just the sales guidance for the year. And then just starting to think about Q2. Q2's your toughest year-over-year quarterly comparison, but we've gotten off to a good start this spring season with warm weather. And I'm just wondering I was hoping you could comment on how important are reorders to you guys in the second quarter? Are you seeing retailers kind of lean on inventory because we've gotten off to this good start to spring? And kind of what does that mean in terms of the revenue opportunity in Q2 off of a tough comparison to last year?

Brad Dickerson

Mitch, it's again, in our business, the opportunity for upside comes from our auto replenishment business for the most part. So again, as long as we see some positive sell-throughs on our auto replenishment product during Q2 or any quarter for that matter going forward, that's where our upside is because our seasonal product is relatively booked and there's a lot less upside there for the most part. Our cadence of revenues is pretty much unchanged from our previous guidance relative to how it looks quarter-by-quarter compared to last year. So there shouldn't really be any surprises there relative to revenue top line growth. And again, the opportunity really is on auto replenishment sales and sell-through. Now, our auto replenishment business is a little more heavily weighted towards the back half of the year as we get into the ColdGear product, too. So Q2 and Q3 probably have a little bit less upside opportunity than Q4 does relative to ColdGear.

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then speaking of the back half of the year, I mean can you talk about how the fall backlog has come in and maybe speak a little bit to the composition of that backlog? Are you seeing any real difference in terms of pre-booked orders between kind of the more cold-weather dependent part of your business versus the part that's less cold-weather dependent on fall orders?

Brad Dickerson

Well, that's one thing we've done a really good job over the last few years is we've become less basic, less dependent on weather. So even though everybody was talking about some of the challenges in November through February relative to weather and cold-weather product -- and we obviously saw some of those challenges, too, relative to our ColdGear product. The good news is we were able to offset that with some strong performance in some more [ph] versatile product like our fleece products and so forth. So the ability for our fleece to perform very well in the last few months of last year and early part of this year, enabled us to get probably better -- some better booking orders in the back half of this year than we'd originally anticipated, and that was built into our top line coming up a little bit in our guidance.

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

Okay. Let me squeeze one last one in, if I may. Just curious on the Tottenham opportunity, the partnership there. I mean it's a great partnership. Is that where you're seeing the marketing spike on Q3 is getting behind that partnership? And what do you think of that opportunity just from a revenue standpoint. I mean there's a commercial opportunity there as well in terms of selling jerseys once that kicks in, in July, right?

Kevin A. Plank

Yes, that was -- we're not a licensed jersey-selling company. We're seeing that, and we had that opportunity, for instance, with the recent NFL deal. And we have a great partnership with the NFL. Actually, if you check out Sports Illustrated, you'll find out what we are doing with the NFL is outfitting the Combine. And actually, one of our athletes is on the cover, one of our Combine athletes is on the cover of Sports Illustrated wearing one of the shirts we did for the NFL Combine back in February, March. And so finding ways to leverage opportunities that way is that we weren't about the jersey sales, but we're more about how do we tell and use it as platform to sell great technological stories like our E39 that we use. The Combine will be a platform for us to help us tell that story. So Tottenham won't be very different. Yes, there are jersey sales that come with it, but that wasn't the driver behind why we did the deal. And so we want to help them optimize and maximize their jersey sales. And we think it's, again, they're still staring at a pretty good opportunity at finishing the top 4 this year, which would be a huge windfall for us. But the marketing effects -- one of the things we have to be careful about is getting into many of these long-term deals is that our competition is out there and they're signing these teams up for long-term licenses. And again, the idea of a kid driving around in a Ford Explorer and convincing teams to wear our logo out on fields just doesn't exist anymore. And so, these deals are now done with the presidents and the A.D.s and others. And so, fortunately, for Under Armour because of our growth, we're now in a position to be competitive there, and frankly, to win there. And so with some of the great collegiate properties we have here in the U.S, our relationships with the NFL, our outfitting of Major League Baseball, our recently announced deal with the NBA, our recent deal now with Tottenham Hotspur. And as I mentioned, you'll see us on the Olympics side, but we're not trying to keep up with anybody. Again, we can be the best Under Armour we can be by staying within ourselves and executing. And whether it's retail doors, whether it's new distribution from a sports marketing. We think we have a really great game plan. We think that the growth driver, the fastest of the growth drivers we've talked about all along since our IPO, Men's apparel, Women's apparel, Footwear, International, Direct-to-Consumer, we're lucky to have the ability to pull on each one of those levers when it makes sense. And I think that Q1 for us was another great example of our doing that. So I think you're seeing a more mature Under Armour. You're watching us grow up a little bit. And we're very proud of the company we have. We're very proud of the team of people that we have working toward it, and we're very proud of the performance that we continue to demonstrate for our shareholders.

So with that, I think we'll end it. We thank you guys very much for the time today.

Operator

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

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