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Under Armour, Inc. (NYSE:UA)

Q1 FY08 Earnings Call

April 29, 2008, 8:30 AM ET

Executives

Alex Miyamoto - Director of IR

Kevin A. Plank - President, CEO and Chairman of the Board

Brad Dickerson - CFO

Wayne A. Marino - COO

Analysts

Jim Duffy - Thomas Weisel

Jeff Klinefelter - Piper Jaffray

Omar Saad - Credit Suisse

Dan Wewer - Raymond James

Kate McShane - Citigroup

Jeffrey Edelman - UBS

John Shanley - Susquehanna

Paul Swinand - Stephens Inc.

Operator

Good day, everyone. Welcome to the Under Armour First Quarter 2008 Earnings Results Conference Call and Webcast. Today's call is being recorded. At this time, I'd like to turn the call over to the Director of Investor Relations, Alex Miyamoto. Please go ahead.

Alex Miyamoto - Director of Investor Relations

Thank you, and good morning, everyone. I'd like to start by welcoming you to Under Armour's first quarter 2008 earnings call. During the course of this conference call, we'll be making projections or other forward-looking statements regarding future events or the future financial performance of the company.

The words estimate, intent, expect, plan, outlook, or similar expressions are intended to identify forward-looking statements. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially. Important factors relating to our business including factors that could cause actual results to differ from our forward-looking statements 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 the events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Before we continue, I'd like to direct you to our website, investor.underarmour.com. There you'll find this morning's press release and on our webcast page images of a number of the products and initiatives we will address on the call.

Now I'd like to introduce the speakers and topics for this morning's call. Kevin Plank, Chairman and CEO will address the drivers of our first quarter results and our strategy for continued growth in 2008 and beyond; Brad Dickerson, our Chief Financial Officer will then discuss the company's financial performance for the first quarter and provide an outlook on key balance sheet items; Wayne Marino, Chief Operating Officer will conclude the prepared remarks with an updated outlook for 2008 financial projections. After that we'll have a Q&A session that will end by 9:30.

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

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Thank you, Alex, and good morning, everyone. Today I'd like to talk about industry leadership and how we are using our position as the athletic brand of this generation to ensure that we are building large skillful businesses that will help drive growth in our industry for years to come. Industry leadership for Under Armour means several things. First, it means being a leader in driving sales both for Under Armour and for our retail partners.

This past quarter we continue to outpace the market in revenue growth and retail sell through. I'll give you the meaningful numbers on that in a moment, but know that our business is strong. Second, industry leadership means understanding where market opportunities exist and driving growth in those categories both here in the U.S. and across the globe. And third, industry leadership means taking the athletic consumers someplace new and recreating categories as we are doing with Performance Training Footwear. We believe the long awaited footwear debut were about to make this Saturday, May 3rd, will not only bring light into the long dormant category of cross training but also deliver excitement to the athletic shoe category and sporting goods as a whole, the lights of which has not been seen in nearly a decade. For Under Armour, this leadership requires the appropriate level of investments, to drive industry growth and excitement and equally important to deliver long-term benefits to our shareholders.

I'd like to briefly address the first topic of driving sales growth. Wayne and Brad will provide more detail later, but the key take-away is that we continue to outperform the market in athletic apparel growth and continue to lead the ship from cotton to performance.

Our apparel category grew 25% in the first quarter. Men's was up 20%, Youth, up 29%, and Women's, the Under Armour Women's business was up 36%. We also reiterate that full-year 2008 revenue growth will be in the 26% to 28% range. Most importantly, we believe our proven ability to drive growth within existing categories and the power that our brand gives us in our new categories such as Performance Training Footwear gives us confidence to continue to invest in the growth opportunities we see for this year and beyond.

Two existing areas that we have identified as key growth drivers are Women's and Direct-to-Consumer, which includes our outlet stores, our website, and our branded store in Annapolis. From a short-term perspective, I'm pleased to report that both of these two businesses showed large increases year-over-year in Q1. In Women's, we proved once again that we are moving beyond being just the compression brand for female athletes. We believe our connection with the female team athlete and our focus on innovation has provided the opportunity for Under Armour to lead the industry.

In Q1, we saw enthusiastic consumer response to our stronger color palettes and a strong retail sell through in Women's, including some of our key fitness items retailing in the $60 plus range. Our Women's Training revenues were over 30%, we saw strong sell through on our Sport Bras. It's important to note that our strength in Women's from a distribution perspective span across-the-board from our national sporting goods retailers like Dick's Sporting Goods and the Sports Authority to regional partners like Modell, the Cavany, and Hibbett to our business at [inaudible]. Our Direct-to-Consumer net revenues were exceptionally strong in Q1, which we believe is the direct reflection of two key measures, the strength of our brand and the positive impact from our new prototype campaign.

From a brand perspective, we believe the 57% growth in our online revenues is tied in part to the growing loyalty of the Under Armour consumer. Our core consumer has grown up shopping online, and we've recognized early last year that upgrading both our product assortments and our Web capabilities was essential if we are going to continue to grow with our consumer.

Our online presence from the content for athletes for the shopping experience is a key measure for today's consumer. We have built brand loyalty on field and we have begun to build it online as well.

The third area where we believe it's our responsibility to show industry leadership, and probably the most critical for our long-term growth is in new categories. Whether it's creating the categories we deal with compression or reinventing the category as we are doing with Performance Training, our proven ability to bring consumer some place new and create excitement for both our retail partners and our consumer is at the core of what we do. And I think there is no better evidence for this ability than the launch this Saturday of our Performance Training Footwear.

While media has been playing a major role in priming the pomp for the past few months, the Groundswell has been growing in true Under Armour fashion in the field. It started with the Under Armour High School All-American Football Game on ABC in early January, and it continued with the Under Armour Senior Bowl, the true showcase of the top NFL bowl seniors, and shortly after unveiling Under Armour footwear to more than 100 million viewers who tuned in the highest rated super bowl in history, we saw our Web traffic more than triple any of our holiday peak periods.

The interim results for the initial phase of the launch came through as our apparel sales increased online and in-store as thousands preordered their pairs to make sure they wouldn't miss outcome May 3rd. And for all you folks in the call of preorder, thank you for your business and you'll see here in just a few days delivered right at your doorstep. All along we have been on the road, testing the shoes of high school players of the Under Armour football combine. These combines held in 15 cities across the country at NFL facilities host the same type of best athletes and team leaders who told us 18 months ago that there was a lack of true training footwear out there.

