Under Armour 2008 Annual Report Download - page 3

I’m proud to say that in 2008, we demonstrated the strength of the Under
Armour® Brand and the power of our growth platform, generating 20%
top line growth in the face of a challenging consumer environment. Our
core principles of innovation and performance drive our mission: To make
all athletes better. Sports will always be played, and athletes will always
compete. By focusing on our consumer and developing compelling
technical products, we believe we have created the brand equity critical
to expanding the reach of our Brand.
Better still, our growth platform remains intact - we are focused on capturing
existing opportunities in the U.S. for Men’s and Women’s apparel,
expanding our presence in the U.S. athletic footwear market, building our
direct-to-consumer channel, and developing our presence in overseas
markets. The current environment presents its own set of challenges, but
as a leadership team, we are focused on executing our long-term growth
strategy while driving profi tability.
Apparel was the largest contributor to our year-over-year dollar growth in
2008 with our Women’s business growing at the fastest rate. The core
strength of our Brand is its connection to the athlete who understands
the benefi ts of performance products. We are in the early stage of
introducing the Brand to a broader range of consumers and are striving
to capture future apparel opportunities through better merchandising and
analytics, fl oor space growth with existing retail partners, and targeting of
untapped distribution channels.
In just our third year in the athletic footwear business, we achieved a
key milestone with our entry into non-cleated footwear. Our Performance
Training Footwear launch brought life into the long dormant category of
cross-training and delivered excitement to the athletic footwear market.
Most importantly, the consumer voted for Under Armour® Performance
Trainers as we captured double-digit market share within our distribution.
This launch demonstrated to our consumers, our retailers, and our team
that we could be an infl uential player in athletic footwear. And in 2009,
we are capitalizing on that success with our launch into Running. The
Running category is the largest footwear market we have entered to-date,
and we are excited about our progress toward becoming a leading
athletic footwear brand.
Performance products speak to athletes across the world, and some
of the greatest evidence of how the Under Armour® Brand translates
overseas is found in Japan, which is the largest market for Under Armour®
products outside of the U.S. We have been in the Japanese marketplace
for a decade through our licensee, the Dome Corporation. In 2008, our
licensee saw accelerated demand for our products, and we believe we
are well-positioned for future growth. Meanwhile, in Europe, we plan to
leverage increased exposure from strategic sports marketing deals as
we continue to build our consumer base and introduce new product
categories in this market.
Sales in our direct-to-consumer channel, which includes our online
business, outlet stores, and four full price specialty stores, were up 56%
for the year. This channel continues to grow as a percentage of our overall
business as we leverage the Brand to create compelling online and
in-store shopping experiences.
In 2008, we shifted a greater portion of our operating expenses to the
fi rst half of the year largely in support of our Performance Training launch.
The slowdown in the consumer environment, most markedly towards the
end of the fourth quarter, impacted our profi tability as we were unable
to reduce expenses at a pace in-line with the slowdown in our revenues.
As a result, operating income decreased to $77 million in 2008 from
$86 million in 2007. We are disappointed with these results. However,
in the face of a heavy promotional retail environment, we made the
deliberate decision to protect our brand and pricing integrity. We believe
this was the right call for the long-term health of our business as our
brand strength positions us for growth in 2009 and beyond.
The slower consumer environment affords us the opportunity to examine
the operating structure we have developed over the past few years and
identify areas where we can execute more effi ciently, and frankly, more
profi tably. Critical to this effort are key additions made to the executive
team in 2008. We hired David McCreight as President, a leader who has
experience maximizing profi tability at multibillion dollar brands. We also
elevated Wayne Marino to be our Chief Operating Offi cer. David will focus
on the front-end of the business, prioritizing and aligning our key growth
drivers, and will work in tandem with Wayne, who will continue to lead
critical operational initiatives for the back-end of the business. With their
leadership, I am confi dent in our ability to deliver against our ambitious
long-term growth plans while also managing our near-term profi tability.
We are focused on the fi nancial strength of our company, and the balance
sheet in particular. We spent much of the last year executing on a number
of key inventory initiatives. The team made signifi cant progress, with
inventories at the end of 2008 increasing 10% year-over-year compared
with an increase of 105% at the end of 2007. Inventory continues to be of
critical focus in the organization, and going forward, we will aim for greater
inventory effi ciency. We are proud to report that we ended 2008 with
over $100 million in cash, and understanding the importance of capital
availability, we entered into a new credit facility in early 2009. The new
$200 million facility replaces our previous $100 million facility, increasing
our access to capital and strengthening our banking syndicate.
Looking ahead to the remainder of 2009, we understand the challenges
in the current environment, and we believe we are planning our business
with the appropriate degree of conservatism. We will strive for greater
discipline on cost management and seek out opportunities to operate
more effi ciently. From a revenue perspective, we believe we have many
signifi cant levers to pull to generate long-term growth -- new categories,
new distribution and new geographies. We will also continue to lay the
infrastructure and groundwork for our future growth, as we continue to
deliver on our brand promise to develop innovative performance products
for athletes. For our shareholders, we will focus on executing our growth
strategy and managing our business to deliver the greatest long-term
value. As we continue to evolve Under Armour® from a U.S. apparel brand
to a global athletic apparel and footwear brand, we thank our consumers,
retail partners, vendors, and, most importantly, our shareholders for their
continued commitment to the vision of our Brand.
LETTER TO SHAREHOLDERS
Kevin A. Plank
Chief Executive Offi cer and
Chairman of the Board of Directors
Under Armour, Inc.
To Our Shareholders:
SPORTS WILL ALWAYS BE PLAYED,
AND ATHLETES WILL ALWAYS COMPETE.
DIRECT-TO-CONSUMER CHANNEL SALES
WERE UP 56% FOR THE YEAR.
IN 2008, WE GENERATED 20% TOP LINE GROWTH.
Humble & Hungry,