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Under Armour Sales and Earnings Soar By Double Digits in Q4, Fiscal 2015

Under Armour, Inc. (UA) announced financial results for the fourth quarter and fiscal year ended Dec. 31, 2015. Quarterly sales and earnings results beat Wall Street estimates, as did current fiscal year sales guidance, sending the stock up 22.6% on the day to close at over $84.

In the fourth quarter, net revenues increased 31 percent (33 percent on a currency neutral basis) to $1.17 billion from $895 million in the prior year’s period.

Apparel sales increased 22 percent to $865 million, led by growth in training, running, golf and basketball. Footwear sales almost doubled to $167 million from $86 million in the prior year period, primarily reflecting the success of the Curry signature basketball line and expanded running offerings.  Accessories revenues increased 23 percent to $97 million from $79 million in the prior year’s period, driven primarily by new introductions across the bags category. Direct-to-Consumer sales, which represented 36 percent of total revenue in the quarter, grew 25 percent year-over-year. International net revenues, which represented 12 percent of total net revenues for the quarter, grew 70 percent year-over-year (85 percent on a currency neutral basis).

The company ended the quarter with 191 owned retail locations including 161 factory and 30 brand house stores.

Gross margin for the fourth quarter of 2015 fell by 190 basis points to 48 percent from 49.9% in the prior year period, primarily reflecting negative impacts of sales mix, specifically from strong footwear growth and of the continued strength of the U.S. dollar. SG&A expense decline to 32.8% of revenue in the fourth quarter of 2015 from 33.6% in the prior year period, primarily reflecting the planned timing of marketing expenses and lower incentive compensation expenses.

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Net income increased 21 percent in the fourth quarter of 2015 to $106 million compared with $88 million in the prior year’s period and diluted earnings per share for the fourth quarter of 2015 were $0.48 compared with $0.40 per share in the prior year’s period.

Chairman and CEO Kevin Plank said, “Our core business remains incredibly strong and our 31 percent net revenue growth in the fourth quarter is clear evidence of the continued expansion in the breadth and depth of our Brand. We delivered our 25th consecutive quarter of more than 20 percent net revenues growth in our largest product category of apparel. Moreover, we continued to diversify our product offering and geographic reach, driving significant market share gains in key strategic areas like basketball footwear, while better meeting the needs of the global athlete.”

For the full year 2015, net revenues increased 28% to $3.96 billion from $3.08 billion in 2014, and beating the company’s prior outlook of $3.91 billion.

Apparel net revenues increased 22 percent to $2.80 billion from $2.29 billion in 2014, led by growth in golf, running and team sports. Footwear net revenues increased 57 percent to $678 million during 2015 compared to $431 million in 2014, reflecting expanded offerings in running and basketball. Between 2014 and 2015, apparel’s share of total sales fell from 74.4% to 70.7% and footwear’s share increased from 14 percent to 17.1%. Accessories net revenues increased 26 percent to $347 million during 2015 compared to$275 million in 2014. Direct-to-consumer net revenues, which represented 30 percent of total net revenues for 2015, grew 27 percent over the prior year. International net revenues, which represented 11 percent of total net revenues for 2015, grew 69 percent year-over-year, or 84 percent on a currency neutral basis.

Gross margin for 2015 declined to 48.1% from 49 percent in the prior year, primarily reflecting the continued strength of the U.S. Dollar. SG&A expense in 2015 edged up slightly to 37.8% of revenue from 37.5% in 2014, primarily reflecting broad-based investments to support global growth initiatives.

Diluted earnings per share for 2015 increased 11 percent to $1.05 compared with $0.95 per share in the prior year, inclusive of a $0.10 dilutive impact of the Connected Fitness acquisitions.

The company expects 2016 net revenues of approximately $4.95 billion, representing growth of 25 percent over 2015.

Plank said “With our continued investments across people, systems, and digital, we are confident in our ability to build upon this tremendous momentum, reinforcing our belief that we are just getting started in becoming the next great global brand.”

The company said that its footwear business, driven by the outstanding success of the signature Curry basketball line, will deliver new iterations of signature product across premium price points and distribution throughout the year. It plans to double its  offerings priced above $100, which will include the launch of its first smart shoe the SpeedForm Gemini 2 RE, and of the SpeedForm Slingshot, which is made with a 3-D knitting process to deliver incredible fit and feel.

In apparel, the company will debut two new HeatGear apparel cooling technologies. One of them is Microthread, a new cooling technology comprised of an elastomeric thread that dries 30% faster and is 70% more breathable than similar Lycra-containing constructions. Under Armour is also launching a proprietary ColdGear insulation story called Reactor that combines warmth and breathability.

The company ended 2015 with nearly 160 million unique registered users across its Connected Fitness platform that logged nearly 8 billion foods and 2 billion activities during the year. At the recent Consumer Electronics Show, Under Armour unveiled the new UA Record, the digital dashboard app for health & fitness, and a suite of new products led by Under Armour HealthBox, the world’s first complete Connected Fitness system. These products work together to create the framework for all athletes to measure their health & fitness. The company hopes that with a more complete picture of its consumer, it can establish a data-driven “math house” that will provide information to make better decisions and build even better products.

Plank added, “In 2016 we celebrate our 20th year in business. That means the next generation entering the workforce doesn’t know a world where Under Armour didn’t exist. This generation doesn’t recognize us as the underdogs but as the always was. It means that we’re not a passing fad or a flavor of the month. The interlocking UA logo has become a globally recognized symbol for being aggressive, young and fearless. It means we’re a brand that resonates with athletes, all athletes. We will continue to thrive because we remain as humble and hungry as we were 20 years ago with plenty of room left to grow.”