Now we have several hundred of these athletes in every city we're stopping, trying out the shoes and providing invaluable feedback before heading back to school to spread the word about the new Under Armour Training shoes. Meanwhile, members of Senior Management, myself included are hitting the road in checking up sales staffs in the shops we’ve built within our biggest retail partners. Sales teams as large as 100 associates or more are now armed with digital downloads of the commercial interactive technology displays, stickers, pampers and posters based on one simple method to sell our very complex footwear technology.

Stop Training in Running Shoes. You could probably tell how excited I am about this launch. We’ve in-built the buzz around our Performance Training Footwear for five months now. The commercials have been running, the message is being told on every media platform, and we're connected with the kids on the field, in the gym, and throughout the campus. We reinvented the cross training category just because we saw the opportunity. We did so because it's that the heart of what we do well and it’s the right step for us in building a large scalable business. We have invested much to get us to this point of launching our footwear this Saturday and we need to continue to invest if we are to realize the opportunities for growth that we see in new categories and new geographies.

You heard me say it before and I'll say it again, Under Armour is a growth company, and the most exciting growth is still in front of us. We believe substantial opportunities exist in our key growth drivers of apparel, footwear, retail, and international. In apparel, you just need to look at our Women's business, which finished the quarter up 36% and still today only represents 26% of our total apparel business. From a channel perspective, we believe that there is significant wide space in the mall channel. We're currently in tough finish line doors and we'll be placing limited apparel assortments in a few stores within the Foot Locker group throughout 2008. This obviously positions us for what we believe could be a differentiated apparel approach and provides us with appropriate distribution for our largest future growth engine, footwear.

We have launched our first retail store and we will continue to test this direct distribution in multiple venues, allowing us to be strategic with where we place the brand in the future to complement our existing distribution. The best indication of our future strength is that with all of this continued growth we have only just begun to extend it to other world markets. For growing our European business authentically with the recent signings of the Welsh Rugby Union and the Hannover 96 Football Club in Germany and our Japanese business which is presently run by a licensee seems to have just crossed the tipping point with a revenue model that we expect will grow nearly 75% this year.

Meanwhile we have been able to move people from cotton T-shirts to performance apparel, from Regular Fleece to Click Clack and soon from Running Shoes in to Performance Trainers. And the good news, the greatest opportunity I'll mention this morning is that we have done all this without having sold a single T-shirt in China or India or South America, yes.

I'll finish by saying this. We're cognizant of the present challenges in the U.S. retail environment, that's a reality, but with more than 95% of our current revenues coming from the U.S. we are proud to be able to post a growth rate in excess of 25% while simultaneously building a platform businesses for our future, both domestically and abroad. As we make the transition to become a truly global brand, we're excited about the white space that lies ahead, yet remained focus on investing in our growth drivers. That means, in addition to the framework for building outside of this country, we're counting on growth from all of our engines, and of course, the successful launch this weekend of Performance Training Footwear.

Our big bucks sporting goods partners like Dick's and the Sports Authority are positioned with the shoes, and based on the early feedback, we believe that the launch looks promising. As we have stated in the past, the way that we would find success with our training launch is how we are positioned at year-end to enter additional footwear categories. This is more than a campaign, more than a new product line. We believe this launch will change the athletic shoe industry for ever. On a larger scale, we believe we have redefined once again how athletes prepare and dress for training and competition. And it's Under Armour's duty and privilege as the industry thought leaders to deliver this performance product to all athletes at all levels.

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

Brad Dickerson - Chief Financial Officer

Thanks, Kevin. I would now like to provide some information around our first quarter income statement, as well as some key balance sheet items. First, our income statement, our net revenues for the first quarter grew 27% over the prior-year quarter. This was largely driven by 25% growth in our apparel sales highlighted by 36% growth specific to our Women's apparel.

In April, we successfully implemented a new warehouse management system in our distribution center. As a result of the system switch, some of our customers elected to take shipments in March that were originally scheduled for the first weeks of April. As part of the shift and in preparation for our upcoming launch, a small portion of our new Performance Training footwear also shipped in March.

In the first quarter, gross margin decreased 110 basis points to 47.6% from 48.7% in the prior year. The gross margin decline was a result of inventory reserves primarily on excess glove inventories identified this quarter. In addition, the margin impact of Performance Trainers in the first quarter was more than offset by the strong growth in Direct-to-Consumer revenues, which had a growth rate of 77%, continues to grow a faster rate, and achieve higher growth margins than our overall business.

SG&A as a percentage of net revenues for the quarter was 44.9% compared to 35.8% in the prior-year quarter. On television, in print and in-store, our new prototype campaign has been ramping up in anticipation of our Performance Training Footwear launch this Saturday. In line with our previously announced plans, we're shifting a greater portion of our marketing dollars to the first half of the year to support the campaign and this was a major driver of the year-over-year increase in SG&A. Marketing increased from 11.1% of net revenues in the first quarter of last year to 17.8% this year. Also contributing to the increase in SG&A growth are increased investments and product innovation, employee equity compensation cost.

Our operating income for the quarter was $4.3 million compared to $16 million in the prior year. Operating margin for the first quarter was 2.7% compared to 12.9% in the prior-year quarter. This decrease in operating margin was driven by our lower gross margins and the planned increases in SG&A as previously discussed.

Our effective income tax rate for the first quarter was 40.3% compared to 40.6% in the same period last year. We benefited from a one-time true-up in the first quarter and expect our full-year 2008 effective income tax rate to be approximately 42.3%.

Our resulting net income for the quarter was $2.9 million compared to $9.9 million in the same period last year. First quarter diluted earnings per share was $0.06 compared to $0.20 in the prior year. Our previous guidance was $0.03 to $0.05 in total for the first half of the year.

Now I'd like to move onto the balance sheet. Total cash and cash equivalents at the end of the quarter were $17.6 million compared to $40.6 million at December 31, 2007 and $57.2 million at the end of the first quarter of 2007. The year-over-year decrease was primarily the result of investments in inventory and capital expenditures, which I will speak about shortly. For the full-year 2008, we continue to expect cash remain relatively flat from our 2007 year-end balance. Currently, we continue to have full availability on our $100 million line of credit facility.

Net accounts receivable increased 21% or $17.4 million on a year-over-year basis, which was below our net revenue growth for the quarter. In 2008, we continue to expect net accounts receivable to grow in line with top line growth. At the end of the first quarter, inventory increased to $167.9 million compared to $166.1 million at December 31, 2007 and $80.1 million at March 31, 2007. It is worth noting that the inventory balance at the end of the first quarter included nearly $14 million of Performance Training Footwear in preparation for our launch this coming Saturday.

We expect our year-over-year inventory growth rate to decelerate as we move through the year beginning with the second quarter. By the end of the third quarter, we expect inventory growth to be in line with sales growth, and by the end of the fourth quarter we are projecting inventory to grow at a rate below our annual sales growth for 2008. One item to note is that although we expect our year-over-year inventory growth rate to decelerate, in the second quarter, we expect our highest absolute dollar inventory balance of the year as we prepare for the start of our fall season in the third quarter. Wayne will discuss some of our inventory initiatives in more detail shortly.

As we move to capital expenditures, we always like to point out that we are building the foundation for large scalable businesses. Our investment in capital expenditures for the first quarter was approximately $9 million. Our full-year 2008 capital investments are still planned at approximately $40 million to $42 million and will include approximately $14 million in our branded concept shops and in-store fixtures, $10 million in upgrades and improvements to our information technology infrastructure, which is an increase over our previous estimate, and includes additional SAP module specific to inventory and financial planning, as well as additional investments to our website. $5 million in our upgrades and improvements to our existing distribution facilities, $10 million for the build-out of new outlets and additional full price test stores, and the remaining balance in general corporate improvements to support our growth.

Now Wayne will take you through our remaining outlook for 2008.

Wayne A. Marino - Chief Operating Officer

Thank you, Brad, and good morning, everyone. Before I discuss our outlook for 2008, I would like to spend a few minutes on our inventory strategy. Kevin spoke earlier about the strength of the Under Armour brand. The brand connects with the consumer even in the face of a difficult economic environment and all of us in the organization are focused on protecting and growing this brand.

One component of this is controlling the presentation of our branded retail. In order to more quickly address current and future seasonal excess inventory, we have put a plan in place to sell more of the seasonal excess product through our own outlet channel. As a result of this strategy, we have lowered our target gross margin for the outlets. Doing so allows us to move units through our existing outlet base at a faster rate, but having a negative impact on our full-year gross margin outlook in 2008.

I should point out that our outlet gross margins are still well above our overall company gross margins. In addition to this tactical decision to more efficiently sell our excess seasonal products we are now planning to open nine retail outlet stores in 2008 as compared to our original plan of five stores.

The combination of this outlet strategy along with the initiatives we already have in place to reduce the safety stock levels on core auto replenishment items is expected to result in a slowdown in the rate of inventory growth as we move throughout the year. In addition to these tactical initiatives I just outlined, we are at the same time putting measures in place to improve our operational efficiency. Specifically we are putting systems and processes in place to improve our production planning process. We have recently implemented an S&OP or sales and operations planning process that gives us added visibility and control to better manage our inventory. This process allows us to better link the forecasting and sales sides of our organization with the production planning functions. To complement this process, we are also investing from an IT infrastructure perspective.

Coming off the heels of a successful warehouse management system implementation, we have also invested in SAP’s inventory and financial planning modules. The combination of new internal processes and new technology will help us operate faster, smarter, and more efficiently as we continue to strive to be a great growth company coupled with strong operational efficiencies. We have confidence in the skills and talent of our team, and we believe the approach we are taking will not only allow us to achieve the inventory targets, Brad, outlined earlier, but also lead to greater inventory efficiency in 2009 and beyond.

Now I'd like to move onto our outlook for 2008. First, I would like to remind you that our long-term growth targets remain at 20% to 25% for both our top and bottom lines. As you can tell from our first quarter results, the Under Armour brand continues to resonate. Even with over 96% of our 2008 revenues coming from a challenging retail environment in North America, we continue to be a growth leader in our industry. We are able to do this because consumers are still trading up the performance products and so liking our brand. As a result, we are reiterating our 2008 full-year net revenue guidance of $765 million to $775 million, which represents 26% to 28% growth over 2007.

The outlook for our strategic growth initiatives remains the same. We continue to expect our Men's apparel business to grow in the range of our long-term growth targets of 20% to 25%. Additionally, our Women's and Youth businesses are expected to grow at an even faster rate, much as they did in the first quarter.

As Kevin mentioned, we are preparing for the launch of Performance Training Footwear this Saturday. We continue to project this to being a 1 million-unit program in its first year. But what is most exciting is the opportunity we see to grow this category of positioning us to introduce additional performance footwear categories in 2009 and beyond.

We remain excited about the opportunity in Europe and the progress we're making in diversifying our account base, which has grown to over 1,700 doors. From a distribution perspective, we continue to focus on authentic, sport-specific distribution, and our goal with big bucks specifically is to further develop our share of shelf space with existing partners. Additionally, we recently announced signings with the World's Rugby Union and Hannover 96, a German soccer league club. These sports marketing deals are our first official kit supplier deals in Europe and they give us an authentic presence on field in two of our key markets, the UK and Germany.

Given the retail component of these deals, we believe these signings are sound investments. However, some of the best reactions we've gotten is from our customers who have shared their excitement about the impact that this kit have on our brand presence in Europe. While our international revenue in the first quarter was impacted by one of our major accounts in the UK, we continue to expect our rate of top line growth internationally for 2008 to outpace the company's overall year-over-year growth rate. I want to point out that international is in an investment mode and we are willing to be patient to grow this business for the long term and be authentic.

Our Direct-to-Consumer channel continues to be a strong performer across the board. Whether you are talking about the web, outlet or the single full price tester we have in Annapolis. We continue to believe in the opportunity this brand has to communicate and connect directly to the consumer. For 2008, we are planning to test at least two additional full price retail stores.

For the first half, we continue to project top line growth in line with our full-year growth targets of 26% to 28%. Based on the updated outlet strategy I laid out earlier along with the gross margin detail, Brad provided regarding the first quarter, we now anticipate our 2008 full-year gross margins to be approximately 50% or 30 basis points lower than 2007. We expect any gross margin impact from the increase in footwear to be largely offset by the growth in Direct-to-Consumer business.

We will continue to make investments to drive the growth of the brand in 2008 while also investing in initiatives that will drive our long-term growth. Part of what has made this company great is our belief in the opportunity of this brand and our willingness to invest to capitalize on that opportunity. And for 2008, our plans have not changed. Consistent with what we have stated the last two quarters, we're still planning to invest at the high end of the 12% to 13% of net revenues for marketing in 2008.

This investment will support the launch of our Performance Training Footwear, the installation of additional concept shops and also encompasses our most recent college signings in the U.S. and our professional team deals in Europe. This 12% to 13% of net revenue range although in line with our previous outlook is higher than 11.7% of net revenues we invested in marketing for the full-year of 2007. However, we still expect to offset much of the increased year-over year investment in marketing by leveraging certain fixed components of our SG&A.

Therefore consistent with our previous outlook, we're anticipating a 40 basis point increase in SG&A as a percentage of net revenues for 2008. Although our top line and SG&A investment outlook remains the same, the impact of gross margins I mentioned earlier results in a revised outlook for the income from operations. We now believe 2008 income from operations will grow 20% to 21% for a full-year range of $103.5 million to $104.5 million. For the full year, we now estimate our effective tax rate to increase to 42.3%, up from the previously projected 41.6%. Our weighted average diluted share count is still estimated at 50.5 million to 51 million shares.

We are excited about the future of this brand and the opportunities as available to us in apparel, footwear, international, and Direct-to-Consumer. For 2008, we will remain focused on executing our plans to drive growth while laying the foundation for growth in 2009 and beyond. While our business environment may change, our belief in our brand opportunity does not. This belief drives our conviction to make an investment in our business each and every quarter, each and every year.

At this time, Kevin, Brad, and I would like to open the call for your questions. We ask that you limit your questions to one or two per person, so we can get to as many of you as possible. Melissa?

Question and Answer

Operator

Thank you. The question-and-answer session will be conducted electronically. [Operator Instructions]. And we'll go for Jim Duffy with Thomas Weisel.

Jim Duffy - Thomas Weisel

Thanks. Hello, everyone.

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Good morning, Jim.

Brad Dickerson - Chief Financial Officer

Good morning, Jim

Jim Duffy - Thomas Weisel

Can you guys help me out and kind of itemize the factors that are resulting in change of the gross margin guidance? As I hear you're talking about your outlet revenue being higher margin and increasingly, the number of outlets that you are having kind of countering into the gross margins are going in the opposite way?

Brad Dickerson - Chief Financial Officer

Yes. I think... Jim, this is Brad. As what you've said, two things really are causing that. One was the first quarter results. And two on the outlet side it was more or less what we anticipated the outlet margins to be in our original outlook compared to our change in strategy a little bit to push more units through the outlet at a lower margin. So it's not more or less the year-over-year outlook on the outlet business as much it is a change what we expected.

Jim Duffy - Thomas Weisel

Okay. And Brad, can you detail what the write-down on the gloves was, and where do you see the inventory reserves at the end of the first quarter?

Brad Dickerson - Chief Financial Officer

Sure, on the excess glove issue, Wayne talked about some of the initiatives that we are working through to fix our processes going forward, to improve our processes going forward. And a lot of these improvements are going to have positive effects on some of these issues, like the excess gloves. But in this issue is really around the fact that there was some capacity issues at our factories that manufactured these gloves, and what that did is it caused us to have to order these gloves to a sales forecast. It really didn’t have bookings behind at that time because in the capacity issues, we are ordering low demand. As we have more visibility into the sales number and bookings, that sales forecasts came down after a lot of the items were built already. That really caused us to have some excess gloves over and above what our sales forecast was a better visibility. Typically, we would use our outlet strategy to liquidate some of this excess inventory, but this is a kind of item. It doesn’t move very well through outlet. So we'll continue to attempt to work the balance of these items down through a normal channel going forward.

Jim Duffy - Thomas Weisel

What was the impact in the first quarter?

Brad Dickerson - Chief Financial Officer

On the inventory?

Jim Duffy - Thomas Weisel

Yes.

Brad Dickerson - Chief Financial Officer

While, if you think about just three things...

Jim Duffy - Thomas Weisel

On gross margin actually, Brad. And then question on where you see the inventory reserves?

Brad Dickerson - Chief Financial Officer

Okay. As far as the effects on gross margin in the first quarter, pretty much the whole difference in the quarter year-over-year was due to this inventory reserve, because the Training Footwear and the positive impact of the Direct-to-Consumer pretty much offset each other. That's first of all. Second of all, as far as inventory reserves go, our inventory reserves, if you remember, with our outlet channel and the apparel side of our business, there is a lot less in a need for inventory reserves on our apparel business, because we have a good avenue to liquidate that product. So most of our inventory reserves that we have right now would be for specific things that we would think would be difficult to move through outlet channel, like the gloves.

Wayne A. Marino - Chief Operating Officer

Jim, this is Wayne. Our outlet strategy has not changed. The strategy is in place to move through seasonal excess inventory. So in the past I talked to you about our core strategy, and our strategy around core has not changed. Our core product right now sell-through it full price and we have been on a plan to reduce the number of weeks of safety stock in our core product. And we're continuing to do that successfully. I think one of the drivers toward reducing our inventory to a lower level that Brad mentioned by year-end is achieving that initiative. In terms of seasonal excess and this is one of the reasons why we don't have an inventory reserve that we would increase is because the outlets channels, that's the sole purpose of their existence. But there was the glove issue and this glove issue was something that didn't come up in the quarter, we addressed it immediately. So, we feel like right now we've looked out for the year and wouldn’t need to make any further adjustments to inventory reserve.

Jim Duffy - Thomas Weisel

Okay. Very good, thanks.

Wayne A. Marino - Chief Operating Officer

Okay.

Operator

We will take our next question from Jeff Klinefelter with Piper Jaffray.

Jeff Klinefelter - Piper Jaffray

Yes. Thank you. My question is on sourcing. If you could just update us on your current sourcing structure, I know a few quarters ago, we were looking at shifting some of that here back over to Central South America and just wanted to know, where we stand today, how much of it is actually coming in China. Any sort of trends you are seeing out there in the inflation of your product, either the petroleum based nature, or more importantly just inflation coming out of the country, the FOB destinations?

Wayne A. Marino - Chief Operating Officer

Jeff, hi, it's Wayne. Yes, first of all, good news is that for 2008 our sourcing group has locked in the prices. So I feel very comfortable that for 2008 what we have planned, what we have forecasted is real and it’s good. 2009 at this point is a little bit too early to tell, but there is... as far as our apparel is concerned, we probably have at this point less than about 6% of our apparel comes from China. So, we are fairly diversified throughout the world and the group will continue to look for other areas outside of the main hub of China to be able to source. So we think we're pretty well positioned in terms of our sourcing. Central and South America has been a large sourcing base for us. I think about 20% Central and South America, Mexico has been about 15%. So, that's how we see it at least 2008 would be too early to call right now.

Jeff Klinefelter - Piper Jaffray

Okay. So, at this point your product itself and your labor contracts or manufacturing contracts are all locked in for the balance of '08?

Wayne A. Marino - Chief Operating Officer

That's correct.

Jeff Klinefelter - Piper Jaffray

Okay. And then just one other question on your Women's product, I understand you're having great success this year with that in terms of the growth rates, and is there anything in particular you can point to, I know you pointed out a couple of key categories, but anything else in terms of feedback from retail, changes you've made in the styling of the product, the color of the product, or any sort of flow initiatives that they're pointing to by saying, this is really helping us, helped you grow that category, that would point to that accelerating or continuing to the balance of the year?

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Hi, Jeff, this is Kevin. Yes, I think, probably more than anything, it's just the fact that we've been doing it for a period of time now. The [inaudible] that we probably began in the Women's business with four or five years ago of shrink it and pink it, it's something that we significantly evolved into being a legitimate Women's brand. I think that's coming to light with the, I think, the pallet that you see on the floor. In fact, the... that consumer, she's always been there for us, she's just been walking over to our pat and say, give me a reason to buy. And I think, when you look at the assortments that we have out on the floor right now, and in our Q1, which I'll see really throughout 2008, and especially with the addition of Suzanne Karkus, who is now on board heading up our apparel group as a whole, I think you are only going to see that get better. So, we were out I think from account business in the past week, and the excitement on the floor is something that they'll certainly give us that ahead that says looks like you guys are falling short to figure it out. So, I think we're pretty proud and this isn't a one-quarter wonder.

Jeff Klinefelter - Piper Jaffray

Okay, thank you.

Operator

We'll take our next question from Omar Saad with Credit Suisse.

Omar Saad - Credit Suisse

Thanks, good morning.

Brad Dickerson - Chief Financial Officer

Good morning.

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Good morning, Omar.

Omar Saad - Credit Suisse

Can I ask two quick housekeeping questions? One, how much of the Performance Trainer shoe shipments got pulled forward from 2Q to 1Q and then, could you give the inventory breakout, the core versus seasonal that you usually give?

Brad Dickerson - Chief Financial Officer

Hi Omar, it's Brad. As far as the Performance Trainer that we shipped in Q1, if you recall, we said we do about a million pairs in 2008, the Performance Trainers, and the amount that shipped in Q1 was a little bit less than 10% of that.

Omar Saad - Credit Suisse

Okay.

Brad Dickerson - Chief Financial Officer

And secondly, sorry, what was the second question, again?

Omar Saad - Credit Suisse

The inventory breakout, kind of core versus seasonal, is a kind of a metric you guys have been giving the last couple of quarters.

Brad Dickerson - Chief Financial Officer

Yes, pretty much... it's pretty consistent with previous quarters.

Omar Saad - Credit Suisse

Okay. On the marketing spend, you guys actually spend a little bit less than I had expected in the first quarter. But you're still looking for that high end of 12% to 13% for the full year. Can you talk about... there is still kind of a 60-40 first half, second half and what's the strategy there behind the Performance Trainer launch? Should we expect more coming in the coming week [inaudible] stores? And how do you think about, if you have any launches planned for early next year, how do you ensure you got enough investment to support those launches later on this year?

Wayne A. Marino - Chief Operating Officer

Well, I’ll start off. This is Wayne. Just some clarity around the timing of the marketing spend, if you look in more out of 50-50 first-half, second-half and how we spend those dollars. In terms of how we'll apply those dollars in the launch, I mean, I’ll let Kevin take you through the Performance Trainer and how we're going to talk that story through from early in the year until now.

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Omar, so, which you saw was a fairly kick-off a yearlong campaign that began with super bowling, right? And that wasn't something that’s not to be, this is the campaign summed up in 60 seconds as much as, you are starting to see that penetrate through. I mentioned in my script how we started with the Under Armour High School All-American Game, then with the Under Armour Senior Bowl. Now I mean, probably one of the needless things we are doing with this in 15 cities Under Armour combine tour, which is basically we go to... and we're done about five of them so far. But we pull our presence two weeks ago, I was down in done in Dallas at our Dallas combine. We're at the Dallas Cowboys Training Facility in Irvine, Texas. We had a little more than 200 athletes that were at this facility. Two out of the… invite only the top 2 to 300 high school kids in the area. And we [inaudible] pair of socks and what we bring is really the theater to this event. And we are timing at the same way that the college gets through and the pros due to this combine, and we can pull up, we got a 40-foot Buck's wrapping graphics, we got 18 wheelers at our wrapping graphics and really the only thing that since inside of these 18 wheelers they are basically empty. But it's a bump creating the theater that happens in and around these events. So what we do is, I think that's been something really exciting, more importantly we’re getting our products on these kids for getting the shoes on Kids Ski. The next thing we're doing is that probably is obviously until launch this weekend. Like I mentioned, we are actually were out at stores and all these things happening throughout really the first half of the year. Our positioning ourselves think to tell a great story, which is at Stop Training in Running Shoes. Another thing I've seen that we're doing is not only, in addition to our own money, as we're also partnering with some of our accounts. One of the things we have it on TV right now is a co-branded spot with sporting goods, promoting against the launch, see that through... not only what we're doing in the front half of the year but you also see more of that type of co-branded marketing that will take place in the back half of the year. So really in addition to the dollars we spend which... it's Wayne and the Brad's point, we see, stay consistent with that 12% to 13% and it will be much more balance to that 50-50 type of balance front half, back half. We find ways I think that we will be able to bolster not only the training launch, and again we've got a launch factory, we got a next iteration coming out in July and then we got Generation II product that will be launched in November this year. So all of those we feel good about having the right amount of dollars reserved in and ready to launch and tell great stories around that product.

Omar Saad - Credit Suisse

Okay. In terms of kind of moving from a 60-40 target to more a 50-50 target, is there... is that... what drove that kind of slight shift in the allocation there? Are there launches we should be thinking about for the beginning of next year or is it just looking at a more even way to lay out the communications with consumers?

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Let me drive home the point is that again the way that we are going to define success in Training Footwear is our position at year-end to enter additional categories. So I think that the opportunity is there for us to enter additional categories, but we're going to do a lot more after Saturday. And in order to be clear, as we think about sort of success and to find that, I'd say that, Click Clack was probably one of the most successful campaigns in the last five or ten years. And it wasn't something that surprise for me, the opening Saturday that we launched the product. It’s up four, six, and eight weeks for us really to get a handle, and for the consumer to buy into the program. Yes, I just want to make sure that sort of sets people's expectations of what... how we're defining success is that it's really going to be into June, and really the first part of July before we say, hey, how did we do? And as we're come back with the next generations of products, again that will position us in... yes, I think there are some other big categories that are out there. And if we do things right, and as we say are focus right now, is making sure trainings successful. But without question, those larger categories are running in basketball, they are out there, and it's a matter of our brand being ready, and most importantly the product being ready.

Omar Saad - Credit Suisse

Okay. Thank you.

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Thanks a lot, Omar.

Operator

We'll go next to Dan Wewer with Raymond James.

Dan Wewer - Raymond James

Good morning. A question on footwear, to start off on the Cleats, if during the first quarter, you shipped a little bit less than 100,000 units of Performance Trainers, would that imply that Cleat sales were essentially flat year-over-year?

Wayne A. Marino - Chief Operating Officer

Yes, this is Wayne. One of the things that we start off with is in the Cleat business out at retail, we are very, very happy with how we are performing. Football Cleats, 24%, 25% market share, baseball Cleats, 14% to 15% market share. One of the things we did after the initial launch is that as a wholesaler we ship or we believe is a little too many, too much product into the market. And as a result, we had to let the market wind down with that product to our customers. Hasn't changed our position in the market as number two, and we're very happy where our position is. However, to be prudent and not put too much products in the marketplace, we've certainly have been tampering down those shipments and that's what you're seeing in Q1 as far as our Cleated footwear. But, I want to really remind you that the success we've had at retail specifically in the Youth shoes have been very good, and our market share is consistent year-over-year.

Dan Wewer - Raymond James

And Wayne, I believe that this year, you are due for new model and football cleats. Is that correct?

Wayne A. Marino - Chief Operating Officer

Yes, what we typically would do was we'd run our Cleats for two years, we’d have two year styles, and so we'll introduce new models and that's the way we will keep fresh, and then the good news with that is if you have a two-year style and you put it out as an opportunity to have those sales run more than just one season.

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

But the molds for those shoes for the most part... and then that's what the cost is, and you can still spin new offers. So, for instance, one of our most profitable shoes on the kids side is a product we call the Hammer. And reason the same outsource or the same malls we'd continue to amortize those malls, as well as the spinning new offers that have given us a fresh look for kids and they come back at retail.

Dan Wewer - Raymond James

Okay, Kevin, I guess, just one of the questions I had regarding the Performance Trainer and thinking about the performance of the football Cleats and the baseball Cleats is that when we think that Under Armour would have stronger competitive advantages with on the field Cleats than off the field Cleats. So what do you do differently and how you allocate Performance Trainers so that we don't see this drop-off in unit growth like we had Cleats in the last couple of periods?

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Well, I think it starts with us beginning with a fixed and an allocated number of units. We've been pretty disciplined about that. I think, our answers have been pretty consistent, as well as to the approach we have to take the amount of product we're going to put in the market. More importantly, though, you can sell a football Cleat to a football player. You can't sell it to somebody, the new supplier or one supplier, it's... and most of you will have one pair, it's just in the classic. We believe that not only is AR athlete training in a different way, but more importantly, the reason that this campaign has moved to this concept of stop training in running shoes, we believe that there is a lot of people out there that are looking for frankly a brand like Under Armour could tell them how to train. Again the scenario we use is walk into a gym, you know if there is ten people and then count the number of people that are training in running shoes. And I, then I challenge them and say if it's 16-year old kid, and how many of them are doing in just linear motion like an elliptical machine or a treadmill. These kids are training today, so I decided lateral mobility. And that idea calls for a different type of shoe and so, the fact that nobody knows what a training shoes is, today six-year old has no idea of what cross training even was or was it a category. Again it has been relegated to that, 45-year old who spend a $50 at Kohl’s on a basic training shoe. So I think our ability to redefine that space and redefine that category for today's athlete is some that, again, this is only a launching point for us that we think, A, it provides credibility to the marketplace and shows that we can sell products and non-Cleated product to the consumer. But like I said it also positions us to head into additional categories as we move forward.

Dan Wewer - Raymond James

Okay. Kevin just the last question I had for you. You had noted that you're visiting with a lot of your customers in the last few weeks. What are you learning about the retailer’s response to the weakening economy as what they're doing with purchase orders and request for return privileges?

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Well, first of all, it’s, let me reiterate that there is no question, there is, we are in a different economic environment, particularly for the Under Armour brand where 96% of what we are doing is here in the U.S. Yet even with that the type of headwind we are able to click 27% growth on the board. We are very proud of that because if you look at 2008, our approach is we want to make sure that we are dealing with all of our operational issues. And that's why I think you've seen some of the adjustments that have been made around inventory and are being more aggressive in 2008 as well. So 2008 will be a long year, but more importantly we think that we're going to get through a jiff fine and being able to reiterate that fact that we are a growth company. Under Armour is little unique. We've got a lot of different levers for growth. And you're going to see that a) what we put up in Q1, and you're going to see that again, what we put up in Q2. As we reiterate that 26% to 28% growth and that the value and the importance that Performance Training is going to play to our growth story. And that means us pretty unique. Our retailers, they have made adjustments throughout the first quarter, but frankly we think that we’ve seen all the adjustments throughout the full year. The environment out there is not getting easier, but we're not necessarily seeing it getting any more difficult either so, the thing that probably gives us greatest strength is, A, when you’re out in the stores, and you're talking about consumers, you're watching shop and buy, when we're hearing that the excitement that's building up there for our training program, and frankly I think that that will be a real asset to the sporting goods channel as well as that remember we've got, this launch is excluded to the sporting goods channel. And it's going to give a real point of differentiation of hopefully helping to drive additional foot traffic in their stores as well. And then you know again, the one thing, I think we sort of glaze over was our own Direct-to-Consumer business, which as a total was up nearly 77% for us, our web business alone up 57%, our consumers looking and shopping for our brands. It's not to say that we are excluded from these times, but we're doing a heck of a lot, I think we are leading the charge when you look sort of the performance of Under Armour, again, and what's defined as pretty difficult market out there.

Dan Wewer - Raymond James

Okay, great. Thank you.

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Thanks very much, Dan.

Operator

We'll go next to Kate McShane with Citi.

Kate McShane - Citigroup

Hi, good morning.

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Hi, Kate.

Kate McShane - Citigroup

Not to beat a dead horse, but I'm just trying to better understand why you're products through your outlet store, lower prices, did retailer shift back products to you during the quarter or have you seen a cancellation in orders or was it… is it just a matter of having [inaudible] on the books this year?

Wayne A. Marino - Chief Operating Officer

Kate, this is Wayne. First, retailers definitely as Kevin said they are being cautious with how they manage their inventory. And they should. For us, what we've always had is our outlet store strategy has always been to move through our seasonal excess. And that hasn't changed. But the one thing in this environment today that we think is prudent is looking at our current and future seasonal excess is not to let that get backed up. We think it's smart to be able to move that seasonal excess through our outlets, and so what we've done this year is nothing different than the past except we've accelerated that through our outlet stores. Again, we are taking into account the current environment, the fact that our retailers manage their inventories a little bit tighter this year and we're looking at a channel that protects our brand, operates at a profit, and has a higher overall margin than our business. So it is the strategy for us not to hold that seasonal excess for a long amount of time and that's the driver behind it. I think the other point is that in last call and I've talked about our strategy around core. That strategy has not changed. Our core inventory, which we sell through at full price in our retail stores, that strategy has been to reduce safety stock, and we've been successful at reducing that safety stock for our HeatGear and in a few months we’ll be successful in reducing that safety stock around our Cold Weather Gear and the result of that core inventory strategy is really going to be impacted in the third and fourth quarter as Brad elaborated on in our inventory levels.

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

But again, Kate, this is Kevin. You're not going to find sort of a… we've build these franchise businesses, we’ll have real house businesses here like our $25 HeatGear T-shirt or $50 Cold Gear mark. But now you are not going to find those basic products in white, black and navy blue, markdown either in our own retail stores or frankly anywhere. These are consistent really staples to our product line there. Frankly, we just... we have a lot of it, and so we don't... we're doing in the outlets since we are moving through more of that seasonal product and you're not finding additional of those core basics. We're just... we're not making as much frankly, which is, it’s a little bit tighter on some of our manufacturers, but that's what partnership is all about. So we see again, using 2008 to put ourselves back in line and heading into 2009 as we come out of this thing, we think we're going to be really positioned well and for strength.

Kate McShane - Citigroup

Okay. Going to some of your comments about Europe, you said in the past that Europe is going to contribute more significantly true business in 2009. Are you still expecting that and how does the macro environment change this perspective and then finally, can you give us a little bit more detail behind what happens to one of your accounts in the UK that you had mentioned in your comments?

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Yes, Kate, let me just start off, and then again when we reiterate what our strategy in Europe is and it's in three parts. Number one, still the right team of people, we've got Peter Mahrer in place, and again, Peter just joined our company in July. So, as he sits here, eight, nine, ten months into his tenure, we feel really good about the future for the brand. The second thing is building our [inaudible] on field, the signings in Germany of Hannover 96 and the World's Rugby Union, I mean these are big deals, I don't think we're giving enough really credit to of just the fact that our brand is accepted. These more deals that we are done because we wrote the biggest check. These were deals that were built on relationship and really what we can bring, our brand can bring to these sports assets. And then the third piece is the appropriate distribution. Now 2008 for us in Europe, I don't know if there is much headwind that we are feeling we got a macroeconomic standpoint coming from UK although... or Europe in general, although it's been just primarily a pretty difficult retail environment on any front. At the same time, we've got to this thing as we said, we've expanded our door count stores to nearly 1,700 doors now. So, we're in the places that we want to be, and I think what you'll see is that as we continue to evolve our merchandising mix as it continues to continue to evolve our European sizing. The most challenging thing for me and I was in... I went and did some market visits with Peter, and we're actually in St. Louis [ph], France and we went to a golf sport. We went about 20 of their doors, I think they got about a 130 or 140 stores total. And we are testing in about 20 of their stores, and just talking of the store manager there, there is four or five brands that are showing performance of technical products, and frankly, we don't spend a lot of money in France, we don't have the assets there. But with the second selling performance brand in that market, and literally is one and two and then there is nobody else, and we just, we haven't really gotten it right yet. And what I can tell you, and I guess that's why a sort of the message that I brought and as we think about our growth is the places that we haven't been as much as the places that we are and then what we're doing now. And then as we apply focus and really get our arms around Europe and particularly those markets of France, Germany, and the UK, I think we feel really good about the acceptance of the Under Armour brand, and really what that can mean for us going forward.

Wayne A. Marino - Chief Operating Officer

Kate, this is Wayne. Just jump in, we're not going to talk about a specific customer, but the one thing in… with Europe is we have to be patient and it's in the early stages and we're going to have quarterly fluctuations, but some of the good news for us is even having that quarterly fluctuation relating to one customer in the UK. When we signed the two teams that we did this year, we noticed a substantial pickup in revenue that makes up for that change in the UK in Q1. So, there is going to be movement either way, but I think the one thing I want get it to take away is that Europe is an investment for us, we have to be patient with it. It'll be an investment for 2009, but the foundation is right where we wanted to be, and each and every year, we should start to see good strong growth coming from Europe.

Kate McShane - Citigroup

Okay, thank you.

Wayne A. Marino - Chief Operating Officer

You're welcome.

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Thanks, Kate.

Operator

We'll take our next question from Jeffrey Edelman with UBS.

Jeffrey Edelman - UBS

Thank you. Good morning. Getting back to the gloves, just one question. If we think about the markdown or the reserves you’ve took in the first quarter and then if we look at the volume of accessories done, first quarter, second quarter, it seems like an unusually large reserve for the amount of volume. Am I correct or am I missing something here?

Brad Dickerson - Chief Financial Officer

Jeff, this is Brad. No, you're right. What we did is, we took a look at the whole year basically and not just the first quarter or second quarter. So, we are looking out over the whole year and the excess of inventory that we have over what we projected is for sales for the year.

Jeffrey Edelman - UBS

Okay. So, it was all and above gloves then?

Brad Dickerson - Chief Financial Officer

There were some other smaller ones, most of the gloves are the primary driver. But again, when we look at our excess inventory, we look out 365 days, not just the current quarter or the next quarter.

Jeffrey Edelman - UBS

Okay.

Brad Dickerson - Chief Financial Officer

When we look at gloves, there is excess inventory and excess of what we project for sales would be for 365 days.

Jeffrey Edelman - UBS

Okay, fine. Secondly, did it... are you maintaining your first half guidance of $0.03 to $0.05?

Wayne A. Marino - Chief Operating Officer

Jeff, this is Wayne. We feel good about $0.06 in the first half of the year, and we're certainly maintaining that top line 26% to 28%.

Jeffrey Edelman - UBS

So, this is the first half?

Wayne A. Marino - Chief Operating Officer

Based on our visibility today.

Jeffrey Edelman - UBS

Okay. And then finally, of the 1 million shoes you expect to ship this year, how much of that will be in the second quarter, and what do we look at for the back half?

Wayne A. Marino - Chief Operating Officer

Jeff, it's Wayne. The way we have it set right now, we have a delivery in May, and another delivery toward the end of June. So, it'd be about 60% of the full-year would chip in Q2.

Jeffrey Edelman - UBS

Okay. Great, thank you.

Wayne A. Marino - Chief Operating Officer

Okay.

Operator

We'll take our next question from John Shanley with Susquehanna.

John Shanley - Susquehanna

Thank you and good morning.

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Good morning, John.

John Shanley - Susquehanna

Kevin, I wondered if you could talk the all investments that you made in the team deals in Europe, can you securely grow your European business without being in the actual footwear... football, footwear business in that market?

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

I think first of all it’s really regionally driven and that's the way that you will see it sign our assets. For instance, we are not in a certainly back loading our teams in one particular area and that's why ideally we are looking for an asset that we could have in Germany and ideally an asset that we could have in the UK in the greater region there. So we thought those two teams were appropriate. There is also, there is a revenue economic model that plays on the other side. We've been in Europe now for four, nearly five years of selling sports marketing people over there. We set up our office little more than two and half years ago, we just put a new president on the ground there in the last... I guess, say, seven, eight, nine months. And we feel that the traction is there, it's just a matter of timing. Now as much as we've been doing basically the grass roots the same way that we did here in the United States, not giving as a team, but selling as a team, selling it to athletes and building up this credibility. That's taken place, but with a different environment that we’ve walked in to than we did in the U.S. where we, it was our idea, we were the originators and other people have gotten into the concepts of performance. Now the idea of authenticity that leads through so and so when people are given a choice, we win, but we need to tell them that story. And so the easiest way for us to do that is that in Germany we're able to say, who's on there, I have never heard of before and you say, if you heard of the Hannover 96 football club, we make their uniforms. And the same thing with World's Rugby union, that sort of exposure, and so I think it's... what we're looking for is, it's not only assets that can be relevant on a local basis in Europe, but also like well, it’s not, that's really a global deal for us, that will give us great exposure through things like the six nations in rugby and really position us. But yes, I do put a lot of weight on what the value of football or soccer and rugby and cricket, we mean to these different regions that will attack over the next several years.

John Shanley - Susquehanna

So, you eventually have a football footwear in lining in Europe. Is that your game plan?

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Like I said, we're going to judge training successfully by how we are positioned to enter the categories. So the thing is... the most three most important words in life or business training or anything else, I believe our point of view. I tied it back to every... our brand of story with beginnings, middles, and ends and every product that we build like a chapter in the book. And these chapter needs to make sense the one before and the one after. The way that we are approaching are our product entry strategy whether here in the US or frankly any international country. It's making sure that we are relevant, making sure that have a point of view. Yes, to answer your question, I do believe that we have an opportunity to build a better football boot for the European consumer, frankly for the American soccer consumer as well. But again our timing for that is dictated at the point in which we are ready with unbelievable product that has a unique point of view in differentiation towards currently out there in the marketplace. So that will all come, I believe in good time, John, but the right we're testing in product and brand will allow us to be [inaudible].

John Shanley - Susquehanna

Okay. Fair enough. Turning to the US market, the same basic question, what additional performance footwear products that you envision in launching in 2009. I think Wayne mentioned that the worsened products coming into the marketplace, can you give us any insight of the same that what they may be?

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

I don't know what Wayne was talking about, but I think again we are pretty focused on 2008 making sure that training is successful. When you think about this launch, we've got 5371, so May 3rd, July 1st, and November 1st are the three iterations sort of Gen I product, Gen I color up, and then Generation II Under Armour training shoes that will be in the market. And we will be coming back in 2009 again. Look, we really believe that we don't like just pushing water uphill, we believe there is a real opportunity with training. And we believe there is a way to get people to stop training in running shoes. And technique for today's athlete, so there is a need for this product out there. But as we do that, we believe there is also other legs of sort of a training component. Our athlete does more than just lateral stability in a gym. They do run the linear motion, so we think that in time and again given the fact that our brand is ready and most importantly that the product is ready, we'll be able to enter additional categories, specifically we think that running could potentially be a profitability, and that basketball potentially be a possibility, but we haven't made any claims or set any definitive data to when exactly that would happen, John.

John Shanley - Susquehanna

Fair enough. Thank you very much.

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Yes, Thanks very much.

Alex Miyamoto - Director of Investor Relations

Operator, we have time for one more question.

Operator

And we will take our last question from Paul Swinand with Stephens Inc.

Paul Swinand - Stephens Inc.

Good morning. I had question on your direct business. You said it was up 77%, a way above 50%. Can you give us a little more color on the drivers there and breaking out the retail dollars? And could you also in that comment say how much of the footwear you're selling direct of the total buy?

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Yes. Hi Paul, this is Kevin. So, first of all, let me start with not a great percentage of it is... is actually what things sold directly just a) we're not offering the footwear in our outlook channel, which again we have 18 outlets today. We only have the one full price store in Annapolis. So let me come back to the first question. There is three ways to think about our Direct-to-Consumer business. There is three parts to it. The first is our full price retail, second is our Web, and third is our outlet channel. Our full price retail, again the strategy there is that we believe that we are under penetrated at retail. We believe there is consumer out there who is looking and shopping for Under Armour, in fact they don't have an opportunity to do that in some of the A malls and other properties. Our strategy as to where we want to attack and where we want to play stores, first and foremost, it's not to cannibalize our existing businesses. It's not to cannibalize our existing retail partners, and that's why we continue to reiterate the fact that this is a test. And it will be so for the next two to three years for us to understand. Wayne mentioned in his script as well how we've committed the two additional locations this year. And hopefully we're going to learn from that. Right, again the places that frankly the Under Armour brand cannot be bought in specifically, Tysons Mall is an example I use. You can't buy Under Armour in Tyson's... Tyson's corner, Tyson's I or Tyson's II, now there is one or two retailers that may be carrying a few things, I think like a lid that may be carrying some hats of Under Armours. But for the most part, you can’t find, you can’t buy our brand. We believe there are competition on the other hand. There is multiple distribution points, ten, twelve places you can buy their brand. And you can think about all that opportunity that we are walking. So, a) most importantly, the ability for us to be strategic is what we want to learn. The second component is our web. Our consumer, we find more and more is young, in fact the information that we gather online really backs this fact up is that our consumer is young, they're growing up technical, and they shop online. And they want it... more importantly they don't shop online, a lot of time they're just exploring online. They're finding out what do they want to buy. And so being, I think, really a thought leader on the Web business is very much important to us. The third component is that outlook strategy as I mentioned, we have 17 outlet doors at the end of 2007. We've opened our 18th one and again we're going to open more in the back half of this year, adding a total of nine for 2008. So, we feel good about what that business is going to mean. Again, the idea there is we do not cut for that outlet business, right? There is something we simply consume our own seasonal product. Again you're not going to see any of our core basics or core business products in that channel distribution either.

Paul Swinand - Stephens Inc.

Okay. Thank you.

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

Thank you very much.

Operator

And that does conclude the question-and-answer session today. At this time, I'd like to turn the call back to Mr. Kevin Plank for any additional or closing remarks.

Kevin A. Plank - President, Chief Executive Officer and Chairman of the Board

I just want to remind all of you to hopefully go out this Saturday and many of our retailers are opening up at 8 AM this Saturday as well, and be sure to pick up your $80, $90, or $100 of incredibly valued priced Under Armor performance training shoes. So, I look forward to see all you great athletes training in a new way. Thanks very much.

Operator

And, once again, that does conclude today's call. We do appreciate your participation. You may disconnect at this time.

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Source: Under Armour, Inc. Q1 2008 Earnings Call Transcript

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